If our bank is 2nd or 3rd on a participation loan are we required to gather or verify beneficial ownership information?

Since a participation loan does not meet the definition of an "account" for CIP, a participation loan does not meet the definition of a legal entity opening an account at your bank for beneficial ownership. The originating bank is responsible for both CIP and beneficial ownership collection.

What due diligence you require as a condition of participating is up to your own risk tolerance and agreement with the other institutions.

Asking the lead bank to provide you with a copy of Appendix A should protect you from the nitpickers even though there are no nits to pick.

That was my first thought. Then, I thought about the reviewer who's going to say that, since you have the information, you should run the BO's against the OFAC list etc., etc. Never mind. Stick with the fact that if CIP doesn't apply then the beneficial ownership requirements don't apply either.

Does the same hold true for a syndicated loan?

I would like to bump Swedes last question to see if we can get a reply. I was in a meeting today and was also wondering if syndication loans would be exempt from this regulation as well. It stands to reason to me that it would be the same.

For syndicated loans in which the Bank is not the lead agent, is my interpretation correct in that beneficial ownership is triggered for all Banks involved in the credit facility and that those who are not the lead agent, will have to either leverage the reliance provision or obtain their own certification?

This would be contrary to participation loans, in which the relationship between the lender and the participant is that of a buyer and a seller, and the intention of the participation is to transfer full economic rights from the lender to the participant without the creation of a fiduciary or agent relationship. The purchased paper does not meet the definition of account and therefore beneficial ownership is not triggered.

Hoping someone can weigh in on this!

As you note, there is an explicit exception in the CIP FAQ (which provides the definition of "account" and "new account" for use in the BenOwn rules) for purchased loans, which included participations. However, syndicated loans don't fall within that exception, since the syndicate is formed before a loan is made, and the loan is made by the syndicate (regardless of the moving parts in the actual closing). Hence, each syndicate member will either have to do its own CIP and BenOwn work or depend on the lead lender in the syndicate to do so as agent on behalf of the syndicate members.

John, do you, or anyone else, have an agreement you have used with the lead bank showing their responsibilities?

I've received those forms from other banks and I just sign them. They are totally unnecessary in my opinion. The regs tell you the lead/originating bank is responsible for CIP anyway, why do you need a document confirming that? Waste of time and money with people trying to CYA.

Not, if as John said, this is a syndicated loan. Without knowing the particulars of the participation, you cannot say for sure whether or not you have responsibility. But I would hope all of this is already covered in the participation or syndication agreement.