U.S. Treasury Secretary Janet Yellen speaks to the press after a tour with employees of the Financial Crimes Enforcement Network (FinCEN) office in Vienna, Virginia, January 8, 2024.
Andrew Caballero Reynolds | AFP | Getty Images
The Treasury Department’s anti-corruption watchdog issued new proposed regulations on Tuesday that would extend key parts of banks’ anti-money laundering (AML) rules to some investment advisers.
New rules from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) require covered investment advisers to file suspicious activity reports (SARs) with FinCEN and, in certain circumstances, to disclose additional information about their clients.
The new rules would apply to investment advisers registered with or reporting to the Securities Exchange Commission, rather than what FinCEN estimates are at least 17,000 federally registered investment advisers.
The proposed regulations do not require investment advisers to implement formal client identification programs, as banks do. They also would not require advisors to report beneficial ownership information to FinCEN for their clients, which are legal entities such as LLCs.
But these few exceptions may not last very long. According to a fact sheet on the AML proposal on Tuesday, FinCEN said it intends to implement these two regulations in the near future.
Investment advisers manage tens of trillions of dollars, but until now have been largely exempt from AML regulations stemming from the Bank Secrecy Act of 1970 and subsequent laws. These rules apply to banks and other “financial institutions” as defined by FinCEN, such as stock brokers and casinos.
“There is currently a patchwork of regulatory coverage in the investment advisor space,” FinCEN Director Andrea Gacki said in a call with reporters on Monday. “These loopholes in the regulations allow illicit actors to look for an advisor who does not have to inquire about the source of their assets.”
Treasury Department investigations have found that money launderers, tax evaders and other criminal actors use U.S. investment advisors as an “entry point for investments in U.S. securities, real estate and other assets,” a FinCEN statement said.
In some of those cases, officials found that China and Russia invested in “early-stage” companies to gain access to sensitive data and new technologies.
FinCEN has been trying to close these gaps for over two decades.
In 2003 and 2015, FinCEN proposed similar rules that would have extended BSA regulations to investment advisers to combat money laundering and terrorist financing. In both cases, however, the rules were never finalized.
Tuesday’s announcement marks the third attempt and comes amid a “tremendous increase in the use of investment advisers for illicit financing,” a senior FinCEN official said.
“We have seen the misuse of investments by nation-state actors, Russia, China… oligarchs who rely on us investment advisors to hide their funds.”
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2024-02-13 14:15:11
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