December 9, 2022

Volume XII, Number 343


December 08, 2022

Subscribe to Latest Legal News and Analysis

December 07, 2022

Subscribe to Latest Legal News and Analysis

December 06, 2022

Subscribe to Latest Legal News and Analysis

Creating a Roadmap for Banks to Mitigate Risk Under the SBA Paycheck Protection Program

On April 2, the Small Business Administration (“SBA”) issued the long-anticipated Interim Final Rule that sets out the current agency guidance regarding requirements that borrowers and lenders must follow in order to apply for and process loans, respectively, under the CARES Act Paycheck Protection Program (“PPP”). While borrowers bear the heavier burden for certifying compliance with the program rules, the PPP also imposes diligence and compliance obligations on lenders.  As the expected onslaught of applications comes in – one bank alone received 58,000 applications on April 3, the first day the program opened – keeping up with the new and existing requirements will put an increased strain on the internal controls banks rely upon to verify account information in compliance with federal guidelines, such as the Bank Secrecy Act (“BSA”). 

Creating a defined process to identify and appropriately respond to these issues will not only facilitate a borrower’s application, but also it will establish an audit trail that can be used to demonstrate that the lender employed best practices, acted in good faith and took reasonable steps to comply with the regulations. 

Although lenders will be able to rely upon borrower certifications, lenders will still face regulatory scrutiny for their compliance obligations, especially if it is later determined that any loan was obtained fraudulently or deemed invalid for other reasons.  For example, not only must a lender certify it has received the proper certifications from the borrower, the lender must “confirm receipt of information demonstrating” a borrower paid employees for the prior calendar year and “confirm the dollar amount of average monthly payroll.”2 The bank’s compliance with these provisions will be scrutinized if it turns out that the submitted information was false.

In addition, lenders must continue to comply with the BSA’s anti-money laundering and “KYC” requirements.  While some reporting requirements have been relaxed to process PPP loans, the Financial Crimes Enforcement Network (“FinCEN”) issued a reminder to all financial institutions that they must continue to adhere to all BSA and anti-money laundering requirements and emphasized that this remains especially true for new customer accounts seeking access to the stimulus funds.3 

As noted in a previous alert, lenders faced significant civil and criminal enforcement action associated with the stimulus relief package from the 2008 financial crisis.  The PPP should be viewed no differently and implementing a standardized compliance process to account for the challenges posed by the PPP will be critical to mitigate future enforcement or litigation risk.  Actions lenders take today will determine how regulators and courts view lenders potential liability in the future.

Streamlining policies and procedures – and identifying employees who will be responsible for carrying out specific PPP compliance – will establish a framework that lenders can rely upon to help insure against future enforcement actions or subsequent civil litigation. 


1 Interim Final Rule on the CARES Act Paycheck Protection Program,

Id. at 21.

3 Financial Crimes Enforcement Network, The Financial Crimes Enforcement Network Provides Further Information to Financial Institutions in Response to the Coronavirus Disease 2019 (COVID-19) Pandemic, (Apr. 3, 2020),   

© 2022 Bracewell LLPNational Law Review, Volume X, Number 96

About this Author

Rachel goldman, complex commercial litigation, attorney, Bracewell law

Rachel Goldman is an experienced litigator in both federal and state courts, at the trial and appellate levels. Her practice focuses on complex commercial matters, including claims for breach of contract, post-acquisition disputes, class actions, False Claims Act cases, insurance coverage disputes, contested bankruptcy matters, challenges under the Commerce Clause and the Supremacy Clause, government regulation, securities litigation, construction law, First Amendment and libel actions. Additionally, Rachel's tenure as in-house counsel provides a valuable perspective of...

Thomas Kokalas, White Collar Defense, Attorney, Bracewell, law firm

Thomas Kokalas is a partner in Bracewell's New York office, where he is a member of the firm's White Collar Defense, Internal Investigations and Regulatory Enforcement practice group. He represents corporations and individual clients in federal and state white collar criminal and regulatory cases, internal investigations and compliance reviews.

Mr. Kokalas has represented individuals and corporations in investigations and prosecutions by the Department of Justice, the SEC, the Manhattan District Attorney's Office and the New York State Attorney...

William S. Anderson, Securities Attorney, Bracewell Law Firm

Will Anderson focuses on capital markets transactions, liability management, SEC compliance and disclosure matters and mergers and acquisitions.  He also regularly advises Boards of Directors and Special Committees on fiduciary duties, corporate governance and other matters.

Will has represented issuers and underwriters in well over 100 securities offerings that have collectively raised more than $30 billion.  His experience includes initial public offerings, follow-on equity offerings and high yield and investment grade debt offerings.  He...

Jason Jean Finance & Energy Attorney Bracewell

Jason Jean is experienced in advising public and private businesses, including private equity investors, in the financial services sector, upstream and midstream energy sector, and other sectors with respect to mergers and other business combinations, asset and stock purchases and sales, restructurings and joint ventures. Jason also advises businesses in private capital markets transactions, including Rule 144A private placements and PIPEs, and public capital market transactions listed on the New York Stock Exchange (NYSE), NASDAQ, Amex and London Stock Exchange. His capital markets...

Joshua McNulty Corporate Attorney Bracewell

Josh McNulty is a corporate and regulatory banking attorney. Josh’s practice primarily focuses on regulatory compliance, mergers and acquisitions, and securities law matters for financial institutions. He counsels state and national banks, holding companies and other financial institutions on state and federal regulatory compliance issues, including all aspects of regulatory matters involving the FDIC, the Federal Reserve, the OCC, the TDB, and the CFPB.

Josh also advises financial institutions, corporate clients and boards of directors on corporate governance, stockholder matters,...