FinCEN advises banks to gather more data from hemp-related clients

By Theo Wayt · June 29, 2020

Banks that do business with hemp-related business customers face a new series of advisories from the U.S. Financial Crimes Enforcement Network, as the agency further seeks to clamp down on money laundering and other crime risk following the 2018 federal legalization of the trade.

The agency on Thursday issued new guidance on the gathering of information from hemp-producing clients, stating that financial institutions must obtain basic identifying details including beneficial ownership. They also must confirm hemp growers’ compliance with state, tribal government or USDA licensing requirements by obtaining a “written attestation by the hemp grower that they are validly licensed” or a copy of their license, according to FinCEN, which is a division of the U.S. Treasury Department.

The new guidelines also recommend financial institutions collect “crop inspection or testing reports, license renewals, updated attestations from the business, or correspondence with the state, tribal government, or USDA,” depending on the “the financial institution’s assessment of the level of risk posed by each customer.” 

In addition, Monday’s memo reiterated a December statement that financial institutions are not required to file a “suspicious activity report” with FinCEN solely because a customer is cultivating hemp. That move reversed a previous standard requiring institutions to file such reports because hemp was listed as a Schedule I controlled substance by the federal government between 1970 and 2018. 

Hemp, which can be used in a variety of commercial products including clothing, biofuel and animal feed, comes from the same plant as marijuana. 

But hemp contains no more than 0.3% THC, marijuana’s primary psychoactive ingredient. By contrast, marijuana typically contains between 5% and 20% THC. 

Since marijuana remains a Schedule I controlled substance under federal law, FinCEN maintains far more stringent regulations for financial institutions working with marijuana-related businesses, even in the 42 U.S. states where the drug has been decriminalized or approved for medical or recreational use. 

As of March 2020, 710 American banks and credit unions were actively working with marijuana-related businesses, according to FinCEN statistics. That represents a drop from 747 in December 2019, due in part to FinCEN no longer classifying hemp-related businesses as "marijuana-related" for reporting purposes.

Although suspicious activity reports are no longer automatically required, FinCEN did list several potential cases on Monday in which institutions should submit a report about a hemp-related customer, including: a customer cultivating hemp in a jurisdiction where hemp production remains illegal, a customer using hemp production to disguise involvement in “marijauna-related business activity,” or a customer refusing to provide evidence that it is licensed to produce hemp and operating within the scope of the law. 

FinCEN also reiterated that financial institutions must report any currency transactions worth more than $10,000 on a single business day, just as they would for any other customers. 

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