Federal Agencies Provide New Guidance for Hemp Banking

The tides have been rapidly changing for hemp companies to gain access to banking, which has not traditionally been available to hemp companies due to the fact that hemp was (sort of) federally illegal until about a year ago. As we previously explained:

Commercial marijuana activity remains a federal crime,  and the Bank Secrecy Act (“BSA”) generally prohibits financial institutions from accepting marijuana-generated dollars. Financial institutions that work with marijuana businesses must conduct due diligence to ensure that marijuana businesses are complying with state law. That includes regularly submitting Suspicious Activity Reports (“SARs”) to the Financial Crimes Enforcement Network (“FinCEN”). Regulated commercial hemp activity is not a federal crime, but hemp’s close proximity to marijuana makes it a generally high-risk endeavor for financial institutions who generally don’t have a high risk tolerance to begin with. That has made it very difficult for many hemp and hemp-derived CBD (“Hemp-CBD”) businesses to access bank accounts.

Since the 2018 Farm Bill was signed and hemp was removed from the Controlled Substances Act, our hemp attorneys have seen more and more banks and credit unions take on various kinds of hemp clients (including hemp cultivators, processors, and even Hemp-CBD sellers). But still, many financial institutions have been hestitant when it comes to servicing hemp clients. As of the last few months, that has been changing.

As we reported over the summer, in August, the National Credit Union Administration (“NCUA”) released Interim Guidance on Serving Hemp Businesses. This guidance, though short, is fairly robust and provides ways for credit unions to verify that hemp clients are engaged in lawful business.

This week, on December 3, 2019, 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 released joint guidance entitled, “Providing Financial Services to Customers Engaged in Hemp-Related Businesses”. The guidance was intended to “provide clarity regarding the legal status of commercial growth and production of hemp and relevant requirements for banks under the Bank Secrecy Act (BSA) and its implementing regulations.”

There are a few key points from the joint guidance:

1. The quoted language (and other language in the joint guidance) refers just to commercial growth and production of hemp and even notes that the FDA retains jurisdiction over foods, drugs, and cosmetics. The 2018 Farm Bill only regulates hemp production, and does not really discuss hemp processing or the sale of Hemp-CBD goods. It’s not totally clear from the text of the joint guidance whether it was intended to cover only cultivation, and it certainly can be read that way. Therefore, it’s not yet clear whether banks will service clients engaged in those activities.
2. The joint guidance makes clear that banks won’t need to file SARs for clients based solely on the fact that they are engaged in cultivation of hemp. Banks will still need to follow standard SAR procedures and file SARs if there are indicia of suspicious activities.
3. The joint guidance makes clear that banks have discretion about what services to offer, but that bank clients must comply with applicable law. This puts the onus on banks to vet their customers to ensure compliance with hemp laws and regulations. Some things that the joint guidance expressly requires banks to do are to have BSA and anti-money laundering (“AML”) compliance programs commensurate with the level of complexity and
   risks involved, comply with applicable regulatory requirements for customer identification, SARs, currency transaction reporting, and risk-based customer due diligence (including collecting beneficial ownership information for legal entity customers).
4. Though the joint guidance does cover marijuana businesses, it makes clear that banks servicing those businesses should follow the FinCEN guidance FIN-2014-G001 – BSA Expectations Regarding Marijuana-Related Businesses.

The joint guidance also states that additional FinCen guidance will be released in the future. Hopefully by then, banks will have more comprehensive guidance for servicing hemp clients. But for now, this joint guidance is certainly a step in the right direction.