Beneficial Ownership During the Covid-19 Pandemic

Akash Govil, CAMS
Manager

As we all know, businesses have been suffering as the economy continues to take a major dip due to the effects of Covid-19.  Many establishments have had to alter or limit supply, products, and services they can offer in order to maintain a form of profitability with limited customer demands or even struggling to create new markets and demands for customers to remain sustainable. On the other hand, there has been a high expectation for financial institutions during the pandemic to be the necessary conduit for assisting businesses through the distribution of government supported loans.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed at the start of the 2020 pandemic year to provide some relief to the suffering economy with the inclusion of Paycheck Protection Program (“PPP”) loans, thereby increasing the supply of required services banks can offer in order to meet the cumbersome and heightened demand for help. As many branches had to endure hardships such as limited hours or even closures, along with social distancing in full effect and manpower growing thin, these institutions were faced with the increase in business while undergoing such extreme challenges. 

Thankfully, FinCEN has recognized these dire compliance challenges burdening financial institutions and decided to step in to provide much needed assistance. In case you missed it or need a recap, FinCEN issued an update on April 13, 2020 of their joint Frequently Asked Questions (“FAQ”) with the Small Business Administration (“SBA”) regarding the implementation of the PPP established by the CARES Act. The re-published FAQs lightened the beneficial ownership compliance requirements that financial institutions need to meet and provided additional guidance during this unprecedented time.

The following BSA related guidance was issued:

• If a PPP loan is made to an existing customer and the necessary beneficial ownership information was previously verified, the information does not need to be re-verified.
• If beneficial ownership information has NOT been previously verified on an existing customer, beneficial ownership information does not need to be collected and verified, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.
• For new customers, the lender must collect beneficial ownership information on all-natural persons with a 20% or greater ownership in the applicant business. The required information is as follows:
  • Name
  • Title
  • Ownership %
  • TIN
  • Address
  • Date of Birth
• If a business is a 20% or more beneficial owner of the applicant business, beneficial ownership information would be required on the entity.
• Beneficial ownership further verification should be made in accordance with the lender’s risk-based BSA Policy.
  

Therefore, if you were not aware of the lightened beneficial ownership compliance and have been going by what was previously required, you may be questioning whether you should continue with what you are already doing, or rush to curtail your compliance function due to FinCEN saying that you can cut back. Personally, even though you certainly can, I would not recommend dialing back your compliance program at this point. Beneficial ownership is vital for detecting and reporting potential suspicious activity.  So, if you have already pushed past the “rush”, why change things now only to have to fill in the missing gaps later?

However, if your compliance department has been swamped with the burden of issuing countless PPP loans, this may be something to consider for the time being. Just keep in mind that if you choose not to obtain beneficial ownership for existing customers, to lighten the load, you should keep track of all said customers and dedicate time aside (once when normalcy begins to return) to reach out and obtain such information in order to remain in compliance with the beneficial ownership regulation. A great way to ensure that beneficial ownership information is obtained for existing customers is through the practice of event-driven triggers. Financial institutions should maintain a risk-based list of all events that would trigger a certification or recertification of beneficial ownership information. Keeping track of this information is a proactive approach to show your examiners that you are on top of the situation and ready to combat any unforeseen risks.

In addition, as the term “risk-based approach” leaves room for differing interpretations, it would be prudent for lenders to add a PPP addition to the Bank’s Board-approved BSA/AML Compliance Policy. This would ensure that your Bank’s risk-based decisions are supported with confirmation and Board oversight.  FinCEN states in this update that the U.S. Government will not challenge any lender PPP actions that conform to the above guidance or any other future guidance.

Akash Govil, CAMS - Manager BSA/AML Audit Team

Akash has extensive experience performing BSA/AML and OFAC internal audits for the Firm’s clients, with a special focus on community banks and the U.S. branches/agencies of foreign banks. He has been with acxell since 2013 and has conducted investigations for Customer Due Diligence, Enhanced Due Diligence and Customer Identification Programs, as well as other specialized reviews and assessments.  Akash manages BSA/AML and OFAC engagements and reviews and evaluates risk assessments, policy and procedures, the adequacy of internal controls and institutional ability to meet regulatory requirements. He is  a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS).