The obligations of economic establishments to observe and report potential illicit exercise involving cannabis-related merchandise has been a supply of elevated consideration within the monetary trade, in mild of the altering authorized panorama on the state and federal stage. On June 29, 2020, the Monetary Crimes Enforcement Community (FinCEN) issued new steering to monetary establishments on the due diligence and reporting necessities mandated by the Financial institution Secrecy Act (BSA) in reference to clients engaged in hemp cultivation and associated actions (FinCEN Hemp Steerage or Steerage). The Steerage dietary supplements a extra restricted interagency assertion on the subject, which was issued by FinCEN and federal financial institution regulators on Dec. 3, 2019 (see Interagency Hemp Assertion).
As a part of the 2018 Farm Invoice, Congress eliminated hemp from the definition of marijuana beneath the Managed Substances Act (CSA),1 and on Oct. 31, 2019, the U.S. Division of Agriculture (USDA) issued an interim last rule establishing a regulatory program to facilitate the authorized manufacturing of hemp (see Interim Remaining Rule). Pursuant to the Interim Remaining Rule, hemp could also be grown solely with a legitimate USDA-issued license or beneath a USDA-approved state or tribal plan. Moreover, as beforehand set forth within the Interagency Hemp Assertion, a state or tribe could validly prohibit, or extra stringently regulate, hemp manufacturing, however the relief of strictures beneath federal legislation.2
The FinCEN Hemp Steerage identifies two ways in which a monetary establishment could affirm a hemp producer’s compliance with relevant licensing necessities:
acquiring a duplicate of the license, or
acquiring a written attestation by the hemp grower that they’re validly licensed.
In keeping with the final expectation that monetary establishments tailor their due diligence to the chance profile of every buyer, the Steerage gives that the diploma to which a monetary establishment ought to search further supporting data on licensure (if in any respect) will depend upon an evaluation of the extent of threat posed by every buyer. Monetary establishments could resolve to request further data together with, amongst different issues, crop inspection studies, testing studies, license renewals, up to date attestations from the enterprise, and/or correspondence with licensing authorities.
An necessary element of an efficient BSA/AML compliance program is to develop and preserve a buyer threat profile that’s up to date on a threat foundation, and to conduct ongoing monitoring to determine and report suspicious transactions.
The FinCEN Hemp Steerage reminds monetary establishments that participating in a hemp-related enterprise is not itself trigger for submitting a Suspicious Exercise Report (SAR). In contrast to SAR submitting expectations for marijuana-related companies, FinCEN expects monetary establishments to comply with customary SAR procedures for hemp-related enterprise clients and to file a SAR if the monetary establishment turns into conscious, within the regular course of enterprise, of suspicious exercise. Examples of suspicious exercise by hemp-related enterprise clients which can advantage a SAR embody:
A buyer that seems to be engaged in hemp manufacturing in a state or jurisdiction wherein hemp manufacturing stays unlawful.
A buyer that seems to be utilizing a state-licensed hemp enterprise as a entrance or pretext to launder cash derived from different legal exercise or derived from marijuana-related exercise that might not be permitted beneath relevant legislation.
A buyer that seeks to hide or disguise involvement in marijuana-related enterprise exercise.
The shopper is unable or unwilling to certify or present enough data to display that it’s duly licensed and working according to relevant legislation.
The monetary establishment turns into conscious that the client continues to function (i) after a license revocation, or (ii) inconsistently with relevant legislation.
Importantly, the Steerage notes that, to the extent the monetary transactions of a hemp-related enterprise are comingled with marijuana-related actions, a monetary establishment ought to apply FinCEN’s Feb. 14, 2014 Marijuana Steerage.3 Nonetheless, the Steerage clarifies that, if the proceeds of the companies are saved separate, or the client and its monetary establishment are in a position to determine which proceeds are marijuana-related and that are hemp-related, then the 2014 Marijuana Steerage, together with particular SAR submitting, would apply solely to the marijuana-related a part of the enterprise.
Forex Transaction Experiences and FinCEN Type 8300
Final, the Steerage reminds monetary establishments that they need to report foreign money transactions in reference to hemp-related companies in the identical method they might for another buyer. Equally, any individual or entity engaged in a non-financial commerce or enterprise would wish to report on FinCEN Type 8300 (Report of Money Funds Over $10,000 Obtained in a Commerce or Enterprise) transactions wherein the individual receives greater than $10,000 in money and different financial devices from a hemp-related enterprise for the acquisition of products or companies.
Whereas the Steerage gives some much-needed readability on BSA/AML compliance expectations in reference to offering monetary companies to lawful hemp-related companies, it additionally means that monetary establishments are anticipated to have fundamental familiarity with the legislation of the state or tribal jurisdiction the place hemp-related companies function, in addition to with the contours of the federal regulatory regime.
1 For these functions, hemp is outlined because the plant Hashish sativa L. and any a part of that plant, together with the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether or not rising or not, with a delta-9 tetrahydrocannabinol (THC) focus of no more than 0.Three p.c on a dry weight foundation.
2 For instance, Mississippi doesn’t allow the cultivation of hemp inside the state.
3 That steering was issued in 2014 at the least partly in response to steering from the U.S. Division of Justice (DOJ) regarding marijuana-related enforcement priorities (known as the “Cole Memo”) that has since been rescinded. Nonetheless, FinCEN has indicated that, however the rescission of the Cole Memo, monetary establishments ought to proceed to comply with FinCEN’s 2014 Marijuana Steerage.
©2020 Greenberg Traurig, LLP. All rights reserved. Nationwide Legislation Assessment, Quantity X, Quantity 183