The government was quick to roll-out PPP loans to offer relief to small businesses and communities. Despite the speed and urgency of the loans, financial institutions were not exempt from normal BSA requirements. However, FinCEN has attempted to find a middle ground for financial institutions, and has offered a concession to institutions, exempting them from collecting beneficial ownership information if it is already on file.
As with all loans and transactions, financial institutions must know their customers when it comes to PPP loans because those loans are at a heightened risk for fraud. Financial institutions should have researched their borrowers and their respective companies to see if there is a potential for fraud. Look at the customer due diligence (CDD) information or run a credit check to look for loan stacking, and make sure the number of employees makes sense for their payroll. Ensure the business was established prior to February 15, 2020.
BSA officers should complete regular suspicious activity monitoring on these loans and follow the use of funds. “If you’re a small institution that only did PPP lending to your existing customers and decided not to do a lookback based on a risk-based approach, document that in your policies and procedures,” said Luttrell. PPP loans are heightened risk because of the fraud we’re seeing. “If you carefully document all of this, you will be proactive and prepared for your exam.”