The Federal Reserve Board fined New York-based Popular Bank $2.3 million for processing Paycheck Protection Program (PPP) loans despite finding significant indications of possible fraud in the loan applications.

The Fed said Popular Bank failed to report the potential fraud in a timely manner, as required by the Small Business Administration (SBA).

According to the Fed’s order, Popular Bank processed six PPP loans in August 2020 worth $1.1 million, “despite having detected that the loan applications contained significant indicia of potential fraud.”

Popular Bank, as an SBA-approved lender for PPP loans, was required to “verify the identity of its customers and to document, investigate, and report suspicious activities that it detected” to the SBA. The bank was also required to follow all federal banking rules in processing the loans, as well as anti-money laundering regulations established by the Bank Secrecy Act (BSA).

The bank did not report its findings to the SBA, as required, and all six loans turned out to be fraudulent, the Fed said. As a result, the bank suffered a loss.

The failure by the bank to halt the processing of the loans once potential fraud was uncovered demonstrated its ineffective internal controls and procedures, the Fed said. The lapses resulted in violations of the bank’s internal BSA protocols, thus constituting “unsafe or unsound banking practices,” the Fed said Tuesday in a press release.

Popular Bank self-reported the matter to the Fed, cooperated with the agency’s investigation, and has “undertaken substantial remediation related to its ineffective controls and procedures that resulted in the unsafe or unsound practices,” according to the order.

Popular Bank declined to comment on the Fed’s findings.

In September, Houston-based Prosperity Bank agreed to pay approximately $18,700 to resolve allegations it processed a $213,400 PPP loan for a customer it knew was facing criminal charges.

The SBA’s inspector general estimated at least 70,000 PPP loans were fraudulent, according to a recent report from NPR. Three years after the PPP was launched at the height of the Covid-19 pandemic, 92 percent of all its loans have been forgiven, the report said.