The Financial Crimes Enforcement Network (FinCEN) published guidance (Guidance) on customer due diligence requirements under the Bank Secrecy Act (BSA) for hemp-related customers on June 29. The Guidance, which recognizes hemp as defined under the Agriculture Improvement Act of 2018 (the 2018 Farm Bill), advises financial institutions on their BSA customer due diligence requirements for hemp customers. This Guidance supplements—but does not replace—the December 3, 2019 interagency statement on providing financial services to customers engaged in hemp-related businesses.
Notably, the Guidance allows financial institutions to confirm a hemp grower’s compliance with applicable legal requirements by obtaining an attestation from the grower that it is validly licensed, or by obtaining a copy of that license. Further due diligence above and beyond these core requirements may be needed, however, depending on the financial institution’s assessment of the level of risk posed by a particular hemp customer. Thus, financial institutions are expected to apply their risk-based customer due diligence policies and procedures to determine whether additional information about a particular hemp customer is required, and to obtain additional information as may be necessary, consistent with the risk profile of the customer.
In addition, the Guidance notes that financial institutions are not required to file a suspicious activity report (SAR) “solely because” a customer is engaged in the growth or cultivation of hemp in compliance with applicable laws and regulations. At the same time, a SAR could be triggered by one or more of these “red flags” associated with a hemp customer's business:
- A customer appears to be engaged in hemp production in a state or jurisdiction where hemp remains illegal
- A customer appears to be using a state-licensed hemp business as a front to launder money derived from other criminal activity or derived from marijuana-related activity that may not be permissible under applicable law
- A customer engaged in hemp production seeks to conceal or disguise its involvement in marijuana-related business activity
- A customer is unwilling or unable to provide sufficient information to demonstrate that it is duly licensed under applicable law
- A financial institution becomes aware that a customer’s license has been revoked or the customer is otherwise operating in a manner that is inconsistent with applicable law
Financial institutions are expected to follow standard SAR procedures and monitor the transactions of hemp-related businesses for signs of suspicious or unlawful activity, just as they must do with their other customers.
If the financial transactions of a hemp-related business are commingled with marijuana-related activities, however, a financial institution should apply FinCEN’s 2014 guidance on marijuana-related activities, which includes specific SAR filing requirements. The 2014 marijuana guidance, however, will apply only to the marijuana-related part of the business if the proceeds of the respective hemp and marijuana businesses are kept separate or can be separately identified. Further, financial institutions are expected to report currency transactions in connection with hemp-related businesses in the same manner that they would for any other customer.
The FinCEN Guidance is a logical outgrowth of the federal legalization of certain hemp-related businesses under the 2018 Farm Bill. Among other things, the Guidance will help facilitate the BSA due diligence process by allowing financial institutions to rely on certifications or attestations that a hemp grower is properly licensed under applicable law.
That said, the Guidance does not appear to allow financial institutions serving customers that are engaged in the distribution of hemp-related products to rely exclusively on that same information to fully meet their customer due diligence and reporting obligations.