The Federal Reserve Board, the FDIC, FinCEN, the OCC and the Conference of State Bank Supervisors (collectively, the "agencies") clarified the legal status of hemp and Suspicious Activity Report ("SAR") obligations for banks under the Bank Secrecy Act ("BSA").
The agencies opined that:
- banks do not have to file a SAR for customers engaged in hemp production solely because the business involves hemp, since it is no longer considered a controlled substance, but still must file a SAR if there are indicia of "suspicious activity";
- customers of banks engaged in hemp-related businesses are themselves accountable for complying with the related requirements; and
- banks must establish and maintain a BSA/AML compliance program that can sufficiently address the "complexity and risks involved."
Separately, FinCEN stated that it plans to provide additional guidance, following further assessment of the U.S. Department of Agriculture ("USDA") interim final rule to create a regulatory framework for domestic hemp production, as mandated in the 2018 Farm Bill.
Commentary
This loosening of SAR filing requirements for hemp-related businesses is not unexpected since hemp was removed from federal controlled substance regulation last year. Hemp, an agricultural crop from which CBD is derived, is a staple crop grown in Kentucky, and thus had a powerful supporter in Senator Mitch McConnell. The explosive growth of CBD-infused products has been a bonanza for hemp farmers and more and more mainstream businesses like retail drug chains and organic food stores have been selling legal CBD products - creating confusion and uncertainty for their banks. This loosening of the SAR requirement is helpful and welcome, but the more transformative event will be if and when the Senate passes the Safe Banking Act (see prior posts).
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