How can we comply with customer identification program (CIP) and customer due diligence (CDD) beneficial ownership requirements when purchasing shares of participation loans, sometimes years after their origination? We typically wait ninety or more days before receiving Bank Secrecy Act-related documentation, which we sometimes do not receive at all.

We do not believe that FinCEN’s CIP and CDD beneficial ownership requirements apply when purchasing a participation interest in loans that have already been originated, but we recommend confirming this conclusion after sharing all relevant information and documents with your bank counsel.

FinCEN’s CIP regulations require banks to obtain certain information from a customer before opening an account, and FinCEN’s beneficial ownership regulations require banks to identify the beneficial owners of legal entity customers when they open an account. The term “account” is defined as “a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit.”

The term “account” does not apply to those acquired through an acquisition, merger, purchase of assets, or assumption of liabilities. FinCEN’s Interagency FAQs on the CIP rule confirm that this exclusion covers “loan participations purchased from third parties.” While FinCEN has not issued a similar FAQ under its beneficial ownership regulations, that rule uses the same definition of “account” as the CIP regulations, and we believe similar reasoning would apply in the context of the beneficial ownership rule.

For resources related to our guidance, please see:

FinCEN Regulations, 31 CFR 1020.220(a)(2)(i)(A) (“[T]he bank must obtain, at a minimum, the following information from the customer prior to opening an account: . . .”)

FinCEN Regulations, 31 CFR 1010.230(b) (“With respect to legal entity customers, the covered financial institution’s customer due diligence procedures shall enable the institution to: (1) Identify the beneficial owner(s) of each legal entity customer at the time a new account is opened, unless the customer is otherwise excluded pursuant to paragraph (e) of this section or the account is exempted pursuant to paragraph (h) of this section.”)

FinCEN Regulations, 31 CFR 1010.230(c) (“For purposes of this section, account has the meaning set forth in § 1020.100(a) of this chapter (for banks); . . .”)

FinCEN Regulations, 31 CFR 1020.100(a)(1) (“Account means a formal banking relationship established to provide or engage in services, dealings, or other financial transactions including a deposit account, a transaction or asset account, a credit account, or other extension of credit. Account also includes a relationship established to provide a safety deposit box or other safekeeping services, or cash management, custodian, and trust services.”)

FinCEN Regulations, 31 CFR 1020.100(a)(2) (“Account does not include: . . . (ii) An account that the bank acquires through an acquisition, merger, purchase of assets, or assumption of liabilities.”)

Interagency FAQs, Customer Identification Program Rule (April 28, 2005), page 2 (“Are loan participations purchased from third parties and loans purchased from a car dealer or mortgage broker within the exclusion from the definition of ‘account’ for loans acquired through an acquisition, merger, purchase of assets, or assumption of liabilities? Yes, this exclusion is intended to cover loan participations purchased from third parties and loans purchased from a car dealer or mortgage broker. If, however, the bank is extending credit to the borrower using a car dealer or mortgage broker as its agent, then it must ensure that the dealer or broker is performing the bank’s CIP.”)