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Federal Bank Regulators Issue Guidance on Serving Hemp-Related Businesses

On Dec. 3, 2019, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of Currency (OCC) in conjunction with the Conference of State Bank Supervisors (CSBS) issued a joint statement entitled “Providing Financial Services to Customers Engaged in Hemp-Related Businesses.” Aside from summarizing the United States Department of Agriculture’s (USDA) recently published interim final rules for domestic hemp production, the statement attempts to clarify the legal status of hemp growth and production in light of the Bank Secrecy Act (BSA) and corresponding regulations. The following are key takeaways from the statement.

USDA Interim Final Rules for Domestic Hemp Production

Under the USDA’s interim final rules, authorized by and echoing the 2018 Farm Bill, hemp is no longer a controlled substance. Therefore, customers who engage in the growth and production of hemp under state hemp plans, and who will be growing or producing under the federal plan, will not trigger mandatory reporting by banks of suspicious activity. However, the statement encourages banks to issue Suspicious Activity Reports (SARs) for hemp-related customers who demonstrate suspicious activity independent of their involvement in an otherwise legal industry.

See additional guidance on the USDA’s interim final rules for domestic hemp production here.

Compliance Considerations

According to the publication, banks should maintain BSA and anti-money laundering compliance programs that are sufficiently adequate to evaluate a complex industry with anticipated risks. In doing so, they should continue exercising discretion when determining permissible services and accounts to offer customers involved in the hemp industry and otherwise. Specifically, banks should consider the following:

  • Applicable regulatory requirements for customer identification

  • Suspicious activity reporting

  • Currency transaction reporting

  • Risk-based customer due diligence (i.e. – collection of beneficial ownership information for legal entity customers)

Banks should also anticipate further guidance from FinCEN related to serving hemp-related businesses.

Distinguishing Treatment of Marijuana-Related Businesses

Finally, the statement distinguishes the authors’ recommendations pertaining to customers affiliated with hemp-related businesses and the recommended treatment of customers involved in marijuana growth, production and related businesses. Considering marijuana remains a controlled substance under the 2018 Farm Bill, banks should continue following 2014 FinCEN guidance outlining more stringent BSA expectations for banks engaging with marijuana-related businesses.

© 2020 Dinsmore & Shohl LLP. All rights reserved.National Law Review, Volume IX, Number 345


About this Author

Michael G. Dailey, Corporate Practice, Mergers, Acquisitions, Law Dinsmore

Mike Dailey combines his extensive legal experience with strategic business sense in order to help his clients navigate the many complex legal and business issues that challenge their organizations. Mike counsels clients within the public, private, and non-profit sectors in a variety of industries including banking, healthcare, manufacturing, consumer products, and various service industries. His corporate practice focuses primarily in the areas of mergers and acquisitions, corporate finance, capital raising (debt and equity), and bank regulatory compliance. He advises...

Jennifer K. Mason Partner Dinsmore Lewisburg Pittsburgh  Insurance Industry Natural Resources Industry Litigation Tort

Jennifer represents clients in construction, insurance, corporate and commercial litigation, and appellate matters in federal and state courts in West Virginia and Pennsylvania. Her experience in litigation includes construction disputes, professional liability of architects and engineers, construction defect, insurance, contractual and commercial disputes, transportation matters, mergers and acquisitions, breach of contract matters, product liability cases, energy, and general catastrophic loss litigation.

She has taken more than 40 cases to trial and argued appellate matters in the State Court of West Virginia, Sixth and Third Circuit courts of appeals. She is also admitted to the U.S. Supreme Court.

Jennifer advises clients and is a frequent author and speaker on issues surrounding electronically-stored information. She also counsels and directs clients who have questions about changes within the hemp and medical marijuana industries, including preparing and appealing licensure applications, banking and tax matters, and other issues.

Ambur Smith Cincinnati Corporate & Transactional Commercial Finance Banking & Financial Services

Ambur’s practice focuses on commercial finance and banking, allowing her to serve both community and national lending institutions as it relates to corporate governance and a wide range of commercial real estate loan and general corporate transactions.

Prior to joining Dinsmore, she gained experience in international negotiation and representation as an intern for the Legal Resources Center, South Africa’s largest nonprofit legal clinic, and as a member of Georgetown’s International Women’s Human Rights Clinic.

She is a graduate of the Georgetown University Law Center and...