On June 29, 2020, the Financial Crimes Enforcement Network (FinCEN) issued long-awaited guidance to assist financial institutions with navigating the customer due diligence (CDD) requirements for banking hemp-related customers.
The guidance, FIN-2020-G001, also identifies the type of information and documentation financial institutions can collect from hemp-related businesses to comply with BSA regulatory requirements.
FIN-2020-G001 also reiterates that financial institutions must conduct CDD for all customers, including hemp-related businesses.
Along with collecting information at the time of account opening based on the institution’s risk-based CDD process, it is recommended that for clients who are hemp growers, the financial institution confirm the grower’s compliance with state, tribal government or USDA licensing requirements, as applicable, by obtaining either a written attestation by the hemp grower that they are validly licensed or a copy of such license.
The extent to which a financial institution will collect additional information is dependent on the risk profile of the customer. Additional information may include crop inspection or testing reports, license renewals, updated attestations from the business or correspondence with the state, tribal government or USDA.
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.
FinCEN expects financial institutions to monitor the transactions of hemp-related businesses for signs of suspicious or unlawful activity, just as with other customers. The guidance lays out circumstances in which a suspicious activity report may be filed:
- 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 after a license revocation or inconsistently with applicable law.
Finally, the guidance lists the requirement for hemp-related businesses to file FinCEN Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if the business receives more than $10,000 in cash or other monetary instruments for the purchase of hemp-related goods or services.
This guidance will be a useful tool to present to your institution’s board as a means to communicate the due diligence requirements for these potentially higher-risk entities so the board can make an informed decision about whether to bank these entities.
Wipfli has the knowledge and expertise to help your financial institution navigate the complexities of all varieties of marijuana-related businesses, including hemp and recreational marijuana.
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