FinCEN is an active law enforcement agency. They have taken on more responsibility over the last five years for AML enforcement, and they show no signs of letting up.
FinCEN’s proposal to expand beneficial ownership requirements for financial institutions is expected to be released before the end of the year. FinCEN’s proposal in this area will have a significant impact on companies subject to AML regulation and require more thorough inquiries of customers and the ultimate beneficial owners.
Last week, FinCen issued proposed regulations to subject investment advisers to AML/BSA requirements. The new requirements would apply only to investment advisers who are registered with the SEC. As of 2014, there are approximately 11,235 SEC-registered investment advisers.
Under FinCEN’s proposal, investment advisers would be subject to AML requirements excluding specific requirements relating to customer identification programs and the beneficial ownership regulations that are expected to adopted later this year. Investment advisers would be required to maintain an AML program and most importantly, file suspicious activity reports (“SARs”).
FinCEn cited the fact that money launderers could seek to circumvent AML program and suspicious activity reporting requirements by using investment advisers as a low-risk way to gain access to the US financial system. According to FinCEN, investment advisers are in a unique position to observe and learn about movement of money through the financial system. With this knowledge and perspective, FinCEN expects investment advisers to be able to identify potential money laundering and report suspicious activity to law enforcement.
The proposed AML and SARs reporting rules would apply to investment advisers who manage $100 million or more in assets. In addition, FinCEN is proposing to delegate examination authority over investment advisers to the SEC given the SEC’s expertise and existing examination obligations with respect to investment advisers. Finally, FinCEN is proposing to add investment advisers to the regulatory definition of a “financial institution,” which would subject investment advisers to BSA record-keeping and reporting obligations.
Investment advisers would have to file Currency Transaction reports (CTRs) for financial transactions, and comply with recordkeeping, transmittal of records and retention requirements for the transmittal of funds under the Recordkeeping and Travel Rules and other related recordkeeping requirements.
Investment advisers would be required to establish risk-based, AML programs that include, at a minimum, four basic elements:
Development of internal policies, procedures, and controls
Designation of a compliance officer
Ongoing employee training program
An independent audit function to test programs
Investment advisers are already subject to a number of SEC-imposed regulatory requirements. FinCEN expects that investment advisers would adapt existing compliance programs to include AML requirements.
Finally, FinCEN is proposing to amend its SARs regulations to require investment advisers to report suspicious transactions that involve or aggregate to $5,000 in funds or other assets. Investment advisers will be subject to the same trigger, requiring the adviser to report a transaction if it knows, suspects, or has reason to suspect that the transaction (or pattern of transactions): (i) involves funds derived from illegal activity or is intended or conducted to hide or disguise funds or assets derived from illegal activity; (ii) is designed, whether through structuring or other means, to evade the requirements of the BSA; (iii) has no business or apparent lawful purpose, and the investment adviser knows of no reasonable explanation for the transaction after examining the available facts; or (iv) involves the use of the investment adviser to facilitate criminal activity.