I. INTRODUCTION
The Financial Crimes Enforcement Network (FinCEN) has issued guidance to address questions related to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) regulatory requirements for hemp-related business customers. The 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. The guidance supplements the December 3, 2019, interagency statement on providing financial services to customers engaged in hemp-related businesses (December Hemp Statement). https://www.fincen.gov/sites/default/files/2019-12/Hemp%20Guidance%20%28Final%2012-3-19%29%20 FINAL.pdf .
This guidance provides financial institutions BSA/AML risk considerations only for hemp-related businesses (i.e., businesses or individuals that grow hemp, and processors and manufacturers who purchase hemp directly from such growers). This guidance does not replace or supersede FinCEN’s previous guidance on the BSA expectations regarding marijuana-related businesses (2014 Marijuana Guidance). https://www.fincen.gov/resources/statutes-regulations/guidance/bsa-expectations-regarding-marijuana-related-businesses
II. BACKGROUND
The Agriculture Improvement Act of 2018 (2018 Farm Bill) removed hemp from the definition of marijuana in the Controlled Substances Act (CSA) and directed the establishment of a regulatory framework for the legal production of hemp. The 2018 Farm Bill defines “hemp” as the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol (THC) concentration of not more than 0.3 percent on a dry weight basis.
On October 31, 2019, the U.S. Department of Agriculture (USDA) issued an interim final rule (Interim Final Rule) establishing the domestic hemp production regulatory program to facilitate the legal production of hemp, as set forth in the 2018 Farm Bill. Under the Interim Final Rule, state governments may submit plans to the USDA for approval to monitor and regulate the domestic production of hemp. The Nebraska plan to monitor and regulate the domestic production of hemp has been approved by the USDA.
III. BSA/AML PROGRAM EXPECTATIONS
Financial institutions must conduct customer due diligence (CDD) for all customers, including hemp-related businesses. Financial institutions should obtain basic identifying information about hemp-related businesses through the application of the financial institutions’ customer identification programs and risk-based CDD processes, including beneficial ownership collection and verification, as they would for all customers. Financial institutions must also establish appropriate risk-based procedures for conducting ongoing CDD.
For customers who are hemp growers, financial institutions may confirm the hemp grower’s compliance with state licensing requirements, as applicable, by either obtaining (1) a written attestation by the hemp grower that they are validly licensed, or (2) a copy of such license. The extent to which a financial institution will seek additional information beyond the steps outlined above will depend on the financial institution’s assessment of the level of risk posed by each customer. Additional information might include crop inspection or testing reports, license renewals, updated attestations from the business, or correspondence with the state. In order to identify the risks posed, financial institutions must understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and conduct ongoing monitoring to identify and report suspicious transactions, including, on a risk basis, to maintain and update customer information. As with any customer, FinCEN expects financial institutions to tailor their BSA/AML programs to reflect the risks associated with the customer’s particular risk profile and file reports required under the BSA.
IV. Suspicious Activity Reporting
Because hemp is no longer a Schedule I controlled substance under the CSA, financial institutions are not 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. For hemp-related business customers, financial institutions are expected to follow standard SAR procedures and file a SAR if the financial institution becomes aware, in the normal course of business, of suspicious activity. Such suspicious activity could include, among other things, the following:
• A customer appears to be engaged in hemp production in a state or jurisdiction in which hemp production remains illegal.
• A customer 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.
• A customer engaged in hemp production seeks to conceal or disguise involvement in marijuana-related business activity.
• The customer 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.
FinCEN expects financial institutions to monitor the transactions of hemp-related businesses for signs of suspicious or unlawful activity, just as with other customers. To the extent the financial transactions of a hemp-related business are comingled with marijuana-related activities, a financial institution should apply FinCEN’s 2014 Marijuana Guidance, which provides clarity on how to file SARs on marijuana-related activities. However, if the proceeds of the businesses are kept separate, or the customer and its financial institution are able to identify which proceeds are marijuana-related and which are hemp-related, then the 2014 Marijuana Guidance, including specific SAR filing, applies only to the marijuana-related part of the business.
V. Currency Transaction Reports and FinCEN Form 8300
Financial institutions must report currency transactions in connection with hemp-related businesses in the same manner they would for any other customers (i.e., report all currency transactions above $10,000 in aggregate on a single business day).