Skip to content

U.S. Treasury struggles to ease bank concerns over COVID-19 rescue loans, issues statement on beneficial ownership duties

Brett Wolf  Regulatory Intelligence

Brett Wolf  Regulatory Intelligence

The U.S. Treasury Department's anti-money laundering unit on Friday sought to ease banks' concerns about participation in the
Paycheck Protection Program, a key part of the $2.2 trillion stimulus package passed by Congress last week to counter the economic
slowdown triggered by the COVID-19 pandemic.

It appears, however, that a statement from Treasury’s Financial Crimes Enforcement Network (FinCEN) may have offered insufficient clarity to convince banks to participate in the small-business rescue program known as the Paycheck Protection Program (PPP), banking industry sources told Regulatory Intelligence.

Thousands of U.S. banks, including some of the country’s largest lenders, have said legal and financial risks may prevent them from participating in the PPP, which launched on Friday as one piece of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Reuters has reported.

Wells Fargo, for example, said late Sunday that it would cap its participation in the $350 billion loan program at $10 billion.

Banks are concerned they could ultimately face regulatory fines or public criticism if they perform time-consuming due diligence as they normally would when making loans.

The banks’ main concern is that Treasury said on Tuesday that lenders will be responsible for preventing fraud by verifying borrower eligibility, including information about the borrower’s number of employees and payroll costs. They also must comply with their anti-money laundering obligations pursuant to the Bank Secrecy Act (BSA).

In its statement issued Friday, FinCEN said that for eligible federally insured depository institutions, PPP loans “will not require reverification” of existing customers’ beneficial ownership information “under applicable BSA requirements, unless otherwise indicated by the institution’s risk-based approach to BSA compliance.”

“FinCEN is committed to promoting the success of the CARES Act, including the need to facilitate expeditious disbursal of CARES Act funds. Accordingly, FinCEN will issue further information, as appropriate, as the CARES Act is implemented and questions arise,” FinCEN said.

However, banking industry sources say that because the FinCEN notice requires banks to assess whether customer information is reliable based on risk assessments, it will do little to streamline the PPP lending process because institutions will feel more comfortable adhering to standard operating procedures. The sources declined to be named due to the sensitivity of the matter.

Some bankers were also disappointed that while FinCEN’s statement included recognition of the challenges COVID-19 has created for institutions, it did not offer regulatory relief, such as an extension of the standard deadline for filing Suspicious Activity Reports (SARs), as bank compliance units struggle with staffing and work-from-home arrangements and pandemic-related fraud activity spikes.

Instead, FinCEN reiterated a statement it issued last month and said BSA compliance “remains crucial to protecting our national security by combating money laundering and related crimes, including terrorism and its financing.”

“FinCEN expects financial institutions to continue following a risk-based approach, and to diligently adhere to their BSA obligations,” the Treasury bureau said.

For a regularly updated list of U.S. federal regulations related to the COVID-19/novel coronavirus update, please click on this link to the Skopos Labs Cornoavirus Policy Tracker.

To keep up-dated on the latest news and information regarding the COVID-19 pandemic, the economic impact, and the government’s response, at Thomson Reuters’ COVID-19 Resource Center, and you can follow or the Reuters App.