Recently released FinCEN guidance offers clarification as to how financial institutions should address due diligence concerns, as well as information collection and reporting requirements when offering financial services to hemp-related businesses.
FinCEN expects credit unions to tailor their BSA/AML programs to reflect the risks associated with the members' risk profile and file reports as required under the BSA – and clearly this doesn't change with hemp-related businesses. While the guidance follows due diligence procedures likely already in place at your credit union for meeting BSA/AML expectations, SAR reporting, and CTR filings there are few clarifications.
Expectations under BSA/AML
- Clearly CDD (customer due diligence) for hemp-related businesses is required and appropriate risk-based procedures need to be in place for ongoing CDD.
- Credit unions need to confirm that the hemp-related business is complying with state, tribal government or USDA requirements. Obtaining a copy of the business license is way to confirm compliance. If unable to obtain a copy of the business license, an alternative is an attestation from the hemp business that it has a valid license.
- Information regarding beneficial owners must be included. There may be additional information to obtain based on the assessment of the hemp-business' risk profile. This information may include such items as:
- Crop inspection reports
- Crop testing reports
- License renewals
- Updated attestations from the business
- Correspondence from with the state, tribal governments or USDA
Suspicious Activity Reporting
Are SARs required? The guidance clarifies that having a hemp-related business as a member doesn't automatically equate to a SAR filing. Standard SAR procedures should already be in place, so file a SAR as is normally done when if in the normal course of business there is suspicious activity. For hemp-related businesses, the guidance provides the following examples:
- A customer appears to be engaged in hemp production in a state or jurisdiction in which hemp production remains illegal.
- A customer appears to be using a state-licensed hemp business as a front or pretext to launder money derived from other criminal activity or derived from marijuana-related activity that may not be permitted under applicable law.
- A customer engaged in hemp production seeks to conceal or disguise involvement in marijuana-related business activity.
- The customer is unable or unwilling to certify or provide sufficient information to demonstrate that it is duly licensed and operating consistent with applicable law, or the financial institution becomes aware that the customer continues to operate (i) after a license revocation, or (ii) inconsistently with applicable law.
As like with your other members, you should monitor the transactions of hemp-related businesses for signs of suspicious unlawful activities.
Now, where it may get a little complicated, is when transactions are comingled between hemp-related businesses and marijuana-related activities. In those instances, follow the 2014 FinCEN Marijuana guidance on how to file SARs on marijuana activities. What happens if the hemp-business is also involved in marijuana-related activities/business? Well, if the proceeds from each business can be separated from each business or if the proceeds can accurately be identified as from one versus the other, then only those proceeds accurately identified as marijuana-related are subject to the SAR filing guidance in the 2014 FinCEN marijuana guidance. The proceeds accurately identified as hemp-related would then follow the standard SAR procedures in place at the credit union.
CTRs and FinCEN Form 8300
As with any other member, currency transactions above $10,000 in any single business day must be reported – so the same requirement for CTRs stands if it is a hemp-related business. As for Form 8300 (Report on Cash Payments over $10,000 Received in Trade or Business) the same applies here too as if it were any other member. So, any entity engaged in a non-financial trade or business would need to report transactions in which the person receives more than $10,000 in cash or other monetary instruments from a hemp-related business for the purchase of goods or services using Form 8300.
FInCEN's guidance on due diligence requirements under the BSA for hemp-related businesses can be downloaded from the following link, FIN-2020-G001.
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