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Recently, the Small Business Administration released two interim final rules (IFR) to provide guidance on the Paycheck Protection Program (PPP) loan forgiveness process, as well as directions on lender and borrower responsibilities. Both IFRs are effective immediately, and comments will be received for 30 days following publication in the Federal Register.
The loan forgiveness IFR outlines PPP loan forgiveness requirements for borrowers and lenders. Among other things, lenders must confirm that they received the borrower certifications in the loan forgiveness application form (covered by InfoBytes here) and verify the borrower’s calculations. The IFR also clarifies several questions, including those related to employee status, payroll calculations, and nonpayroll expenses eligible for forgiveness.
The lender and borrower responsibilities IFR provides additional guidance on the SBA PPP loan review, the loan forgiveness process for lenders, and lender eligibility for processing fees. While the IFR recommends that lenders work with borrowers to correct identified “errors in the borrower’s calculation or material lack of substantiation in the borrower’s supporting documents,” it does not require lenders to “independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.” Lenders must report their decisions on forgiveness applications to the SBA and request payment from the SBA for borrowers that are eligible for forgiveness no later than 60 days after receiving a complete application. The SBA also has the authority to review any PPP loan, although it will evaluate a loan based on the “rules and guidance available at the time of the borrower’s PPP loan application.” In addition, the IFR notes that lenders may lose fees for any loans deemed to be ineligible, and that the SBA may claw back already issued-fees if it determines the lender has failed to fulfill its obligations under the PPP. According to the IFR, lenders will receive payment from the SBA on eligible loans, plus any accrued interest through the date of payment, no later than 90 days after a lender reports its decision to SBA.
On May 27, the Small Business Administration (SBA) in consultation with the Treasury Department issued an update to the Paycheck Protection Program (PPP) Frequently Asked Questions to reflect the extension of the safe harbor deadline from May 14 to May 18. The SBA recently issued an interim final rule (IFR) to supplement the CARES Act and extend, for the second time, the PPP safe harbor for repayment from May 14 to May 18, to allow borrowers to avail themselves of a safe harbor with respect to the certification required by the CARES Act. The IFR also codifies the timeframe extension for submission of the initial SBA Form 1502 report for PPP loans. As previously covered by InfoBytes, the new timeframe for submission of Form 1502 is the later of (i) May 29, or (ii) 10 calendar days after disbursement or cancellation of the PPP loan.
OFAC designates Iran’s interior minister and senior law enforcement officials for human rights abuses
On May 20, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), pursuant to Executive Order 13553, sanctioned Iran’s interior minister, in addition to seven senior officials of Iran’s Law Enforcement Forces (LEF), a provincial commander of Iran’s Islamic Revolutionary Guard Corps, and a foundation along with its director and members of the board of trustees, for serious human rights abuses against Iranians. According to OFAC, the foundation is controlled by LEF and plays an active role in Iran’s energy, construction, services, technology, and banking industries. As a result of the sanctions, “all property and interests in property of these persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC further noted that its regulations “generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked or designated persons,” and warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to the designated individuals may subject them to U.S. correspondent account or payable-through sanctions.
On May 21, the Small Business Administration (SBA) released a procedural notice detailing the Form 1502 reporting process through which lenders will be able to collect the processing fees on eligible Paycheck Protection Program (PPP) loans. The SBA will pay lenders’ processing fees for PPP loans, based on the balance of the loan at the time of full disbursement, in the following amounts: (i) five percent for loans of not more than $350,000; (ii) three percent for loans of more than $350,000 and less than $2 million; and (iii) one percent for loans of at least $2 million. Lenders are required to report to the SBA on Form 1502 loans have been fully disbursed or canceled. Form 1502 should be submitted electronically to the SBA by the later of (i) May 29, or (ii) 10 calendar days after disbursement or cancellation of the PPP loan. (This is an updated deadline that was recently reflected in the SBA’s FAQs and was first announced in an interim final rule regarding disbursements under the PPP, covered by InfoBytes here.)
The SBA will begin accepting 1502 reports on fully disbursed or cancelled PPP loans on May 22. Lenders will not receive a processing fee payment if the loan is canceled before disbursement or if a disbursed loan is canceled or voluntarily terminated but repaid before May 18 (the borrower certification safe harbor date). As detailed in the procedural notice, lenders will be required to create an account in the Fiscal Transfer Agent Lender portal to access and submit Form 1502. The procedural notice includes, among other things, specifics on account creation and reporting. Additionally, the procedural notice contains useful questions and answers, including how the processing fees will be disbursed and when processing fees may be subject to clawbacks from the SBA.
On May 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated a China-based company pursuant to Executive Order (E.O.) 13224 for allegedly acting as a general sales agent (GSA) for or on behalf of an Iranian airline. According to OFAC, this is the seventh time a GSA has been designated to the airline since 2018, which was previously designated under E.O.s 13224 and E.O, 13382 for providing support to Iran’s Islamic Revolutionary Guard Corps-Qods Force. OFAC emphasized that entities operating in the airline industry “should conduct due diligence to avoid performing services, including GSA services, for or on behalf of a designated person, which may be sanctionable,” and referred the industry to a 2019 advisory that outlined potential civil and criminal consequences for providing unauthorized support to or for designated Iranian airlines.
As a result of the sanctions, “all property and interests in property of [the GSA] that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.” OFAC further noted that its regulations “generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve property or interests in property of blocked or designated persons,” and warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to designated individuals may subject them to U.S. correspondent account or payable-through sanctions.
On May 21, the SBA recently published an interim final rule (IFR), which addresses the eligibility requirements related to employees of a Paycheck Protection Program (PPP) borrower’s foreign affiliates. The SBA reiterated in the IFR that a small business must include foreign affiliate employees when calculating how many people it employs for purposes of determining if the business meets the PPP eligibility requirement of 500 or fewer employees. The SBA acknowledged, however, that previous guidance (covered by InfoBytes here) may have created “reasonable borrower confusion,” so in “an exercise of enforcement discretion,” the agency reiterated that the “SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-US employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States.” The SBA further determined that these borrowers will “not be deemed to have made an inaccurate certification of eligibility solely on that basis.”
The IFR takes effect upon publication in the Federal Register and is applicable to PPP applications submitted through June 30, 2020, or when program funding is exhausted. Comments are due within 30 days.
On May 19, the Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing with Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven T. Mnuchin to discuss the agencies’ efforts to implement the CARES Act relief provisions to support consumers and help stabilize the infrastructure of the economic system. Topics discussed included emergency lending facilities, such as the Main Street Lending Program and the Municipal Liquidity Facility, as well as the Paycheck Protection Program (PPP) and the Payroll Support Program.
Mnuchin testified that Treasury has “worked closely with the Small Business Administration on the [PPP] to ensure the processing of more than 4.2 million loans for over $530 billion[.]” He issued praise for the nearly 400 Community Development Financial Institutions and Minority Depository Institutions, as well as the many small and non-bank lenders that are participating in the program. Mnuchin noted that, while Treasury has already committed up to $195 billion of the $500 billion provided by Congress, the agency plans to use the remainder to create or expand programs as necessary after determining how best to deploy the money to help losses associated with the Covid-19 pandemic. “The only reason I have not allocated it fully is we are just starting to get these facilities up and running,” Mnuchin emphasized during the hearing. “We want to have a better idea as to which one of the facilities needs more capital as well as the potential for adding additional facilities.” Mnuchin also stated that Treasury is “fully prepared to take losses in certain scenarios on that capital.”
Powell discussed lending programs and monetary policy efforts taken by the Fed under section 13(3) of the Federal Reserve Act since the pandemic started, including measures to help stabilize short-term funding markets. These include lengthening the term and lowering the rate on discount window loans to depository institutions, and—together with Treasury—establishing the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility. Powell also discussed the Term Asset-Backed Securities Loan Facility, which will lend against asset-backed securities “backed by newly issued auto loans, credit card loans, and other consumer and small business loans.” Powell stressed that “public input has been crucial” in the agency’s development of these facilities and that additional adjustments may occur “as we learn more” about the needs of potential borrowers.
On May 14, the U.S. Departments of State and Treasury, along with the U.S. Coast Guard, issued a global advisory warning the maritime industry of deceptive shipping practices used by Iran, North Korea, and Syria to evade economic sanctions. The “Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities” expands upon previously issued advisories and discusses due diligence approaches that entities, including financial institutions, should employ to monitor illicit activity and mitigate the risk of potentially engaging in prohibited activities or transactions. Among other things, the advisory provides a list of general compliance practices that may help entities “in more effectively identifying potential sanctions evasion.” These include: (i) institutionalizing sanctions compliance programs; (ii) establishing Automatic Identification System (AIS) best practices and contractual requirements to monitor for manipulations and disruptions, which may be an indication of potential illicit or sanctionable activity; (iii) monitoring ships throughout the entire transaction lifecycle, including those leased to third parties; (iv) knowing your customers and counterparties; (v) exercising supply chain due diligence; (vi) incorporating these best practices into contractual language; and (vii) engaging in industry information sharing of challenges, threats, and risk mitigation measures.
See here for previous InfoBytes coverage on global shipping advisories.
On May 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) provided clarifying text related to the modified North Korea Sanctions and Policy Enforcement Act (covered by InfoBytes here), which bars foreign subsidiaries of U.S. financial institutions from knowingly engaging in transactions with Specially Designated Nationals (SDNs) identified under North Korea-related authorities. OFAC added the following text to 490 SDN records to assist the private sector in identifying persons that have been so designated: “Transactions Prohibited For Persons Owned or Controlled by U.S. Financial Institutions: North Korea Sanctions Regulations section 510.214.”
On May 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued two new General Licenses (GL) Venezuela GL 3H, “Authorizing Transactions Related to, Provision of Financing for, and Other Dealings in Certain Bonds,” and GL 9G, “Authorizing Transactions Related to Dealings in Certain Securities.” OFAC removed and revoked GL13E. The changes reflect the need to remove Nynas AB. According to the announcement, Nynas AB “has undertaken a corporate restructuring that has resulted in Nynas AB no longer being blocked pursuant to the Venezuela Sanctions Regulations.” Therefore, U.S. persons can engage in transactions or activities with Nynas AB, “provided such activities do not involve blocked persons or otherwise prohibited activities.” OFAC also made conforming technical updates to two FAQs to reflect the issuance of the new GLs.
- APPROVED Webcast: Remote examinations and complaints — The “new normal”
- Sasha Leonhardt to discuss "Privacy laws clarified" at the National Settlement Services Summit (NS3)
- Amanda R. Lawrence to discuss "New privacy legislation: Preparing for a major source of class action and enforcement activity going forward" at the American Conference Institute Consumer Finance Class Actions, Litigation & Government Enforcement Actions
- Sherry-Maria Safchuk and Lauren Frank to discuss "New CFPB interpretation on UDAAP" at a California Mortgage Bankers Association Mortgage Quality and Compliance Committee webinar
- Daniel P. Stipano to discuss "High standards: Best practices for banking marijuana-related businesses" at the ACAMS AML & Anti-Financial Crime Conference
- Daniel P. Stipano to discuss "Wait wait ... do tell me! Where the panelists answer to you" at the ACAMS AML & Anti-Financial Crime Conference
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute