CIP on a Participation Loan
Answer by Randy Carey, BOL Guru Guru Bios
Question: Our bank is second in a participation loan. Do we have to obtain identification and CIPs for the guarantors?
Answer: This is an area that many banks and some regulators have a little trouble understanding. I have seen many banks involved in participations, attempt to have the lead bank certify CIP compliance under the CIP rules. However, if you go back to the pure definition of "account" in the CIP regulations, these types of transactions do not qualify as an "account" within your bank for CIP purposes if you are only a purchaser of a portion of the credit and not the named creditor:
31 CFR 103.121 (a)(1)(ii) Account does not include:
(B) An account that the bank acquires through an acquisition, merger, purchase of assets, or assumption of liabilities;
Of course, through your due diligence process prior to purchasing a participation in a loan, I am sure that someone makes some attempt to ensure that the parties to the transaction are legitimate, but it would not be a requirement of the CIP regulations.
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