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Financial institutions still need to conduct due diligence and monitor transactions for hemp-related businesses, the U.S. Treasury Department’s financial crime unit said, expanding on previous guidance about the industry.

Banks and other institutions need to tailor anti-money-laundering programs to reflect the specific risks associated with customers that produce hemp, a variety of the cannabis plant that is often used for its fiber, as they would with any other customer, the Financial Crimes Enforcement Network, or FinCEN, said in guidance published this week.

The guidance highlights the risk and challenge that financial institutions can face in dealing with customers involved in the expanding cannabis markets. Hemp was legalized nationally in 2018, but a federal ban on marijuana remains and some states don’t allow possession of any kind of cannabis, including hemp.

In December, a group of financial regulators—including FinCEN, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Conference of State Bank Supervisors—said that banks were no longer required to file suspicious activity reports on customers who cultivate hemp. SARs are reports filed by banks that identify potential criminal activity or transactions.

Hemp production largely was banned under federal law until a 2018 farm bill removed hemp from a list of federally controlled substances. The U.S. Agriculture Department in October then set out rules for the licensing and monitoring of hemp.

The use, sale or possession of marijuana, a cannabis product that contains increased levels of tetrahydrocannabinol, or THC, which can produce a high, is still illegal under federal law in the U.S. But 11 U.S. states have legalized the recreational use of marijuana for adults and 22 more allow it to treat certain medical conditions with prescriptions.

Financial institutions are expected to confirm that clients who are hemp growers are compliant with the state, tribal government or USDA licensing requirements by either obtaining a written declaration from the clients or a copy of the license, FinCEN said.

Whether to seek additional information depends on the financial institution’s risk assessment of the customer, FinCEN said. Some additional steps can include crop inspection or testing reports, updated declarations from the business or correspondence with the government, according to the guidance.

While banks no longer need to file SARs on customers solely because they are legally involved in growing hemp, financial institutions are still expected to monitor the transactions of these clients for signs of suspicious activity and file a SAR if they become aware of any unlawful activity, FinCEN said.

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That might include monitoring of customers growing hemp in jurisdictions where hemp production remains illegal, a client using a state-licensed hemp business as a front to launder proceeds from other criminal activity, or a client engaged in hemp production seeking to disguise involvement in marijuana-related activities, according to the guidance.

The guidance is a reminder for financial institutions to not make assumptions and check on customers involved in hemp-related businesses, said Alma Angotti, a partner and co-head of global investigations and compliance at consulting firm Guidehouse.

“That firmly puts hemp growers in the realm of how banks and financial institutions are supposed to treat other businesses,” Ms. Angotti said.

Write to Mengqi Sun at mengqi.sun@wsj.com

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