Staying Vigilant During the COVID-19 Crisis: Top BSA/AML Developments

In this time of unprecedented global upheaval as a result of the coronavirus pandemic, companies and individuals in the financial services industry are struggling to adapt to a new working environment. Companies that have Bank Secrecy Act / Anti-Money Laundering (BSA/AML) compliance obligations are now faced with new challenges as they confront emerging financial crime trends, evolving regulatory guidance, and additional compliance requirements under the U.S. government’s stimulus programs. There are also unforeseen challenges that go along with conducting “business as usual” compliance and monitoring work from a remote location or with reduced numbers of staff onsite. This client alert highlights some of the recent BSA/AML developments that relate to the unfolding COVID-19 crisis.

Recent BSA/AML Developments

A. BSA Compliance Under the CARES Act / Paycheck Protection Program

One of the cornerstones of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is the newly established Paycheck Protection Program (PPP), which provides $349 billion for “paycheck protection loans” through the Small Business Administration’s (SBA) 7(a) Loan Guaranty Program. Under the PPP’s interim final rules, effective April 3, 2020, lenders must comply with the BSA, or, if they are not currently subject to the BSA, they must “establish an anti-money laundering (AML) compliance program equivalent to that of a comparable federally regulated institution.”

The Financial Crimes Enforcement Network (FinCEN) issued guidance on April 3, 2020, to help financial institutions comply with their BSA/AML obligations during the COVID-19 crisis.  Importantly, with respect to the distribution of relief funds under the CARES Act, FinCEN indicated that PPP loans made by federally-insured depository institutions and federally insured credit unions to existing customers “will not require re-verification under applicable BSA requirements, unless otherwise indicated by the institution’s risk-based approach to BSA compliance.”  

In this guidance, FinCEN also (1) suspended its implementation of a February 2020 ruling on certain Currency Transaction Report (CTR) filing obligations and (2) established an online contact mechanism for regulated financial institutions to communicate their BSA compliance concerns relating to the COVID-19 pandemic. On April 7, 2020, the Office of the Comptroller of the Currency (OCC) issued guidance of its own that supported FinCEN’s approach to these issues and encouraged all banks to follow a risk-based approach to managing their BSA compliance programs.   

On April 13, 2020, FinCEN republished two BSA-related “Frequently Asked Questions” (FAQs) that had been issued previously by the SBA. The first FAQ reiterates FinCEN’s prior guidance that PPP lenders do not need to re-verify CDD information for existing customers, and also stated that if eligible PPP lenders “have not yet collected beneficial ownership information on existing customers, such institutions do not need to collect and verify beneficial ownership information for those customers applying for new PPP loans, unless otherwise indicated by the lender’s risk-based approach to BSA compliance.” The second FAQ addresses the different thresholds for obtaining beneficial ownership information under the PPP and the BSA, with the PPP’s requirement that lenders collect beneficial ownership information regarding every owner who has a 20% or greater ownership stake in the PPP applicant’s business deemed to be satisfactory in most instances for both new and existing customers. 

FinCEN has taken steps in its guidance to address some of the regulatory burdens facing financial institutions that choose to participate in the PPP. There are, however, still concerns that BSA/AML compliance obligations, particularly the “know your customer” (KYC) requirements, may be contributing to delays in the distribution of PPP funds to small business borrowers. In addition, in order for the broad range of non-bank lenders to begin issuing PPP loans, they must quickly ensure that they have implemented a compliance program that meets the requirements of the BSA to become eligible to participate in the PPP lending program.

B. Impact of COVID-19 on Filing Required BSA Reports

In its initial COVID-19 guidance on March 16, 2020, FinCEN acknowledged that some financial institutions may be encountering difficulties in submitting reports that are required under the BSA. As a result, FinCEN encouraged financial institutions that are in this position to contact its Regulatory Support Section (RSS) directly with any such concerns, as well as to keep both FinCEN and the institutions’ functional regulators informed as circumstances change. This guidance from FinCEN speaks to the larger issue of communication and demonstrates that companies should keep an open dialogue with regulators and other governmental agencies to address how the COVID-19 crisis is affecting their ability to comply with various regulatory reporting requirements.

C. Emerging Financial Crime Trends

In this same March 16 release, FinCEN warned financial institutions that they should be on alert for suspicious transactions in connection with the COVID-19 crisis. In particular, FinCEN  noted that it has received reports about an increase in imposter scams, investment scams, product scams, and insider trading. Companies should stay vigilant for these and other types of malicious or fraudulent transactions, which historically are commonplace when there is a natural disaster or crisis.  

Financial institutions are facing unprecedented challenges as a result of the COVID-19 crisis. Regardless of the scale of the market disruption or speed with which banks are being asked to assist with financial relief packages, regulators and enforcement agencies will expect banks to comply with their BSA/AML obligations. As such, financial institutions should continue to ensure that they are meeting these expectations or taking precautionary measures as soon as possible if compliance safeguards begin to erode.

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