To date, the Financial Crimes Enforcement Network (FinCen) has published three releases relating to complying with the Bank Secrecy Act (BSA) with respect to COVID-19 pandemic-related issues. The key points from the releases are summarized below.
Guidance Applicable to Federally Insured Deposit Institutions and Federally Insured Credit Unions Eligible to Participate in the Paycheck Protection Program
The Small Business Administration (SBA), in consultation with the U.S. Department of Treasury, included two Bank Secrecy Act (BSA) related FAQs in the FAQs that were issued relating to the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief and Economic Security Act. FinCen re-published the FAQs on April 13, 2020.
The FAQs discuss compliance with the Customer Due Diligence Rule (CDD Rule) when a customer applies for a PPP loan. The key points from the FAQs are set forth below:
- It is not necessary for the lender to re-verify existing legal entity customers’ beneficial owners when they apply for a PPP loan and when collecting the beneficial ownership information required by the PPP (name, title ownership %, TIN and address of all beneficial owners with 20% or greater ownership interests) if the beneficial owners were previously verified pursuant to the BSA;
- Unless otherwise indicated by the lender’s risk-based approach to BSA compliance, it is not necessary for the lender to verify beneficial ownership information pursuant to the BSA for existing legal entity customers whose beneficial owners were not previously verified but the lender must collect the beneficial ownership information required by the PPP (name, title, ownership %, TIN and address of all beneficial owners with 20% or greater ownership interests);
- With regard to new legal entity customers, lenders’ collection of the beneficial ownership information required by the PPP (name, title, ownership %, TIN and address of all beneficial owners with 20% or greater ownership interests) will be deemed to have satisfied BSA requirements and FinCen regulations governing the identification of beneficial owners and decisions on verifying those beneficial owners should be based on the lender’s risk-based approach to BSA compliance.
- With regard to new legal entity customers with legal entity beneficial owners with greater than 20% ownership interest, lenders should collect the information required under the PPP (name, title, ownership %, TIN and address of all beneficial owners with 20% or greater ownership interests) from said legal entity beneficial owner and any decision regarding verification of such beneficial owners should be based on the lender’s risk-based approach to BSA compliance.
FinCen’s April 3, 2020 Release Relating to the COVID-19 Pandemic
The Release stated that FinCen heard from financial institutions and industry trade associations about difficulties in timely filing certain BSA reports due to the COVID-19 pandemic. FinCen indicated that it recognizes that it may be challenging for certain financial institutions to comply with certain of the BSA filing deadlines and that there may be reasonable delays.
FinCen also suspended the implementation of the February 6, 2020 ruling (FIN-2020-R001) on Currency Transaction Report (CTR) filings involving sole proprietorships and entities operating under “a doing business as” name until further notice. FinCen indicated that financial institutions should continue to file CTR Reports relating to sole proprietorships and “doing business as” businesses pursuant to the pre-ruling practice or in compliance with the suspended ruling requirements.
The Release also announced the establishment of an online contact mechanism so that financial institutions could communicate with FinCen regarding COVID-19 concerns. The online contact mechanism can be accessed by clicking on “Need Assistance” and selecting COVID-19 in the drop down on FinCen’s website (www.FinCen.gov). FinCen also reiterated that financial institutions should contact their functional regulator as soon as practicable if there are any BSA compliance concerns due to the COVID-19 pandemic and also keep FinCen informed relating thereto. Lastly, FinCen reminded financial institutions to review relevant functional regulator updates on COVID-19 pandemic issues as they become available.
FinCen’s March 16 Release Relating to the COVID-19 Pandemic
The Release stated that financial institutions should contact FinCen and their functional regulator as soon as practicable if they have concerns about any potential delays in filing BSA reports due to the COVID-19 pandemic.
FinCen advised financial institutions to remain alert about malicious or fraudulent transactions similar to those that occur in the wake of natural disasters. The Release also noted that financial institutions should review its “Advisory to Financial Institutions Regarding Disaster-Related Fraud” FIN-2018-A007 issued on October 31, 2017.
The Release listed several emerging illicit activity trends relating to the COVID-19 pandemic that FinCen identified based on media reports and BSA filings. The emerging trends are as follows:
- Imposter Scams: bad actors impersonating government agencies such as the Center for Disease Control and Prevention or health organizations in an effort to solicit donations, steal personal information or distribute malware;
- Investment Scams: promotions that falsely claim that a publicly traded company has a product or service that can prevent, detect or cure COVID-19;
- Product Scams: companies selling unapproved or misbranded products that make false health claims relating to COVID-19 and/or fraudulent marketing of supplies such as face masks;
- Insider Trading: FinCen has received reports of insider trading associated with the COVID-19 pandemic.
The Release indicates that financial institutions should enter “COVID19” in field 2 of the Suspicious Activity Report template when reporting illicit activity that is associated with the pandemic.