By Hilary Bricken, Co-founder Harris Bricken
Last week, the Financial Crimes Enforcement Network (FinCEN), issued new guidance (the “FinCEN Guidance”) for financial institutions working with hemp-related businesses. The FinCEN Guidance centers on due diligence requirements as related to the Bank Secrecy Act (BSA). This guidance follows closely on the new National Credit Union Administration (NCUA) guidance for federally-chartered credit unions, which was issued on June 20 (see our take here).
The FinCEN Guidance is not the Network’s first bite at the apple. Last December, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, FinCEN and the Office of the Comptroller of the Currency, in consultation with the Conference of State Bank Supervisors, issued a three-page hemp banking statement. The purpose of that statement was to to help financial institutions deal with BSA and anti-money laundering (AML) compliance in light of the fact that hemp is no longer a Schedule I controlled substance under federal law. The FinCEN Guidance clarifies and expands upon the 2019 statement.
Under the 2019 hemp banking statement, the biggest win for financial institutions was probably the fact that no special or enhanced Suspicious Activity Report (“SAR”) filings are required for customers “. . . because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.” Essentially, banking regulators are saying that financial institutions should treat “hemp-related businesses” like any other business when it comes SAR filings (unlike state-licensed cannabis businesses, which have their own special SAR filing system under the 2014 guidelines). Further, the 2019 hemp banking statement sets forth that “When deciding to serve hemp-related businesses, banks must comply with applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers.” No surprises there.
Interestingly, the 2019 hemp banking statement, much like the recent NCUA guidance, did not address the legalities around financial institutions trying to bank hemp-CBD businesses. That’s probably purposeful given the Food and Drug Administration’s (“FDA”) current enforcement position around hemp-CBD and violations of the Food, Drug, and Cosmetic Act. Readers of this blog know that the 2018 Farm Bill does not take away the FDA’s ability to regulate hemp products, including hemp-CBD. The FinCEN Guidance follows suit on this issue. The FinCEN Guidance essentially defines “hemp-related business” to only mean “businesses or individuals that grow hemp, and processors and manufacturers who purchase hemp directly from such growers.” This means that the viability and legality of banking hemp-CBD businesses under federal law really remains murky at best.
So, what does the FinCEN Guidance say? Per FinCEN, “This guidance explains how financial institutions can conduct due diligence for hemp-related businesses, and identifies the type of information and documentation financial institutions can collect from hemp-related businesses to comply with BSA regulatory requirements.” Here are the main highlights to which financial institutions should pay attention when considering serving hemp-related businesses:
All in all, the new FinCEN Guidance is more comprehensive than the 2019 inter-agency hemp banking statement. For financial institutions, complying with these directives should be straightforward compared to the 2014 FinCEN guidelines for marijuana-related businesses. That doesn’t mean it’s going to be easy to bank hemp-related businesses, however. Hemp will always be subject to a broad overlay of state and federal regulations, which financial institutions must know and monitor. At least now they have some guidelines.
Re-published with the permission of Harris Bricken and The Canna Law Blog
Hilary Bricken is a partner with the law firm Husch Blackwell, where she advises clients in the cannabis, healthcare, and life sciences spaces on transactions, regulatory compliance, governance matters, and other corporate needs. Hilary may be reached at [email protected].
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