Should loan participants and assignees in the secondary market perform due diligence with respect to the borrower?
As stated above, lenders should perform due diligence with respect to a borrower in connection with the making of a loan, as should participants and assignees at the time of the primary syndication. However, assignees and participants in the secondary market, after the primary syndication, may not be in a position to detect and prevent money laundering. It would not be a reasonable use of resources for loan participants and assignees to perform such due diligence or to be viewed as subject to an obligation to perform such due diligence. Secondary market loan transactions may be analogized to secondary market bond trades, where it is well understood that bond purchasers do not have due diligence obligations vis-à-vis issuers. Secondary market loan transactions are not generally associated with money laundering risk. However, there may be circumstances (e.g., when a loan participant or assignee becomes aware, in the ordinary course of its relationship with the borrower, of a fundamental
Related Questions
- Which parties in a loan syndication should perform due diligence with respect to the borrower or lenders at the time the loan is initially syndicated?
- Should loan participants and assignees in the secondary market perform due diligence with respect to the borrower?
- Should the agent perform due diligence with respect to assignees purchasing loans in the secondary market?
