On Monday, June 29th, the Financial Crimes Enforcement Network (“FinCEN”) issued guidance to financial institutions, addressing Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) obligations and expectations that apply when providing services to hemp-related businesses. Although Monday’s guidance generally supplements and amplifies the December 3, 2019 interagency statement (which we described in a Client Update published late last year), we wanted to share the following notes and highlights:
FinCEN styled this guidance as “clarification” of earlier pronouncements “to enhance the availability of financial services for, and the financial transparency of, hemp-related business in compliance with federal law.” To our knowledge, this is the first time the agency identified an interest in expanding the hemp industry’s access to financial services.
The guidance emphasizes repeatedly that a risk-based approach should inform institutions’ diligence on hemp-related business, as with any other customer. To assess the risks posed by these businesses, FinCEN describes specific diligence measures that may be helpful.
FinCEN also discusses Suspicious Activity Report (“SAR”) filing obligations for hemp-related businesses, explaining that—per the December 2019 guidance—SARs are not necessary for all transactions involving such customers. Rather, institutions should monitor these customers for suspicious activity as they do others and file SARs if, among other scenarios, a customer engaged in hemp-related business:
- For example, in respect of customers that are hemp growers, financial institutions may wish to periodically confirm compliance with the relevant state, tribal or USDA licensing requirements by obtaining either: a written attestation by the customer that it remains validly licensed; or a copy of the customer’s license.
- Additional information that may be relevant to ongoing diligence, according to FinCEN, includes crop inspection or testing reports, license renewals, updated attestations from the business, or correspondence with the state, tribal government, or USDA.
The guidance further emphasizes that if financial transactions by a hemp-related business are comingled with marijuana-related activities, a financial institution should apply FinCEN’s 2014 Marijuana Guidance. However, if the proceeds of the businesses are kept separate, and exclusively hemp-related activities are identifiable, the 2014 Marijuana Guidance, including SAR filings, applies only to the marijuana-related component. (We note that FinCEN recently released 2Q statistics for depository institutions providing banking services to marijuana-related business, which you can find here.)
- Appears to be engaged in hemp production in a state or jurisdiction in which hemp production remains illegal;
- Appears to be using a state-licensed hemp business as a front or pretext to launder money derived from other criminal activity or derived from marijuana-related activity that may not be permitted under applicable law;
- Seeks to conceal or disguise involvement in marijuana-related business activity; or
- Is unable or unwilling to certify or provide sufficient information to demonstrate that it is duly licensed and operating consistent with applicable law, or the financial institution becomes aware that the customer continues to operate (i) after a license revocation, or (ii) inconsistently with applicable law.