Last month, the National Credit Union Administration (“NCUA”) and the Financial Crimes Enforcement Network (“FinCEN”) issued new guidance for financial institutions on the topic of hemp. The bottom line is that even though hemp is now federally legal, financial institutions still need to do their due diligence to confirm that their prospective hemp business clients are complying with state and federal laws and regulations before providing their services.
The National Credit Union Administration (“NCUA”) is an independent federal agency created by the United States Congress to regulate, charter, and supervise federal credit unions. FinCEN is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
While these federal agencies clearly see promise in the burgeoning hemp and CBD industry, they recognize that the current patchwork of state, tribal, and federal regulations make it difficult to readily differentiate between lawful and unlawful business operations.
NCUA stated the following in its June memo to federally insured credit unions:
Lawful hemp businesses provide exciting new opportunities for rural communities, and credit unions should carefully consider whether they can safely and properly serve lawfully operating hemp-related businesses within their fields of membership. To that end, and as described in this letter, credit unions must be aware of the federal, state, and Native American tribal laws and regulations that apply to any hemp-related businesses they serve, as well as the complexities and risks involved.
The NCUA guidance notes that the 2018 Farm Bill does not cover hemp businesses that engage in manufacturing, processing, distribution, shipping, and/or retail. Thus, credit unions that intend to serve any hemp-related business that does more than cultivate hemp must be well versed in any applicable state and/or tribal laws to ensure that the business is in compliance. When you add hemp-derived CBD products into the mix, you add in the extra layer of complication of regulation by the Food and Drug Administration (“FDA”).
The FinCEN guidance stresses that financial institutions must still be on the look-out for evidence of non-compliant conduct, money laundering, or an attempt to conceal marijuana-related operations under the guise of a hemp cultivation business, among other potential red flags. Any such indicators would trigger the requirement for the financial institution to file Suspicious Activity Reports (SARs).
At a minimum, financial institutions will require an attestation that the hemp grower is validly licensed and/or request a copy of the license. Depending on the level of perceived risk, the financial institution may also request information like crop inspection or testing reports, license renewals, or correspondence with the licensing body (whether it is a state, tribe, or the U.S. Department of Agriculture that issued the license).
Attorneys in Drummond Woodsum’s Licensing and Regulatory Compliance division can help draft opinion letters for financial institutions in order to verify that a prospective hemp client is currently operating in compliance with applicable laws and regulations.