36 JULY / AUGUST 2019 This means that even if a CBD product meets the definition of “hemp” under the 2018 Farm Bill, it still must comply with these laws. The FDA has made clear that CBD products cannot be sold as dietary supplements,23 and CBD cannot be added to human or animal foods.24 It can be an ingredient in cosmetics so long as it does not cause the product to be adulterated or misbranded in any way, and the product is not intended to affect the structure or function of the body, or to diagnose, cure, mitigate, treat or prevent disease.25 This presents a unique challenge for financial institutions with existing customers which are starting to sell CBD products in addition to existing product lines, as well as with new customers whose businesses are specifically focused on hemp and hemp products. The CBD may be legal; then again, it may not be. What should a financial institution do? Unfortunately, FinCen Guidance has not been updated to address the 2018 Farm Bill. The American Bankers Association reports that, based on its outreach to FinCen, FinCen is waiting for the USDA to issue its rules before acting. Thus, an update to the FinCen Guidance is not expected any time soon.26 At a recent hearing before the House Financial Services Committee, Jelena McWilliams, chairman of the Federal Deposit Insurance Corp., stated that the FDIC is “conducting extensive examiner training” to ensure bank examiners are “appropriately regulating these banks, … are not putting undue pressure and understand what’s legal where.”27 McWilliams also stated that the FinCen Guidance gives financial institutions “a clear path” to serve both hemp and marijuana clients.28 Finally, McWilliams added that if a financial institution is uncertain about the legitimacy of a particular business or transaction – whether involving hemp or marijuana – it should file an appropriate marijuana-related suspicious activity report consistent with the FinCen Guidance.29 Representatives of the Office of the Comptroller of the Currency and Federal Reserve representatives did not comment during this hearing. At her June 5 confirmation hearing for a renewed term on the Federal Reserve Board of Governors, Michelle W. Bowman was pressed on what kind of guidance the Fed is providing to banks in light of the 2018 Farm Bill.30 Bowman indicated that when asked by banks, the Fed points them to the existing FinCen Guidance and emphasizes the importance of assessing which clients banks take on: “We absolutely tell them that it’s not our job or our role to tell them who their customers should be, and that they should understand what their business strategies and risks are with respect to any customer that they have.”31 When pressed further as to how the Fed is advising financial institutions regarding hemp, Bowman answered: “We have not told them that they cannot bank them.”32 She went on to state: “We would not discourage banks from banking these types of customers” and committed that the Fed would “try to clarify that … Hemp is not an illegal crop.”33 Despite these statements from McWilliams and Bowman, neither the FDIC nor any of the other federal banking regulators have issued formal guidance on working with hemp businesses following passage of the 2018 Farm Bill. The Indiana Department of Financial Institutions takes the position that if the customer is engaged in a business that is legal under Indiana law, an Indiana financial institution may provide financial services to that customer.34 The Indiana DFI is cognizant that the activities of any marijuana-related business are illegal under federal law and that federal/state hemp law and regulations are in flux, and encourages institutions to remain aware of this when performing both product and customer risk assessments. Until such time as the federal-state regulatory framework is in place, and hemp and hemp products are produced in compliance with the 2018 Farm Bill, growing hemp and producing and selling CBD and other products derived from domestic hemp remains illegal unless done in compliance with the 2014 Farm Bill.35 Imported CBD must be legally sourced and lawfully imported. Accordingly, financial institutions should continue to conduct expanded due diligence. If a customer is legally sourcing its hemp and hemp products, then arguably the hemp and hemp products are not marijuana, and there is no need to file marijuana-related SARs. If the hemp and hemp products are not legally sourced, then they are marijuana, and the financial institution should file a marijuana-related SAR consistent with FinCen Guidance. Whether a financial institution must inquire as to the source and legality of a customer’s hemp as part of its expanded due diligence, and whether it can safely rely on the customer’s answer as to whether their hemp is legally sourced, are separate issues. Misinformation about the general legality of hemp and hemp products is rampant. Even if the legality is understood, the undeveloped federal and state regulatory apparatus creates uncertainty that is causing many financial institutions to wait and watch on the sidelines. Fortunately, recent public statements by federal prudential regulators suggest that the much-needed guidance should be coming soon. HB 23 U.S. Food and Drug Administration, FDA Regulation of Cannabis and Cannabis-Derived Products: Questions and Answers, Question 9, www.fda.gov/news-events/ public-health-focus/fda-regulation-cannabis-and-cannabis-derived-products-questions-and-answers (Apr. 2, 2019). 24 Id. at Question 10. 25 Id. at Question 13. 26 Correspondence with Robert Rowe, vice president & associate chief counsel, regulatory compliance, American Bankers Association (Apr. 23, 2019). 27 Kyle Jaeger, GOP Congressman Pushes New Guidance This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. on Hemp and CBD Businesses’ Credit Access, Marijuana Moment (May 17, 2019), www.marijuanamoment.net/ gop-congressman-pushes-for-new-guidance-on-hempand-cbd-businesses-credit-access. 28 Id. 29 Id. 30 See U.S. Senate Committee on Banking, Housing, and Urban Affairs, Nomination Hearing, www.banking. senate.gov/hearings/05/28/2019/nomination-hearing (June 5, 2019). 31 Id. 32 Id. 33 Id. 34 Interview with Thomas Fite, director, Indiana Department of Financial Institutions (June 4, 2019). 35 Agriculture Improvement Act of 2018 (H.R. 2), Pub. L. No. 115-334, §7605, 132 Stat. 4490, 4829 (2018).
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