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A Cautionary Tale on Site-Visits for Higher-Risk Businesses

Updated: Aug 2, 2022

In early 2019, when building one of the first hemp banking programs in the United States alongside my Federal Reserve Bank regulators, one of their suggestions was site-visits prior to formal approval of a new hemp/CBD relationship. Part of me was like, ”Ok I understand, it’s important to validate the business exists and is operating as expected” and the other part of me was like “Are you kidding me? I’m never going to have time to do this, let alone know what I am looking at. This seems ridiculous.” Then this happened…

Prior to the formal launch of my financial institution’s hemp banking program, a few hemp business stragglers had made their way into the bank to open accounts. Once those customers were identified, I would retroactively conduct the same due diligence that all of our new hemp applicants were now subject to prior to approval. Of all the businesses I contacted and explained the situation, there was only one that gave me a hard time. I worked for months on getting a site-visit scheduled with this business owner. He finally agreed to a visit, ONLY if I: 1) brought him a vegan lunch and 2) made sure I brought a man with me (*cue eye roll*). “Fine” I replied - after all, this is going on 6+ months of trying to get a site-visit scheduled.

You know what happened? We showed up, with his vegan lunch in tow, in the middle of August, to find four tiny hemp plants, still in their original seed tray. Ok, I admit, I am no farmer - but by this point I had been to enough hemp farms and had enough formal education on what to look for on a cannabis farm that I knew - this ain’t right. By the looks of what was going on in his bank accounts, and the hundreds of thousands of dollars this guy had been spending, he should have a pretty well-established farm with plants that were nearly as tall as my short self. Not the case.

Now I’ve been in BSA/AML Compliance for a long time, so I had a hunch something didn’t seem right with his account activity, but I couldn't prove it until this site-visit happened. We ended up closing the relationship and shortly after, this guy ended up being busted by his investors for embezzlement. What did I learn that day? That my regulators were right - site-visits are a necessary evil.

Easing the site-visit burden

Can we just talk a minute about the reality of site-visits? We obviously know from the story above that they are a necessary part of due diligence efforts. But let’s be real here - they are traditionally a pain. Not only do you have to complete the site-visit but then you have to document the entire thing.

While I loved being able to get out on a hemp farm, as a BSA/AML Compliance Officer, the reality of it was I didn’t have time to do them yet I never felt comfortable with other staff taking on that responsibility. Why? Because: 1) I was the subject matter expert and they likely would have no idea what to look for and 2) Employees with sales goals have no business going out and doing site-visits. I’m not saying sales folks are dishonest, but when you have a goal, you’re unlikely to scrutinize things the way a BSA/AML Compliance Officer who could end up in an orange jumpsuit does. And I don’t know about you, but I have never looked good in orange.

The good news is that now - more than ever - there are ways to ease the burden of site-visits.

With the RiskScout platform, you can easily document the site-visit from your phone, tablet or computer - while also taking photos throughout the site-visit that are all easily documented into the platform. Furthermore, the site-visit can be customized to include as many or as little questions as your financial institution sees fit.

But what if you can’t do the site-visit yourself?

RiskScout has partnered with a third-party to complete a site-visit on behalf of your financial institution. This third-party has been thoroughly trained by RiskScout subject matter experts in the cannabis industry on everything they need to know to complete a thorough yet non-intrusive site-visit that cannabis businesses feel comfortable with.

Contact us today to learn more about how we can make your site-visits easier!