PPP Loans and Beneficial Ownership

Initial Issue/Inquiry

The Bank provided Paycheck Protection Program (“PPP”) loans to established customers and new customers. Deposit accounts were established when most of these loans were made, and the beneficial ownership information was obtained with respect to the deposit accounts. For those loans for which deposit accounts were not opened, however, beneficial ownership information was not obtained. Should the Bank have obtained such information?

Response Summary

In most cases, the Bank is not required to obtain or verify beneficial ownership information for established customers with respect to PPP loans. For new customers that are business entities, the information obtained when the PPP loan is made will be sufficient to satisfy beneficial ownership requirements when the beneficial owner is a natural person. When the new customer is a business entity that has another business entity as a beneficial owner, the Bank will be required to obtain and verify beneficial ownership information regarding such owner.

Response Detail

FinCEN has provided guidance (FinCEN, Paycheck Protection Program Frequently Asked Questions [FAQs], April 13, 2020 or “FinCEN FAQs”) addressing the Beneficial Ownership Rule as it applies to Paycheck Protection Program (“PPP”) loans, as follows:

• If the PPP loan is being made to an existing customer and the necessary beneficial ownership information was previously verified, the bank does not need to re-verify the information.
• If beneficial ownership information has not been previously verified on an existing customer, the bank does not need to collect and verify the beneficial ownership information, unless otherwise indicated by its risk-based approach to Bank Secrecy Act (“BSA”) compliance

This means that if the PPP loan was made to an existing customer of the Bank, the Bank is not required to re-verify beneficial ownership information that it previously collected and verified. If it has not already collected and verified beneficial ownership information for such a customer, it does not need to do so at this time, unless its BSA policy requires it.

Lenders making PPP loans are required to obtain the owner name, title, ownership percentage, TIN, and address from each owner who has a 20 percent or greater ownership stake in the applicant business. The FinCEN FAQs also address whether this information satisfied a lender’s obligation to collect beneficial ownership information under the BSA, which has a 25 percent ownership threshold:

• For existing customers, beneficial ownership information that has been collected and verified does not need to be re-verified or, if the beneficial ownership information has not been collected and verified, the bank does not need to collect and verify such information unless its risk-based approach to BSA compliance requires this.
• For new customers, the collection of the required information for natural persons with a 20 percent or greater ownership interest in the applicant business will be deemed to satisfy applicable BSA requirements and FinCEN regulations governing the collection of beneficial ownership information:
  • Owner name
  • Title
  • Ownership percentage
  • TIN
  • Address
  • Date of birth
• If any ownership interest of 20 percent or greater belongs to a business or other legal entity, the bank will need to collect appropriate beneficial ownership information for that entity.

For loans to new customers, the information the Bank collected for individual owners having a stake in the applicant business will satisfy the beneficial ownership information required under BSA.

For loans to new customers in which a business entity has an ownership stake in the applicant business, the Bank will need to obtain appropriate beneficial ownership information for that ownership entity.

This means that, for new customers that are business entities and, thus, subject to the beneficial ownership requirements, the Bank will have to develop enough information to be able to determine whether another business entity has an ownership interest in the applicant business. The Bank will need to obtain and verify beneficial ownership information only if the applicant business is a new customer, and another business entity has 20 percent or greater interest in the applicant business.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, November 23rd, 2020 at 10:47 am.