So, we recently found a customer that appears to be growing industrial hemp. Our policy has been to not bank these businesses. In the past, we’ve closed hemp customers out when we identify them. This customer has both deposit and loan accounts with us. We’ve never had a loan customer that we’ve identified which makes them harder to close. Based on their loan docs, they aren't in default. Their loan officer contacted them and asked if they were growing hemp. The customer said they aren’t growing hemp. One of our employees lives close to this farm, and the employee drove by the customer's farm to witness them harvesting hemp. Our BSA Officer obtained information from the state, and it appears that the customer has followed the state’s registration/licensing and all other requirements to farm industrial hemp.

We are having a debate on whether we should file a SAR on them for lying to us about growing hemp? One of my employees thinks we should, and gives me the FinCEN guidance dated June 29, 2020 (FIN-2020-G001) that says you should file a SAR on “A customer engaged in hemp production seeks to conceal or disguise involvement in marijuana-related business activity.” as the support to file the SAR. My interpretation of that is we should file a SAR if they say they are growing hemp but they are really engaged in a business activity that involves actual marijuana.

Another concern we have is we don't have any monitoring procedures set up specifically to handle hemp-related customers.

Even if you decide to not file a SAR, if this customer really did grow hemp and lied about it when asked directly then this is not the kind of customer I would want and we would send them packing. We've only had one hemp customer and they did everything by the book so there was no problem with us banking them.

Why lie about growing hemp? From everything I have been able to read there is no visible difference between marijuana and hemp and it is all a matter of the THC concentration in the plant.

If you have made the business decision to not bank hemp growers then you don't need monitoring procedures just something in your policy that states you do not bank hemp customers at this time.

Best of luck!

Our issue is that they have loans with us that are not in default. So, we aren't in a position to force them out. We can close down their deposit accounts, but closing their commercial loans is another story.

I would really like input on whether we should file a SAR.

If there's a question about filing a SAR, we all know the answer -- file.

The filing of a single SAR -- outside of reporting $50M wire transfers to/from the unknown entities -- doesn't truly have much impact with FinCEN. They don't care unless one of the letter agencies has an already open investigation into someone. If this customer is doing everything by the book, they have no concern in the world. Just file it. Nobody is listening.

PS. There is a 99% chance they lied because they were afraid you would close them down and they truly have no other banking options available. If they're a profitable customer and you actually value the relationship, why not reach out and be honest that you know they lied and offer them a chance to explain?

"A chance to explain" suggests the bank might be willing to let the accounts stay open if the the customer comes clean and provides a reasonable explanation. But the bank doesn't have a monitoring plan for hemp-related businesses. Can it "grow" one quickly enough to keep working with this customer without taking on excessive risk?

Agree with all of the above ^. I don't usually condone defensive filing, but here I would probably file.

Your employee, "drove by the customer's farm to witness them harvesting hemp." You would not be able to visually tell the difference between hemp and marijuana in a pass driving by. Almost 0 chance. The fact they are lying to you could mean they are actually producing marijuana and trying to avoid further inquiry.... or it could be totally innocent and they are just afraid of you closing their accounts, I would still file nonetheless and continue to inquire further.

I had this back in February, before our audit in March. I did file a SAR and was told by our auditor, since it was legal to grow hemp on the fed level, no real reason to file. But if we wanted to because he lied, it wouldn't hurt anything. I filed because he had talked to CEO about it growing and then lied. When our CEO called the customer when we found it, he said he had let his license expire and I've seen no other activity since. We do have him on our monthly risk assessment until the end of the year since the transactions we found happened fall 2020. Our auditor said it would be different if it was actual Marijuana since it is still not legalized on the Fed level. Hemp is. The reason we don't bank it, is due to if it tests for too much THC, they are now a MRB.....it's a compliance conundrum for sure.

Also, to add..... if you really want to know what they are doing, Google their name. I found a website our customer was on trying to sell. It turned into a rabbit hole.

This may or may not be a true statement depending on state law. For example, in Illinois, hemp growers are required to test their crops and burn any crops where the THC levels exceed 0.3%. That does not make them an MRB as they are not selling the product.

Of course, I always ask the state regulators if they can give me a heads up when these crop burnings are to occur and if there are any limitations for how close I can stand.