FinCEN Provides Updated Guidance on BSA Obligations and Disbursal of Funds under CARES Act
FinCEN issued updated guidance to assist financial institutions in complying with the Bank Secrecy Act ("BSA") during the COVID-19 pandemic, together with clarifications to encourage disbursal of funds under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").
As previously covered, FinCEN published a notice urging financial institutions to be on alert for malicious or fraudulent transactions, and to notify FinCEN of any potential delays submitting mandatory BSA filings. The updated guidance emphasized that, even during the pandemic, financial institutions are expected to continue following a risk-based approach, and diligently adhere to BSA requirements. The guidance provides two additional points of clarification:
(1) For loans issued under the CARES Act's Paycheck Protection Program ("PPP"), FinCEN mirrored the Small Business Administration ("SBA") PPP Interim Final Rule, and stated that eligible federally insured depository institutions and federally insured credit unions are not obligated to require reverification for existing customers. For non-PPP loans, FinCEN pointed to its ruling from September 7, 2018 (FIN-2018-R004), in which it provided exceptive relief from the Beneficial Ownership Rule for rollovers, renewals, and modifications and extensions (but not initial opening) for accounts of existing legal entity customers. To the extent such exceptive relief does not apply, financial institutions are expected to apply their existing risk-based approach to BSA obligations.
(2) FinCEN indefinitely suspended implementation of its ruling from February 6, 2020 (FIN-2020-R001), in which it held that a natural person's name must be included in a Currency Transaction Report ("CTR") for transactions involving a sole proprietorship or business under a different name (a "doing business as" or "DBA" name). The rules for such types of CTR filings will be revisited in the future, until such time financial institutions may either revert to prior practice or report them in accordance with the now-suspended ruling.
In addition, FinCEN announced a new online contact mechanism for financial institutions to address COVID-19-related concerns. To utilize it, financial institutions should navigate to www.FinCEN.gov, click on "Need Assistance," and select "COVID19" in the subject drop-down box. FinCEN also encouraged financial institutions to keep their functional regulator closely apprised of BSA compliance concerns due to the COVID-19 pandemic.
Commentary
While the PPP is a well-intentioned effort to get money to small businesses and workers, Americans should be realistic about how timely and effective it will be. It is meant to provide quick funds with an application period that ends on June 30, 2020. But conducting proper risk-based AML/BSA due diligence takes time even under noncrisis circumstances, and FinCEN is signaling that financial institutions remain fully responsible for their obligations despite the COVID-19 pandemic. So while FinCEN's due diligence relief for current customers is welcomed, BSA-regulated financial institutions will be understandably hesitant to provide PPP loans to small businesses without whom they had an existing relationship.
As for would-be PPP lenders not already subject to the BSA, SBA is requiring them to establish an AML/BSA compliance program and may also require a customer identification program and the collection of beneficial ownership information for legal entity customers (or the reliance on a customer identification program of a federal insured bank or credit union). They will also have to quickly get up to speed in filing Suspicious Activity Reports ("SARs") with FinCEN. The ability to do all this by June 30, 2020 is likely to be a serious practical impediment for them to enter the program.
FinCEN is right in warning about the rampant fraud and abuse that is likely to occur over the coming months, but its limited relief to would-be PPP lenders will do little to assuage their legitimate concerns. Unless this changes, it is unlikely the PPP will be nearly as effective in addressing this crisis as it had hoped.