Are CIP and OFAC Procedures Applicable to Loan Modifications?

Issue/Question

The Bank asks whether it must follow its CIP and OFAC procedures for loan modifications.

Response Summary

The CIP process does not need to be performed for an existing customer, provided that the Bank has a reasonable belief that it knows the true identity of the person. However, OFAC is an on-going requirement. Whether a new OFAC screening should be performed when a loan is modified is a risk-based decision based on the OFAC risk assessment performed by the Bank.

Response Detail

The CIP rule applies to a “customer,” who is generally “a person that opens a new account.” 31 CFR §121(a)(3)(i). While a loan modification is considered a new account for CIP purposes, the rule also provides that the term “customer” does not include a person who has an existing account with the Bank, provided that the Bank has a reasonable belief that it knows the true identity of the person. 31 CFR §121(a)(3)(ii)(C). So, as long as the Bank has a reasonable belief that it knows the borrower’s true identity, it does not need to perform its CIP when a loan is modified.

The rules for OFAC screening are different than those for CIP.

CIP is an identification process that must be performed when the account is opened, but does not necessarily have to be performed again, while OFAC is an on-going requirement not to conduct business with certain individuals and entities. New accounts should be compared with OFAC lists prior to being opened or shortly thereafter. Whether OFAC screening should be performed when a loan is modified or periodically during database reviews, is a risk-based decision and will turn on the OFAC risk assessment the Bank performed of its product lines, customer base, and account and transaction parties.

In evaluating the level of risk, the Bank would consider such factors as geographical location, average length of time of current accounts, whether the borrower is a nonresident alien or foreign customer, and any previous hits on OFAC.

Therefore, the Bank will most likely not perform CIP identification when a loan is modified, but may do a new OFAC screening at that time, depending on its risk analysis.

This entry was posted on Friday, January 2nd, 2015 at 8:26 pm.