Frank Meister is an Engagement Director with Treliant, with over 25 years in banking operations and compliance. For the past 14 years, he has worked on the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) and Sanctions Programs of large and mid-sized banks, building strong programs to withstand robust regulatory examinations. Frank’s broad…
On December 2, 2019, joint guidance was issued by the top U.S. bank regulators, the Financial Crimes Enforcement Network (FinCEN), and the Conference of State Bank Supervisors regarding the provision of financial services to customers engaged in hemp-related businesses.1 This anticipated guidance comes nearly a year after the Agriculture Improvement Act of 2018 (2018 Farm Bill) was signed into law, removing hemp as a Schedule I controlled substance under the Controlled Substances Act (CSA).
The guidance helps to clarify a number of Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance questions that resulted from the passage of the law. Primarily, financial institutions across the U.S. are no longer required to file a Suspicious Activity Report (SAR) on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. However, this doesn’t completely remove the risk of maintaining relationships with hemp-related businesses. Banks will still need to exercise caution and maintain satisfactory due diligence processes to ensure that hemp-related businesses remain compliant with their own regulations established by the 2018 Farm Bill.
For example, the line between what is considered “hemp” vs. “marijuana” can be tricky to identify, but is required by the interim final rule for the Establishment of a Domestic Hemp Production Program.2 The interim rule states that hemp producers must include procedures for testing THC concentration levels, and that cannabis with a THC level exceeding 0.3 percent is considered marijuana, which remains classified as a Schedule I controlled substance regulated by the Drug Enforcement Administration (DEA) under the CSA. If testing concludes that THC levels exceed acceptable levels, then the cannabis must be disposed of in accordance with CSA and DEA regulations, since such product is marijuana and not hemp. Therefore, it is important for financial institutions to design their customer due diligence procedure to provide assurance that hemp-related businesses meet these regulatory mandates.
The guidance provides additional considerations for BSA/AML compliance, such as providing reminders that banking hemp-related businesses is a risk-based business decision, and that in serving hemp-related businesses, financial institutions 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.
1 “Providing Financial Services to Customers Engaged in Hemp-Related Businesses,” Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, Office of the Comptroller of the Currency, Conference of State Bank Supervisors; https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20191203a1.pdf
2 “Establishment of a Domestic Hemp Production Program,” Department of Agriculture; https://www.ams.usda.gov/sites/default/files/media/AMS_SC_19_0042_IR.pdf