MEMORANDUM

To: General Counsel of BANK XYZ

From: Andrew Jan M. Nacita
Date: March 12, 2019
RE: New Regulation specifically for Cannabis connected clients

QUESTIONS PRESENTED:
I. What is the status of H.B 6517 and are there any developments on the matter?
a. What is the House Resolution 2076 and how might it affect the banking services of Bank XYZ?
b. What is the Anti-Money Laundering (AML) Guidance on AML expectation for cannabis-related
business and how will it affect Bank XYZ?
BRIEF ANSWER:
There have been three important updates to the situations. In brief, there is a new regulation on AML
practices now more tailor fit to the expected cannabis clients, there is significant update on H.B 6517, and
there is a new law in connection with this.


FACTS:
Bank XYZ is a medium sized financial institution with a strong presence in the medical community, counting many
doctors, pharmacists and hospitals among its business clients. The Bank is particularly interested in the effect of the
Philippine Compassionate Medical Cannabis Act now that it has been enacted into law together with its recent
developments. More specifically, now that the bill has been enacted into a law, the Bank is interested in House
Resolution 2076 which addresses the providing of banking services to cannabis-related businesses. Moreover, the
bank is also interested in the Anti-Money Laundering Expectations Regarding Cannabis-Related Businesses which
issues a set of guidelines as to how the Bank can provide services to Cannabis-related businesses consistent with their
AML obligations to which a prior memorandum was sent addressing banks questions regarding the issue
Now, there have been three important updates to the situations. In brief, there is a new regulation on AML practices
now more tailor fit to the expected cannabis clients, there is significant update on H.B 6517, and there is a new law in
connection with this.
DISCUSSION:

I. Status of House Bill 6517, recent developments of a new legislation, and the AMLC guidelines

As for H.B. 6517 the bill is now set to become a law and will highly likely be approved. With this, a
subsequent bill (H.B. 2076) on the protection of banking institutions dealing with cannabis clients is now being
fast-tracked in the House of representative and is set to become law at the same time as H.B.6517. Also, most
pressing is that the he Anti-Money Laundering Commission has issued a guidance on AML expectations for
cannabis-related businesses which are now actionable. The implication of these developments

II. House Resolution 2076 and its effect to the depositary institutions of the bank
Once approved, the bill is said to address the providing of banking services to cannabis-related businesses. The bill’s
general purpose is to create protections for depository institutions that provide financial services to cannabis-related
businesses. The officers, directors, and employees of that depository institution should not be held liable pursuant to
any law or regulation provided that it is solely for providing such financial services pursuant to the law or regulation
of such state or for further investing any income derived from such financial services.
Correspondingly, Bank XYZ should follow the guidelines set by the bill to be able to know what the prohibitions are
and what conducts are allowed as regards to their relationship with their respective depository institutions.

III. The Anti-Money Laundering (AML) Guidance on AML expectation for cannabis-related business
In general, the guidance clarifies how financial institutions can provide services to Cannabis-related businesses
consistent with their AML obligations. In addition, the AMLC guidance enhances the availability of financial services
for, and the financial transparency of, Cannabis-related businesses
The decision to open, close or refuse any particular amount or relationship should be made by each financial institution
based on a number of factors specific to that institution. Factors such as its particular business objectives, an evaluation
of the risks associated with offering a particular product or service, and its capacity to manage those effectively. In
relation to this, Bank XYZ should conduct thorough customer due diligence in assessing the risk of providing services
to a cannabis-related business. It includes the verification with the appropriate authorities whether the business is duly
registered, review of the license application, etc.
The said guideline also provides for the filing of Suspicious Activity Reports (SAR) on Cannabis-Related Businesses
that may be useful in criminal investigations and proceedings. As part of its customer due diligence, Bank XYZ should
consider whether a Cannabis-related business violates the law. If the Bank has indeed decided to provide financial
services to a Cannabis-related business, the bank would be required to file SARs if the Bank knows, suspects, or has
reason to suspect that a transaction conducted or attempted through the Bank involved suspicious transactions.
Furthermore, the guideline discusses as to how the Bank should file a SAR that would facilitate law enforcement’s
access to information pertinent to a priority and it includes the “Cannabis Priority” SAR Filings and the “Cannabis
Termination” SAR Filings. As for the former, if the Bank reasonably believes based on its customer due diligence,
that a Cannabis-related business violates state law, the Bank should file a “Cannabis Priority” SAR. The report should
include information that should be relevant for law enforcers such as the identification of the subject and related
parties. As for the latter, if the Bank deems it necessary to terminate a relationship with Cannabis-related business to
maintain an effective anti-money laundering compliance program, it should file a SAR and state the purpose for the
termination.
Lastly, the guideline also provided possible red flags on Cannabis-related businesses that may be engages in activity
that violates the law. The said red flags indicate only possible signs of such activity, however, the guidelines made a
disclaimer that it might not be an exhaustive list and is upon the prerogative of the Bank to view any other red flag(s)
in the context of other indicators and facts.

CONCLUSION:
With the enactment of H.B 6517 into law, it comes with it new -_____. As H.B 2706 being fast-tracked into
law, together with the AMLC’s guidance on AML expectations to cannabis related business, the Bank should prepare
the necessary