FINCEN ISSUES FAQS ON BSA REQUIREMENTS FOR PPP LOANS

The Small Business Administration’s Paycheck Protection Program, authorized by the CARES Act, became available on April 3 for small businesses and sole proprietorships and on April 10 for independent contractors and self-employed individuals. Lenders participating in the PPP have been overwhelmed by the number of applicants and are working diligently to process the loans expeditiously. One concern for lenders is providing a quick turnaround while still complying with the Bank Secrecy Act requirements. The SBA PPP Interim Final Rules provides specific language regarding BSA requirements and provides relief from certain requirements, but is somewhat ambiguous. In order to clarify BSA requirements related to PPP loans, the SBA and Treasury updated the PPP FAQs on April 7 and 13 (questions #18 and 25), and FinCEN issued guidance on April 3 and FAQs on April 13.

The interim final rule states (emphasis added by Compliance Resource):

“Federally insured depository institutions and federally insured credit unions should continue to follow their existing BSA protocols when making PPP loans to either new or existing customers who are eligible borrowers under the PPP.  PPP loans for existing customers will not require reverification under applicable BSA requirements, unless otherwise indicated by the institution’s risk-based approach to BSA compliance.

…Entities that are not presently subject to the requirements of the BSA, should, prior to engaging in PPP lending activities, including making PPP loans to either new or existing customers who are eligible borrowers under the PPP, establish an anti-money laundering (AML) compliance program equivalent to that of a comparable federally regulated institution… such a program may include a identification program (CIP), which includes identifying and verifying their PPP borrowers’ identities (including e.g., date of birth, address, and taxpayer identification number), and, if that PPP borrower is a company, following any applicable beneficial ownership information collection requirements…”

SBA and Treasury FAQs states: (FinCEN’s FAQs mirror the FAQs below.)

“Question 18: Are PPP loans for existing customers considered new accounts for FinCEN Rule CDD purposes? Are lenders required to collect, certify, or verify beneficial ownership information in accordance with the rule requirements for existing customers?

Answer: If the PPP loan is being made to an existing customer and the necessary information was previously verified, you do not need to re-verify the information. Furthermore, if federally insured depository institutions and federally insured credit unions eligible to participate in the PPP program have not yet collected beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.”

“Question 25: Does the information lenders are required to collect from PPP applicants regarding every owner who has a 20% or greater ownership stake in the applicant business (i.e., owner name, title, ownership %, TIN, and address) satisfy a lender’s obligation to collect beneficial ownership information (which has a 25% ownership threshold) under the Bank Secrecy Act?

Answer: For lenders with existing customers: With respect to collecting beneficial ownership information for owners holding a 20% or greater ownership interest, if the PPP loan is being made to an existing customer and the lender previously verified the necessary information, the lender does not need to re-verify the information. Furthermore, if federally insured depository institutions and federally insured credit unions eligible to participate in the PPP program have not yet collected such beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to Bank Secrecy Act (BSA) compliance. For lenders with new customers: For new customers, the lender’s collection of the following information from all natural persons with a 20% or greater ownership stake in the applicant business will be deemed to satisfy applicable BSA requirements and FinCEN regulations governing the collection of beneficial ownership information: owner name, title, ownership %, TIN, address, and date of birth. If any ownership interest of 20% or greater in the applicant business belongs to a business or other legal entity, lenders will need to collect appropriate beneficial ownership information for that entity. If you have questions about requirements related to beneficial ownership, go to https://www.fincen.gov/resources/statutes-and-regulations/cdd-final-rule. Decisions regarding further verification of beneficial ownership information collected from new customers should be made pursuant to the lender’s risk-based approach to BSA compliance.”

Let’s summarize:

  • There is certain relief from beneficial ownership requirements that may allow institutions to disburse PPP funds more quickly to small businesses.
  • For existing customers applying for a PPP loan, lenders do not need to reverify BO information already collected and verified.
  • For existing customers applying for new PPP loans for which BO has not been collected, federally insured financial institutions do not need to collect and verify BO information unless required by the institution’s risk-based BSA procedures.
  • For new customers, collection of the following information from all individuals with a 20% or greater ownership stake in the applicant business will be deemed to satisfy applicable BSA beneficial ownership information collection requirements: owner name, title, ownership %, TIN, and address, and date of birth.
  • If a business or legal entity is listed as owner on the SBA application (20% or greater ownership interest of applicant business), lenders need to collect the appropriate BO information for that entity.
  • Information verification for new customers should follow the institution’s risk-based procedures.

 FinCEN has said the government will not challenge lender PPP actions that conform to their guidance, and to the PPP Interim Final Rule and any subsequent rulemaking in effect at the time.

Information on the SBA’s PPP, including FAQs address BSA requirements, is available on the SBA and Treasury websites. FinCEN’s PPP FAQ is available here and guidance is available here.  Other pandemic related articles from Compliance Resource are here.

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