The United States Proposes Mandating Investment Advisers to Implement Anti-Money-Laundering Measures

U.S. Proposes Requiring Investment Advisers to Put in Place Anti-Money-Laundering Controls

US Proposes Requiring Investment advisers to actively detect and report potential money laundering activities in a significant move aimed at fortifying financial integrity.

FinCEN Proposes Comprehensive Anti-Money Laundering Measures

The Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Treasury Department, introduces new rules, signaling a renewed push for regulatory oversight within the investment sector.

“FinCEN’s new rules from the U.S. Treasury reflect a strengthened focus on regulatory oversight in investments,” according to Barron’s.

Scope of Regulations

The proposed guidelines apply to investment advisers registered with the U.S. Securities and Exchange Commission (SEC) and those exempt but obligated to report to the SEC. This includes advisers managing at least $110 million in client assets and exempt reporting advisers overseeing private funds or advising venture-capital funds.

Comprehensive Anti-Money Laundering Measures

The proposed rules mandate that investment advisers establish robust anti-money laundering (AML) and counterterrorism financing compliance programs. Additionally, advisers must file suspicious activity reports with FinCEN, maintain records related to fund transfers, and facilitate information sharing with relevant entities.

Exemption for State-Registered Advisers

Approximately 17,000 state-registered advisers would not be covered by the proposed regulations, as clarified by a senior FinCEN official. This exclusion comes amidst rising concerns about uneven application of AML controls in the investment sector.

Addressing Disparities and Illicit Activity

The proposed rules aim to address disparities in AML controls, enabling both lawful and illicit investors to seek advisers without stringent wealth source inquiries. There is an escalating trend involving malicious actors, which includes sanctioned individuals and corrupt officials. These individuals are increasingly utilizing investment advisers as a means to gain access to U.S. financial markets.

Urgency of Transparency

A senior FinCEN official emphasizes the urgent need for transparency. They state that the issue is more critical than ever, especially considering the evolving landscape of financial transactions.

Risk Assessment Findings

A risk assessment published by FinCEN on the same day sheds light on instances of U.S. competitors leveraging investment advisers for strategic investments. Advisers with connections to Russian oligarchs have notably been observed investing in sensitive domains. These include artificial intelligence, autonomous vehicles, and government military and intelligence contractors.

Compliance Period and Public Input

The US proposes requiring investment advisers to comply with a new rule, and if accepted, they would be granted a 12-month grace period to achieve compliance. FinCEN is welcoming public comments on the proposal until April 15.

Aligning with Broader Transparency Initiatives

This regulatory initiative aligns with broader U.S. efforts to enhance financial transparency. President Biden has prioritized anticorruption as a central pillar of the national security agenda. Recent proposals by FinCEN contribute to the ongoing effort to combat financial misconduct. These proposals include disclosure requirements for anonymous shell companies and trusts.

“U.S. prioritizes financial transparency; Biden’s anticorruption stance drives security goals. FinCEN’s proposals combat financial misconduct effectively,” according to Bloomberg.

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