On August 19, 2019, the chairman of the National Credit Union Association issued a letter with guidance to all credit unions. Prior to August 19, hemp businesses had difficulty locating banks or other entities that would permit them to conduct normal merchant banking activities. That issue has, in part, been addressed by this letter of guidance. Questions remain, however, regarding many merchant services and whether FinCEN will issue a similar guidance. In either event, banks or credit unions that bank with hemp businesses have numerous compliance obligations under the Bank Secrecy Act (BSA) and Anti-Money Laundering Act (AML). It is important to make your banking institution aware of your business purpose to avoid the Suspicious Activity Reports (SAR) that could negatively impact your business operations.
According to Chairman Hood, “Credit unions need to be aware of the Federal, State and Indian Tribe laws and regulations that apply to any hemp-related businesses they serve. Credit unions that choose to serve hemp-related businesses in their field of membership need to understand the complexities and risks involved.
While it is generally a credit union’s business decision as to the types of permissible services and accounts to offer, credit unions must have a Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program commensurate with the level of complexity and risks involved. In particular, credit unions need to incorporate the following into their BSA/AML policies, procedures, and systems:
- Credit unions need to maintain appropriate due diligence procedures for hemp-related accounts and comply with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity. It is the NCUA’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business. Credit unions need to remain alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
- If a credit union serves hemp-related businesses lawfully operating under the 2014 Farm Bill pilot provisions, it is essential the credit union knows the state’s laws, regulations, and agreements under which each member that is a hemp-related business operates. For example, a credit union needs to know how to verify the member is part of the pilot program. Credit unions also need to know how to adapt their ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
- When deciding whether to serve hemp-related businesses that may already be able to operate lawfully–those not dependent on the forthcoming USDA regulations and guidelines for hemp production–the credit union needs to first be familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity. For example, a credit union needs to know if the business and the product(s) is lawful under federal and state law, and any relevant restrictions or requirements under which the business must operate.”
As the regulatory entities work through the changes in federal law, new rules and regulations are inevitable. FinCEN, the FDA and TTB are expected to issue new regulations, although they do not appear to be on the horizon any time soon. The SAFE Banking Act, STATE’s Act and other new federal legislation remain held up in committee. For questions on the legislative and regulatory landscape, please contact your Dinsmore attorney.