On June 29, 2020 (“June Guidance”), the Financial Crimes Enforcement Network (FinCEN) issued additional guidance for financial institutions providing, or considering providing, financial services for hemp-related businesses. The June Guidance supplements the interagency statement issued on December 3, 2019, and provides clarity on what steps a financial institution can take to conduct due diligence on hemp-related businesses in order to comply with BSA requirements. The new guidance is detailed enough that FinCEN should easily accomplish its goal of making transparent financial services readily available to hemp-related businesses.
Specifically, FinCEN directed financial institutions to conduct customer due diligence (“CDD”) of hemp-related businesses in accordance with their current risk-based policies and procedures, including those that apply to ongoing account monitoring. Rather than mandate specific due diligence requirements, FinCEN said that the information sought by a financial institution should depend on the risk attributed to each type of customer after conducting an appropriate risk assessment. Nevertheless, FinCEN did provide several examples of types of information that may be gathered to help ensure that a financial institution knows its hemp-related business customers and that it can identify and report suspicious activity, including those red-flag activities outlined in the June Guidance.
Notably, the June Guidance, like the December interagency statement, distinguishes between marijuana-related businesses and hemp-related businesses, and the treatment of each for purposes of complying with BSA requirements. FinCEN reiterated that a financial institution should apply FinCEN’s 2014 Marijuana Guidance for marijuana-related businesses, as well as, for those customers that may comingle hemp-related business funds with marijuana-related business funds. However, if no commingling occurs, then the June Guidance should be applied to the hemp-related business transactions while the 2014 Marijuana Guidance would only apply to the marijuana-related activity. Accordingly, customers and financial institutions are well-advised to maintain separate accounts for hemp and marijuana-related business accounts.
Going forward, hemp-related businesses should be able to obtain cost-effective financial services more easily. Financial institutions now have the guidance they needed to understand how to comply with BSA/AML obligations while servicing an industry that has just been legalized, and they have the support of regulatory agencies to do so. Still, hemp is a highly regulated crop and as outlined in the NCUA’s recent guidance regarding servicing hemp-related businesses, there are several other legal requirements that should be considered before entering into this space. Burns & Levinson’s Cannabis Business & Law Advisory group is uniquely positioned to navigate the complex legal, financial, and business frameworks surrounding the hemp industry. Our team helps all covered financial institutions enter the cannabis industry with fully-compliant services, guiding and counseling clients on how to provide compliant financial services to cannabis and hemp-related business customers consistent with existing Bank Secrecy Act obligations and the 2014 FinCEN Guidance. We also assist on a wide spectrum of issues including conducting cannabis-related risk assessments, review and customization of operating policies and procedures, helping with vendor due diligence and contract negotiations, and more.