Bottom Line: Biden Administration May Revive FinCEN’s Proposed Rule For Investment Advisers
Unlike broker-dealers, investment advisers are not currently required to maintain anti-money laundering (“AML”)/counter-terrorist financing (“CTF”) compliance programs under the Bank Secrecy Act (“BSA”), or file Suspicious Activity Reports (“SARs”). In 2015, during President Obama’s second term, the Financial Crimes Enforcement Network (“FinCEN”) proposed exactly such a rule for certain investment advisers. Although FinCEN then never moved forward, the stars may be aligning for the implementation of a similar rule in the new Biden Administration.
Industry watchdog groups will push for this. For example, after Biden’s victory in the 2020 election, the independent Financial Accountability & Corporate Transparency Coalition wrote a memorandum, asking him to “[f]inalize the proposed Obama-era rule requiring investment advisers to establish AML programs.” Action on this front also would be generally consistent with the 2020 Examination Priorities issued by the SEC’s Office of Compliance Inspections and Examinations (OCIE), which stated that the OCIE will prioritize examining broker-dealers “for compliance with their AML obligations in order to assess, among other things, whether firms have established appropriate customer identification programs and whether they are satisfying their SAR filing obligations, conducting due diligence on customers, complying with beneficial ownership requirements, and conducting robust and timely independent tests of their AML programs.” Moreover, the FBI’s concern over money laundering through private equity and hedge funds may increase the likelihood of the administration reviving some version of the 2015 proposed rule. A leaked FBI Intelligence Bulletin from May 2020 stated that “threat actors[, or money launderers,] likely use the private placement of funds, including investments offered by hedge funds and private equity firms, to launder money, circumventing traditional” AML protections in place at other financial institutions already subject to such regulations. According to its Intelligence Bulletin, the FBI made this assessment in “high confidence.”
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