FinCEN Releases Guidance on Due Diligence Requirements for Hemp-Related Businesses
On June 29, 2020, FinCEN released guidance on the due diligence requirements under the Bank Secrecy Act/Anti-Money Laundering regulations (“BSA/AML”) that financial institutions should conduct for hemp-related businesses. This guidance is intended to clarify how financial institutions should conduct due diligence for hemp-related businesses to increase the availability of financial services for hemp-related businesses in compliance with federal law and the financial transparency of those businesses.
Just as a financial institution would do for every customer, the guidance provides that financial institutions should conduct customer due diligence (“CDD”) for hemp-related business by following their established customer identification programs and risk-based customer due diligence processes. These processes should be used to gain identifying information about hemp-related businesses, including the collection and verification of the identity of the business’s beneficial owners. Financial institutions should also establish appropriate risk-based procedures that will allow the financial institution to conduct ongoing customer due diligence.
In the course of its CDD, financial institutions should also collect documentation from hemp-related businesses. For example, to confirm a hemp grower’s compliance with the applicable licensing requirements, financial institutions may ask for either the hemp grower’s written attestation that he or she is validly licensed or a copy of the hemp grower’s license. For each customer, financial institutions must assess the level of risk posed by the customer to determine whether the financial institution might need additional information about the customer. Depending on the assessment, the financial institutions may request additional information from hemp-related business such as crop inspection or testing reports, licenses renewals, updated attestations, or correspondence with the state, tribal government, or USDA. The guidance emphasizes that financial institutions should ensure that they understand the nature and purpose of its customer’s relationships to develop a customer risk profile and accurately tailor their BSA/AML programs to the customer’s risk profile and file reports required under the BSA.
Additionally, the guidance clarifies that financial institutions are not required to file Suspicious Activity Reports (“SAR”) on customers solely because they grow or cultivate hemp. However, if during the normal course of business, the financial institution becomes aware of suspicious activity, then FinCEN expects the institution to follow standard SAR procedures and file a SAR. The guidance notes that if a hemp-related business commingles hemp-related business with marijuana-related activities, then the financial institution should follow FinCEN’s 2014 Marijuana Guidance. By contrast, if the hemp-related business keeps its hemp-related transactions separate from its marijuana-related transactions, then the 2014 Marijuana Guidance only applies to the marijuana-related part of the business.
Finally, the guidance provides that financial institutions must report currency transactions for hemp-related businesses the same way that they would for other customers.
DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.