Congress Passes the PPP Flexibility Act

Posted in Compliance, coronavirus, Debt relief, Financial Regulation, Financial Services Litigation, Government, Lending, Litigation

On June 3, 2020, Congress passed the PPP Flexibility Act to loosen requirements for loan forgiveness for CARES Act Paycheck Protection Program (PPP) borrowers. The new forgiveness rules will allow borrowers to extend the period for spending the loan proceeds to 24 weeks from the date of disbursement, an increase from the eight-week period originally required. The PPP program will be extended from June 30, 2020, to Dec. 31, 2020. The loan application cutoff date, however, remains June 30, 2020.

Read the full GT Alert, “Congress Passes the PPP Flexibility Act.”

PPP Loan Forgiveness: What the Latest Guidance Means for You

Posted in Consumer Financial Services, coronavirus, Financial Regulation, Lending, small businesses

On May 22, the Small Business Administration and the Treasury Department released its latest guidance in the form of two interim final rules on loan forgiveness: “Business Loan Program Temporary Changes; Paycheck Protection Program –Requirements – Loan Forgiveness” and “Business Loan Program Temporary Changes; Paycheck Protection Program – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities.” This, coupled with Treasury’s recent Loan Forgiveness Application gives borrowers seeking forgiveness of their Paycheck Protection Program loans a better understanding of the process, subject to future regulatory or legislative changes.

Read the full GT Alert, “PPP Loan Forgiveness: What the Latest Guidance Means for You.”

Contractual Flexibility for Small Businesses

Posted in coronavirus, small businesses

Small businesses oftentimes rely on co-working spaces, which are facing two issues during the Coronavirus Disease 2019 (COVID-19) pandemic.

  1. Some co-working spaces are staying open in the event that any of their users provide essential services – does this warrant charging continued fees to all users? Furthermore, because shared spaces may challenge company-wide safety guidelines, does this risk the well-being of space users?
  2. Small businesses typically do not have the same degree of insurance, cash reserves, and other safeguards as large businesses. Therefore, an inability to terminate co-working space contracts early may be a significant cash burden to small businesses.

In short, small businesses should consult with counsel to better understand what rights may warrant an early termination of their overall office and other related third-party contracts to effectuate an early termination, fee discounts for the term of their corresponding contract during the COVID-19 pandemic, or a temporary cancellation of their contract.

Federal Reserve Releases New Information on the TALF

Posted in banking, coronavirus, Financial Regulation, GT Alert, Regulatory Compliance

On May 12, 2020, the Board of Governors of the Federal Reserve System (the Federal Reserve) announced additional information and FAQs on its Term Asset-Backed Securities Loan Facility (TALF). The goal of the TALF is to help consumers and businesses access affordable credit during and in the aftermath of the Coronavirus Disease 2019 (COVID-19) pandemic by lending to holders of recently generated asset-backed securities (ABS) collateralized by certain types of consumer and business loans. The Federal Reserve will make up to $100 billion in loans available under the TALF. The Federal Reserve originally announced the program on March 23, and we discussed it in a previous GT Alert. On April 9, and again on May 12, the Federal Reserve expanded the class of assets that can qualify as TALF collateral.

Click here to read the full GT Alert, “Federal Reserve Releases New Information on the TALF.”

FinCEN Director Confirms Enforcement Focus on Virtual Currency AML Compliance

Posted in Anti-Money Laundering, banking, Blockchain, Blockchain Technology Task Force, Compliance, cryptocurrency, Cybersecurity, Financial Crimes Enforcement Network, Fintech, Litigation, Securities, Technology, Virtual Currency

As another sign of the times, but arguably quite apt given the subject matter, the Consensus Blockchain Conference convened virtually in 2020, with Financial Crimes Enforcement Network (FinCEN) Director Ken Blanco delivering prepared remarks to the conference on May 13, 2020. In those remarks, Blanco confirmed that FinCEN and other federal authorities are focused on financial crimes involving virtual currency, and in particular on whether virtual currency service providers are meeting their obligations to identify and report such activity.

Read the full GT Alert, “FinCEN Director Confirms Enforcement Focus on Virtual Currency AML Compliance.”

SBA Extends PPP Repayment Date for Safe Harbor to May 18

Posted in coronavirus, GT Alert

This evening the SBA issued new FAQ 47 extending the repayment date for the safe harbor to May 18, 2020. View the full FAQs here.

For more information and updates on the developing COVID-19 situation, visit GT’s Health Emergency Preparedness Task Force: Coronavirus Disease 2019 or GT’s Economic Stimulus Team.

SBA Issues FAQ Guidance on PPP Good Faith Necessity Certification

Posted in coronavirus, GT Alert

This morning the SBA issued an important new FAQ 46 on how it intends to review the good faith necessity certification required for PPP loans. The safe harbor for return of PPP loans expires tomorrow, May 14, and companies should carefully consider the newest guidance as they weigh whether to return loans. View the full FAQs here.

For more information and updates on the developing situation, visit GT’s Health Emergency Preparedness Task Force: Coronavirus Disease 2019 or GT’s COVID-19 Economic Stimulus Team.

AML Compliance Scrutiny of Virtual Currency Services in 2020 and Beyond

Posted in anti-bribery, Anti-Money Laundering, banking, Banks, Brokers, Compliance, cryptocurrency, Financial Regulation, Financial Services Litigation, Technology

In the last decade, traditional financial institutions such as banks and broker-dealers have faced increased scrutiny from federal regulators and prosecutors related to the adequacy of their anti-money laundering (AML) compliance programs. Until recently, however, the federal government’s enforcement efforts against cryptocurrency exchange platforms and other virtual currency firms subject to the Bank Secrecy Act (BSA), 31 U.S.C. § 5311 et seq., were relatively limited. Recent developments suggest that the days of this limited focus may be over and that federal authorities may now be positioning themselves to scrutinize the adequacy of digital financial firms’ AML compliance programs in 2020 and beyond.

In 2013, FinCEN issued interpretive guidance to clarify that the AML compliance obligations mandated by the BSA apply to companies involved in the transmission or exchange of convertible virtual currencies (CVCs), just as they do to more traditional money services business (MSBs).1 This includes the requirement to file suspicious activity reports (“SARs”) to alert federal law enforcement of customer transactions that may indicate illicit activity and the requirement to implement and maintain an effective anti-money laundering program targeted at identifying and mitigating the risk that the company’s services will be exploited by criminals.

In the years that immediately followed FinCEN’s 2013 interpretive guidance, FinCEN and the Department of Justice (DOJ) focused their enforcement efforts on what might be characterized as the low-hanging fruit of digital AML compliance, namely, virtual currency exchangers that (1) that entirely failed to register with FinCEN, as required, or (2) that operated or facilitated so-called “darknet” markets for illicit goods and services and were thereby directly complicit in money laundering.

More recently, however, FinCEN and other federal authorities, including the Department of Justice, have signaled that they expect more from virtual currency exchanges than mere licensure and non-complicity in criminal acts; they expect implementation of compliance programs that are adequately tailored to the specific AML risks posed by digital assets.

One of the first signals of this shift in focus came in May 2019, when FinCEN issued an advisory on the unique AML risks posed by virtual currencies.2 In that advisory, FinCEN advised that entities subject to the BSA “should carefully assess and mitigate any potential money laundering, terrorist financing, and other illicit financing risks associated with” virtual currency. The advisory went on to detail specific red flags for virtual currency abuse that financial institutions should be on the lookout for. These red flags included the use of mixers and tumblers to obscure the provenance of funds, as well as transaction activity consistent with the operation of an unregistered peer-to-peer (P2P) exchange. In the months following issuance of the advisory, FinCEN reported an increase—totaling more than 11,000—in SAR filings from virtual currency service providers like exchanges and kiosks.3

Then, in February 2020, Treasury issued an updated National Illicit Finance Strategy (2020 Treasury Strategy), which identified key vulnerabilities in the U.S. financial system in order to guide the deployment of AML enforcement resources within the federal government.4 One of the key sources of vulnerability identified in the report was the misuse of digital assets. Like the May 2019 FinCEN advisory, the Treasury 2020 Strategy highlighted the heightened potential AML risks posed by anonymity-enhanced currencies.

The focus on digital assets in the 2020 Treasury Strategy is supported by recent capacity building among regulators and DOJ. The SEC’s hiring in 2018 of a digital currency “czar” was widely reported. Garnering lesser attention but no less significant, DOJ’s Money Laundering and Asset Recovery Section (MLARS) also now has a permanent “Digital Currency Counsel,” responsible for coordinating enforcement and increasing capacity throughout DOJ in this area.

In light of these developments, firms that transact in digital assets may wish to evaluate their exposure to the unique AML risks posed by digital assets and ensure that proper internal controls are in place to respond to shifting risks in this emerging area, paying particular attention to the red flags identified by FinCEN. Because the 2020 Treasury Strategy also identifies money services businesses (MSBs) as a separate vulnerability to AML risk, digital MSBs, including digital currency exchanges and payment processors,5 should pay attention to their compliance obligations in 2020 and beyond.

The need to mitigate the risks posed by virtual currency transactions is not limited to Fintech companies, however. In remarks delivered to the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference in December 2019, FinCEN director Kenneth Blanco advised that all financial institutions, not just virtual currency platforms, may “need to reevaluate whether their institutions are exposed to cryptocurrency.”6 Given the heightened enforcement attention being paid to the Fintech space, coupled with the increased penetration by virtual currency into traditional financial spheres, banks and other traditional financial firms should evaluate third-party business relationships and identify touchpoints with high-risk virtual currency transactions to ensure an adequate risk-based response.

In sum, scrutiny of virtual currencies may increase in 2020 and beyond. For companies operating in this space, the challenges of operating legally are not only relatively novel but are increasingly more complex. At the same time, the current moment offers a unique window of opportunity for companies to help shape policy in this area, as enforcement authorities continue to grapple with how to fit emerging technologies into existing AML frameworks. The 2020 Treasury Strategy explicitly encourages public-private communication as a key priority for mitigating AML risk. Forward-leaning companies may wish not only to carefully evaluate their compliance programs using the traditional BSA protocols, but also to consider the possibility of engagement with enforcement authorities to ensure that emerging enforcement policy in this space accommodates new technological and business realities.

1 FinCEN, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FIN-2013-G001 (Mar. 18, 2013).

2 FinCEN, Advisory on Illicit Activity Involving Convertible Virtual Currency, FIN-2019-A003 (May 9, 2019).

3 See Prepared Remarks of FinCEN Director Kenneth A. Blanco, delivered at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference (Blanco Remarks) (Dec. 10, 2010).

4 Dep’t of Treasury, National Strategy for Combating Terrorist and Other Illicit Financing (2020)

5 According to FinCEN, although the BSA generally exempts “payment processors” from its AML compliance program obligations, the provision of payment processing services through digital currency transmission “generally is unable to satisfy” the conditions for qualification as a “payment processor” under the BSA, because “such money transmitters do not operate . . . through clearing and settlement systems that only admit BSA-regulated financial institutions as members.” See FinCEN, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies, FIN-2019-G001 at 21 (May 9, 2019).

6 Blanco Remarks (Dec. 10, 2010).

COVID-19 Economic Stimulus: Federal Reserve Expands Scope and Eligibility for Its Main Street Lending Program

Posted in Banks, Client Alert, Compliance, Consumer Financial Services, Consumer Lending, coronavirus

On April 30, 2020, the Board of Governors of the Federal Reserve System (the Federal Reserve) announced changes to its Main Street Lending Program (MSLP) in response to feedback from the public with respect to its initial term sheets published on April 9, 2020. We described the terms of the prior iteration of the MSLP in a previous GT Alert. The MSLP is intended to provide credit support to small- and medium-sized businesses during the current economic crisis caused by the COVID-19 pandemic. The Federal Reserve Bank of Boston will implement the program by creating a special purpose vehicle (SPV) to purchase up to $600 billion of participations in eligible loans made to eligible borrowers originated by eligible lenders. The U.S. Department of the Treasury will provide $75 billion for the program using funds authorized to Treasury by Title IV of the CARES Act. View MSLP Frequently Asked Questions, released April 30. The Federal Reserve stated that a start date for the MSLP will be announced “soon.”

Public comments received by the Federal Reserve indicated that the program should be broader and accessible to more businesses. In response, on April 30 the Federal Reserve announced several changes to the program that include lowering the minimum loan size to $500,000, expanding borrower eligibility, creating a third loan facility option, “Priority Loans,” in addition to making refinements to the New Loan Facility and the Expanded Loan Facility, and allowing for the use of adjusted EBITDA in connection with determining the leverage ratio for purposes of calculating the maximum loan amount.

Continue reading the full GT Alert, which contains a useful chart summarizing the terms of the three loan facilities.

Prioritize Monitoring Financial Contracts

Posted in Financial Regulation, Financial Services Litigation

Many counterparties are dealing with the impact of market volatility, unprecedented margin calls and the combined  effects on their financial contracts, many of which are active master agreements executed years ago. It is important to check for terms like, “may” verses “shall”, applicable notice requirements and cure periods associated with default triggers and finally, the broad scope of cross default triggers. Stay proactive and if you are unsure about your rights, or ability to amend certain terms, consult with your counsel. During extreme volatility, the finance industry should consult with counsel early in the process rather than wait for suits to be filed.