Is the Bank Open? Federal Agencies Clarify Regulatory Requirements for Banking HempOn December 3, several federal agencies issued guidance (Guidance) that, by its terms, “provide[s] clarity” regarding “the regulatory requirements under the Bank Secrecy Act (BSA) for banks providing services to hemp-related businesses.” Hemp proponents hope this additional clarity will encourage hesitant financial institutions to begin serving the hemp industry.

The key takeaway from the Guidance – which was issued by 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 – is that banks are not required to file with FinCEN a “Suspicious Activity Report” (SAR) regarding a customer “solely because [the customer is] engaged in the growth or cultivation of hemp in accordance with applicable laws[.]” This distinguishes banking hemp (i.e., cannabis containing less than 0.3% THC) from banking marijuana (i.e., cannabis containing more than 0.3% THC) – a bank must file a marijuana-specific SAR for each marijuana-related customer under FinCEN’s 2014 guidance. This onerous regulatory requirement (which we analyzed here) has dissuaded many financial institutions from serving marijuana-related businesses.

In the Guidance’s statement that banks are not required to file a SAR “solely because [the customer is] engaged” in a hemp-related business, “solely” is the operative word. The Guidance emphasizes that banks should follow their “standard SAR procedures” to determine whether there is sufficient “indicia of suspicious activity” surrounding a hemp customer to warrant a SAR. Such “standard SAR procedures” are governed by the BSA and its implementing regulations, which require banks to conduct “risk-based customer due diligence” to inform their SAR-filing decisions. Despite hemp’s legalization under the 2018 Farm Bill, hemp businesses will remain higher-risk customers for financial institutions given the complex regulatory requirements for growing hemp and the fine line between federally-legal hemp and federally-illegal marijuana. Consequently, banks that serve the hemp industry must ensure their BSA/anti-money laundering compliance programs include robust procedures for conducting enhanced due diligence on hemp customers to determine whether a SAR is warranted. While crafting these hemp-specific procedures could be costly, the reward to banks willing to engage the underserved hemp industry could be well worth the cost.

The Guidance states that FinCEN will issue more comprehensive guidance regarding hemp banking after it has further evaluated the U.S. Department of Agriculture’s interim final rule, which established the regulatory framework for hemp production. Once FinCEN’s guidance is published, we will analyze it in detail.