Federal banking regulators ease hemp reporting requirements

That was the key message to come from new interagency guidance issued Tuesday by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Financial Crimes Enforcement Network (FinCEN), and the Office of the Comptroller of the Currency in consultation with the Conference of State Bank Supervisors.

The guidance comes nearly a year after President Trump signed into law the Agriculture Improvement Act of 2018, known as the Farm Bill, which codified a process by which states can seek approval from the federal Department of Agriculture for hemp crops and selling hemp-derived products. The law also removed hemp from the Controlled Substances Act.

The guidance follows publication by the U.S. Department of Agriculture (USDA) of an interim final rule, issued Oct. 31, 2019, implementing relevant sections of the Farm Bill. Under that interim final rule, state departments of agriculture and tribal governments may submit plans for monitoring and regulating the domestic production of hemp to the USDA for approval. In the absence of a state or tribal regulatory plan, hemp producers will be subject to regulation directly by the USDA, unless the state or tribal government prohibits hemp production.

“Because hemp is no longer a Schedule I controlled substance under the Controlled Substances Act, banks 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,” the guidance states.

BSA/AML compliance obligations

The guidance makes clear, however, that “for hemp-related customers, banks are expected to follow standard SAR procedures and file a SAR if indicia of suspicious activity warrants.” It also clarifies banks must have a Bank Secrecy Act (BSA)/anti-money laundering (AML) compliance program, “commensurate with the level of complexity and risks involved.”

The guidance further clarifies that “when deciding to serve hemp-related businesses, banks must comply with applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting, and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers.”

In the context of marijuana-related businesses, banks should continue following FinCEN guidance, “BSA Expectations Regarding Marijuana-Related Businesses.”

Further guidance from FinCEN will be forthcoming after it reviews and evaluates the USDA interim final rule.

Unanswered questions

The guidance still leaves unanswered several vexing questions for compliance officers in the banking industry, however. According to law firm Debevoise & Plimpton, some of those questions include whether banks may serve the ingestible CBD industry; whether SAR filings are required for transactions involving ingestible CBD products or hemp producers that are not compliant with the relevant state or federal production regulations; and whether service providers to, or affiliates of, non-compliant hemp producers should be treated in the same manner as non-compliant producers themselves, including with respect to SAR filing obligations.

“The hemp guidance also is silent on specific steps banking institutions should take when onboarding customers in the hemp business, including the extent to which institutions are expected to test and monitor their customers’ compliance with a rapidly changing legal landscape,” the law firm stated. “Until supervisory expectations become clearer, banking institutions would be well-advised to consider carefully, and document, their approach to serving the hemp industry, while continuing to satisfy BSA/AML compliance obligations.”

The Conference of State Bank Supervisors (CSBS) has released a comprehensive guidance for examiners dealing with cannabis. It is frequently updated and includes the most recent information from the USDA regulations.