Agencies Issue Statement on SAR Filings Relating to Hemp Production
It has been almost a year since the 2018 Farm Bill removed hemp (as defined in the bill) as a Schedule I controlled substance under the Controlled Substances Act. However, many banks have been hesitant to provide banking services to customers engaged in hemp production due to heightened risks from a Bank Secrecy Act (BSA) compliance standpoint. On December 3, 2019, the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Federal Reserve Board, and Financial Crimes Enforcement Network (FinCEN) issued a joint interagency statement (Interagency Statement) in an attempt to provide some clarity in the area of filing suspicious activity reports with respect to customers engaged in hemp production.
The Interagency Statement states that “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.” It goes on to state, “for hemp-related customers banks are expected to follow standard SAR procedures, and file a SAR if indicia of suspicious activity warrants.”
Despite federal legalization under the Farm Bill, hemp-producing businesses will remain high risk from a BSA/AML (anti-money laundering) perspective and banks will need to utilize enhanced due diligence procedures when opening and monitoring accounts for such businesses. This heightened risk is a product of the complex regulatory scheme that governs the legal production and harvesting of hemp. The 2018 Farm Bill directed the United States Department of Agriculture (USDA), in consultation with the US Attorney General, to regulate hemp production, and further provided that hemp production shall be subject to a hemp production regulatory plan established by the USDA, the states and tribal governments. On Oct. 31, the USDA issued an interim final rule establishing the hemp production regulatory program to facilitate the legal production of hemp. Under the 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. The interim final rule also establishes a federal licensing plan for regulating hemp producers in states and tribal territories that do not have their own USDA-approved plans. It is also important to note that under the 2018 Farm Bill a state or tribal government may prohibit the production of hemp, even though it is legal under federal law.
There is also heightened risk due to the difference between federally legal hemp and federally illegal marijuana, which is based on the THC concentration (THC is the psychoactive component that gets the user high). The 2018 Farm Bill defines federally legal hemp as having a THC concentration of 0.3 or less.
While the Interagency Statement is a step in the right direction on providing banks with guidance in this emerging area, this remains a high-risk area for banks and additional guidance will likely be needed. The Interagency Statement states that FinCEN will issue additional guidance after further reviewing and evaluating the USDA’s interim final rule.