international regulatory enforcement
Financial Regulators Issue Joint Guidance to Snuff Out Reporting Requirement on Legal Hemp-Related Businesses
By Lawrence D. Kaplan
The requirement under the Bank Secrecy Act (“BSA”) that banks file Suspicious Activity Reports (“SARs”) concerning their customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations has been eliminated by U.S. federal banking agencies (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) along with the Conference of State Bank Supervisors, pursuant to joint
The Guidance was issued as a result of the Agriculture Improvement Act of 2018 (2018 Farm Bill), which directed the removing of hemp as a Schedule I controlled substance under the Controlled Substances Act. “Hemp” was defined in the bill as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis.” 7 U.S.C. 1639o(1). The U.S. Department of Agriculture (the “USDA”) issued an interim final rule implementing this provision in October 2019.
“Hemp,” as defined, is chemically distinct from the cannabis strain grown and sold for medical and recreational use and thus the new guidance does nothing to relieve regulatory burdens on financial institutions who must still navigate the complex legal environment governing marijuana operations authorized under state laws.
While the Guidance is intended to reduce SAR filings on customers solely engaged in the licensed growth or cultivation of hemp, by qualifying the exemption on the filing of SARS, federal banking regulators can still take actions against banks if a customer engages in more than the licensed activities. This qualification is similar to a qualification contained in the proposed Secure and Fair Enforcement Banking Act, which was passed by the House of Representatives (H.R. 1595) in September 2019 and currently remains pending in the U.S. Senate (S. 1200) (the “SAFE Act”), to provide protections to banks solely for providing a loan or other financial services such as payment processing to legitimate cannabis businesses.
Accordingly, the efficacy of the Guidance (as well as the SAFE Act, if enacted) to eliminate a burden on banks may further prove to be illusory, as the Guidance is intended to reduce SAR filings on customers solely engaged in the licensed growth or cultivation of hemp, by qualifying the exemption on the filing of SARS, federal banking regulators can still take actions against banks if a customer engages in more than the licensed activities. Banks still must confirm that their customers are solely engaged in legal activities. Such confirmation continues to be through compliance with other BSA/AML requirements, such as maintaining a BSA/AML compliance program commensurate with the level of complexity and risks of a bank’s customer base; risk-based customer due diligence; and procedures for customer identification, currency transaction reporting, the collection of beneficial ownership information for legal entity requirements and suspicious activity reporting.