Legal Requirements for Hemp-Related Business Customers.
The Financial Crimes Enforcement Network (FinCEN) periodically provides guidance for hemp-related business customers (HRBC). We will also talk about FinCEN conduct towards HRBC as well as how FinCEN collects and gathers information in relation to both the Bank Secrecy Act and Anti-Money Laundering (BSA/AML) regulatory requirements.
First, we need to define a few institutions and definitions that will assist the reader to understand this article as it may apply to them or their clients, but is not intended to be legal advice and is time-sensitive with rapidly expanding regulations from FinCEN, BAS, and AML. Also, we explain 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 that intends to enhance the availability of financial services and transparency of HRBC for compliance with federal law as it relates to businesses or individuals that grow hemp, and processors and manufacturers who purchase hemp directly from such growers. Be aware that this recent guidance from FinCEN does not replace or supersede FinCEN’s previous guidance on the BSA expectations regarding marijuana-related businesses.
As you may know, the Agriculture Improvement Act of 2018 (the 2018 Farm Bill) removed hemp from the definition of marijuana in the Controlled Substances Act and “marihuana” refers to the currently used term “marijuana” and directed the establishment of a regulatory framework for the legal production of hemp.
The 2018 Farm FINCEN GUIDANCE 2 Bill defined “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. This also Bill defined “hemp” more broadly than the 2014 Farm Bill defined “industrial hemp,” thus eliminating any question that both the plants and products derived from the plants are legal, so long as the THC concentration does not exceed 0.3 percent on a dry weight basis. 2018 Farm Bill § 10113, codified at 7 U.S.C. § 1639o(1).
U.S. Food and Drug Administration:
Also within the aforementioned Bill is the definition of hemp as cannabidiol (CBD), a cannabinoid that is a compound extracted from the cannabis plant with a delta-9-THC concentration of not more than 0.3 percent on a dry weight basis. Subsequently, on October 31, 2019, the U.S. Department of Agriculture (USDA) issued an interim final rule (Interim Final Rule) established the domestic hemp production regulatory program to facilitate the legal production of hemp. The Bill preserved the authority of the U.S. Food and Drug Administration (FDA) to regulate products containing cannabis or cannabis-derived compounds, including hemp. Then, BSA/AML Program Expectations Financial institutions are to conduct customer due diligence (CDD) for all customers, including hemp-related businesses. Financial institutions will 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.
A new requirement in the Bill for financial institutions is the establishment of appropriate risk-based procedures for conducting ongoing CDD. Customers who are hemp growers; financial institutions will confirm the hemp grower’s compliance with state, tribal government, or the USDA 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.
(3) the extent to which a financial institution will seek additional information beyond the steps outlined above in(1) and (2) will depend on the financial institution’s assessment of the level of risk posed by each customer and if so may include:
- crop inspection or testing reports,
- license renewals,
- updated attestations from the business, or correspondence with the state, tribal government, or USDA.
Establish Beneficial Owners:
Financial institutions must undertake to understand the nature and purpose of their customer relationships to:
- allow their developing a customer risk profile,
- conduct ongoing monitoring to identify and
- report suspicious transactions, including, on a risk basis, to maintain and update customer information.
- An Exception is the Suspicious Activity Reporting since 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 as:
- 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 a 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.
- 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 license revocation, or (ii) inconsistently with applicable law.
Comingling Hemp with Marijuana-Related Sales:
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.
Currency Transactions Over $10,000.
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).
Similarly, any person or entity engaged in a non-financial trade or business would need to report on FinCEN Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business) transactions in which the person receives more than $10,000 in cash and other monetary instruments from a hemp-related business for the purchase of goods or services.
Hemp and Marijuana-Related businesses and banking relationships are complicated and going through a series of new legislative Bills that make compliance confusing while placing a person or the person’s business in jeopardy of civil and/or criminal examinations and the related serious financial and possible incarceration penalties. Our firm can assist your business with compliance matters, an upcoming examination, or audit proceedings at the civil or criminal level.
See 31 CFR § 1010.100(t) (defining “financial institutions”).
See FIN-2014-G001, “BSA Expectations Regarding Marijuana-Related Businesses,” Feb. 14, 2014, available at
. See Establishment of a Domestic Hemp Production Program, 84 Fed. Reg. 58522 (Oct. 31, 2019) (codified at 7
3. See Establishment of a Domestic Hemp Production Program, 84 Fed. Reg. 58522 (Oct. 31, 2019) (codified at 7 CFR § 990). Under the Interim Final Rule, state and tribal governments may submit plans to the USDA for approval to monitor and regulate the domestic production of hemp. The Interim Final Rule: (i) establishes a federal licensing plan for regulating hemp producers in states and tribal territories that do not have their own USDA-approved plans, and that do not prohibit hemp production; and (ii) includes requirements for maintaining information on the land where hemp is produced, testing hemp for THC levels, disposing of plants with more than 0.3 percent THC concentration, and licensing hemp producers.8 8. For additional details on USDA requirements, see “Hemp Production,” https://www.ams.usda.gov/rulesregulations/hemp (last visited June 25, 2020).