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Anti-Money Laundering Regulations for IAs

The stability of our financial economy can be deeply affected by the act of money laundering.  Anti-Money Laundering ("AML") programs for financial institutions are governed by various laws, including the Bank Secrecy Act of 1970 ("BSA"), the Money Laundering Control Act of 1986, and also the USA PATRIOT Act ("USAPA").  Currently, investment advisers ("IAs") are not expressly included within the definition of "financial institutions" under the BSA or USAPA, and as such, are not subject to the affirmative AML requirements of those regulations (however IAs still must adhere to the Office of Foreign Assets Control ("OFAC") regulations requiring IAs to block the accounts of specified countries, entities and individuals).  Due to the great focus being placed on money laundering by the US government, the Department of Treasury's Financial Crimes Enforcement Network ("FinCEN") has resurrected its efforts to implement affirmative AML regulations on IAs similar to those currently in place for other financial institutions.  FinCEN's first proposed affirmative AML regulations for IAs in 2003.  However, these proposed regulations were withdrawn in 2008 due to a lack of any further regulatory action on behalf of FinCEN.  In 2011, FinCEN announced its intention to revisit the 2003 proposal requiring AML programs for IAs.  This past February, FinCEN again reiterated this intention and announced it is working with the Securities and Exchange Commission ("SEC") on new rules that would impose an AML program and suspicious activity reporting ("SAR") requirements in IAs (see the Proposed Rule here).  While there are still several steps that need to be taken prior to such regulation taking effect, it seems as though it is only a matter of time before IAs will be required to have AML programs in place.  As such, for those IAs who have yet to develop their own AML policies, it would be prudent to begin formulating policies and procedures following the examples set by other financial institutions currently requiring such policies. If you would like to read more on this topic, and for tips on preparing an AML program, click here. For further information on this, or other related topics, please contact us at [email protected] or (619)298-2880.

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