While America’s 30 million small businesses are fighting for survival in the teeth of the COVID-19 economic crash, emergency assistance is facing a frustrating roadblock: federal anti-money laundering (AML) rules. Unless the U.S. Treasury makes an exception for the emergency assistance program — rules over which it has considerable discretion — thousands of businesses will be needlessly lost, destroying tens of thousands of jobs at a time the economy can least afford the blow. Meanwhile, if Congress is going to appropriate more money for small-business relief (as now seems likely), it should legislate a fix for the Treasury’s error.

Here’s the problem. The Treasury decided to require that lenders in the new $350 billion Paycheck Protection Program (PPP), part of the $2 trillion CARES Act, make sure that loans to small businesses comply with the Know Your Customer (KYC) requirement for AML purposes. KYC is a costly and time-consuming process that puts the risk of error on banks’ shoulders. It is one reason some of the largest banks are only offering PPP loans to existing customers whom they already know.

Examining America’s hundreds of thousands of small businesses to be certain they aren’t laundering money is an all-but-impossible task — and a questionable goal since Congress intended to get money out the door quickly. Small businesses, after all, employ over half of the American workforce, and the whole point of the PPP is to encourage them to keep their doors open so they won’t lay off their employees.

The PPP’s roll-out on Friday was initially met with relief and enthusiasm, only to morph into frustration as would-be borrowers (and lenders) took full measure of the strings attached. Now, under the PPP, the federal government guarantees 100 percent of the principle of qualified loans, so banks aren’t taking any credit risk in providing the cash. In fact, the loans are to be forgiven if borrowers meet the requirements, the most important of which is to maintain their current levels of employment through June 30. Thus, most of the loans are expected to turn into government grants.

But most small businesses do not have the cash on hand to survive until the economy recovers, even if the rosiest predictions of when the COVID-19 quarantine is lifted come true. So for this approach to work, banks must process applications quickly and economically.

The catch here is that, while banks are free to ignore credit risk, their compliance departments remember all too well the billions of dollars in fines they have paid in the past for violation of the AML rules. And since AML rules are largely requirements that banks “know their customers,” lenders have strong incentives to favor old customers over new ones who must be carefully vetted.

Indeed, when a new small business comes calling, the more prudent course from a bank’s risk management perspective is simply to say, “No.” That’s why Wells Fargo restricted loans to applicants with existing loan relationships, while Bank of America initially limited access to its preferred customers.

At best, then, the AML/KYC requirements are slowing down distribution of desperately needed funds, and at worst shutting many out of the program entirely. That was not the intention of the senators who wrote the legislation. But don’t take our word for it: Senators Marco Rubio (R-Flor.) and Ben Cardin (D-Md.) have both criticized Treasury’s decision to apply AML.

Congress, it’s worth emphasizing, did not include an AML/KYC requirement in the original draft legislation; the requirement was added later by Treasury fiat. It follows that the Treasury Department can make the requirement go away simply by deleting the AML language or by assuring banks they will be held harmless if money laundering problems are later discovered.

In any case, Congress can and should remove the requirement as part of any new appropriations for the program. And once the economic crisis triggered by COVID-19 is behind us, Treasury and Congress would do well to re-evaluate the whole AML system. As this episode has proven, the brute-force application of AML rules all too often risks severe collateral damage.