The Financial Crimes Enforcement Network (FinCEN), which collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing and other financial crimes, has released its long-awaited guidance on hemp banking.
As expected, because hemp is now legal under federal law, financial institutions are not required to file suspicious activity reports (SARs) on hemp accounts.
However, this is not a free pass for financial institutions to begin banking hemp accounts like any other traditional business accounts. Hemp banking requires a compliance program to address the specific concerns related to the hemp industry.
The 2018 Farm Bill appoints the U.S. Department of Agriculture (USDA) as the primary regulator for hemp licensing and oversight. However, the Farm Bill allows states and tribal government to become the primary regulator if they submit a plan to the USDA for approval. Once approved, that state or tribe becomes the primary regulator in that jurisdiction. It’s important to understand who the primary regulator is, as well as the impact of the state’s or tribe’s approved plan.
Due diligence requirements: Hemp and marijuana are the same plant, Cannabis sativa L. The legal difference between hemp and marijuana is that hemp has 0.3% or less of the psychoactive cannabinoid THC. From a technical standpoint, “hot” hemp — meaning hemp with more than 0.3% THC — is marijuana and is federally illegal under the Controlled Substances Act. But from a practical and risk consideration, hot hemp is not a black-market risk. Typical marijuana has a THC level of 15% to 25%, while hot hemp will generally have a THC level of less than 1%. It would be equivalent of calling spoiled orange juice an alcoholic drink.
The USDA hemp program and any approved state or tribal programs include pre-harvest testing and destruction programs. Compliance programs for financial institutions need to monitor these test results and the destruction procedures to ensure their customers operate in accordance with those requirements.
Banking Secrecy Act requirements: The FinCEN guidance states that SARs are not required because hemp is federally legal. However, SARs must be filed if there are signs of suspicious activity. This could include growing hemp without a license or intentionally growing hot hemp.
As with any new banking program, financial institutions must perform their due diligence to understand hemp regulations and the industry in general. While hemp banking is substantially easier than marijuana, it has additional compliance considerations that need to be factored in when developing and pricing a hemp program.
Alan Hanson is a prominent banking attorney who created the largest cannabis banking programs in the country for credit unions. He leads the banking and financial services department at Gleam Law, a cannabis-focused law firm with five offices representing clients in 40 states and five continents. He can be reached at Alan@GleamLaw.com.