Why Financial Compliance and Transparency Matter When Launching a CBD Business
By: Mrb Compliance Group
Tags: Hemp, Shopify, Bigcommerce, Square, Cbd

CBD sales that go through a non-compliant bank and merchant processing solutions are fraud and money laundering. I said it the other day to a prospect who called about our services and he hung up on me. Another woman on social media exclaimed, “Well since they are treating us like outlaws, what else are we supposed to do?” I can say for sure, fraud and money laundering are not the answer.

I know. It completely offends some people’s sensibilities that they would have to hire an intermediary to get them a simple checking account. Anyone can walk into any bank across North America and open up a bank account. If you happen to tell them it is a CBD business and they let you know they don’t work with that type of business — easy enough, just say you are doing something else. Perhaps tell them you are in the health and wellness industry or that you sell supplements. Again, that would be fraud and money laundering.

If a bank is telling you they do not want CBD business, they mean it. The banks that do accept those types of accounts have incredibly high compliance. They undergo regular audits. They review all of the corporate documents and many of the CBD related documents. They look at websites. And more and more we are seeing that compliant merchant processing and requiring the money be put into a compliant CBD bank account. Otherwise, it will not be approved through underwriting.

How to Avoid Fraud and Money Laundering

The best way to avoid fraud and money laundering is not to hide your company. It also means not hiding any aspect of your business. Most often the industry is starting to see a greater issue with CBD companies being approved for doing one thing and they when they think no one is looking adding restricted products to their offerings. This is having an impact on the entire industry. Banks are also not taking lightly companies pretending to not sell CBD. You will start to hear more stories of banks closing accounts. Sometimes they do this with a polite letter and other times they will seize the funds and shut the account until further review, which usually doesn’t end in the customer’s favor.

The general definition of fraud is:

In law, fraud is intentional deception to secure unfair or unlawful gain or to deprive a victim of a legal right. Fraud can violate civil law, a criminal law, or it may cause no loss of money, property, or legal right but still be an element of another civil or criminal wrong.

Money-laundering is a bit more specific:

Money laundering is the illegal process of concealing the origins of money obtained illegally by passing it through a complex sequence of banking transfers or commercial transactions. The overall scheme of this process returns the money to the launderer in an obscure and indirect way.

Why is CBD Considered Money Obtained Illegally?

It is not considered obtained illegally if the bank welcomes the transaction. However, it is if the source of the money was hidden from the bank. Many banks do not want to take this risk. They deem CBD to be a high-risk business. They see it as closely related to marijuana which is still a Schedule 1 drug. For those banks that do want to take it on, there is a myriad of internal policies and procedures that they need to have in place. Then they need to make sure the bank and its customers are following those procedures. These are to protect the bank because they need to meet all state and federal regulations as far as banking hemp and CBD customers. They get into trouble if they don’t meet these standards.

If the bank comes under investigation there is an enormous amount of time and effort that they need to dedicate to addressing the allegations. Therefore most banks don’t want to touch it. When they do they often want to do it with a very limited scope and only serving customers in a limited geographic region. They typically don’t advertise these services. Those who will accept CBD customers across multiple states often will work with partners like MRB Compliance Group who can help the bank representatives gather and review a complete package that is sure to pass underwriting. This also helps to protect their identity so that they don’t get rushed by customers and get turnkey applications.

Compliant Banking Requirements

To gain further insight into this issue it is helpful to look at it from a bank’s point of view. At a minimum compliant CBD, banks have to manage the following in order for them to meet regulatory requirements for banking CBD.

Create detailed policies and procedures for providing these services; include what types of businesses

EDD (Enhanced Due Diligence) and KYC (Know Your Customers) requirements spelled out for each category based on risk

Obtain required ownership information, including all beneficial owners

Conduct negative news searches on all owners and authorized signers

Review and obtain all licensing information

Obtain current lab results proving the chemical composition of 0.3% if you are banking a business selling hemp-derived CBD products

Obtain expected activity information and compare to actual account activity

Perform periodic on-site visits (this is required by some CBD compliant banks and not others). Some require this site visit in order to open the account

Fees to cover necessary monitoring and enhanced due diligence costs in addition to account analysis fees

A Compliant CBD Account Matters

More and more CBD merchant processing solutions are requiring customers to have a CBD compliant bank account. It can be difficult to find one on your own. We would also warn about hearsay on the internet about one bank or another accepting CBD business. You are likely to find a lot of dead-ends. This is either because you will not get a response from the bank, your application will get lost in underwriting for several weeks only to be denied, or they are looking for a large minimum deposit and monthly minimum balance that is too large for your company to consider.

Our team at MRB Compliance Group are specialists in CBD compliant banking. We make the process seamless for our customers and the bank. We invite you to visit us at MRB Compliance Group.

MRB Compliance Group is a financial and marketing compliance company serving cannabis, CBD, and other high-risk industries. We can be reached at services@mrbcompliancegroup.com.