Proposed AML Suspicious Activity Rule

Stark & Stark

Stark & Stark

On February 13, 2024, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed a rule to combat criminals and foreign adversaries from exploiting the U.S. financial system through investment advisers (the “FinCEN Rule”). The FinCEN Rule will add system transparency and help law enforcement identify risks from anonymous companies and all-cash real estate transactions. The proposed Rule would force SEC registered investment advisers and exempt reporting advisers to implement risk-based Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) programs. The programs would require advisers to report suspicious activity to FinCEN and to maintain accurate records. Investment advisers would be classified as “financial institutions” under the Bank Secrecy Act (“BSA”). FinCEN is proposing to delegate examination authority for this Rule to the SEC.

The proposed FinCEN Rule would require SEC registered investment advisers and exempt reporting advisers to:

  • implement an AML/CFT program;
  • file certain reports, such as Suspicious Activity Reports (SARs), with FinCEN;
  • keep records such as those relating to the transmittal of funds (i.e., comply with the Recordkeeping and Travel Rule); and
  • fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.

The proposed rule would apply information sharing between and among FinCEN, law enforcement government agencies, and certain financial institutions to investment advisers, along with subjecting investment advisers to the “special measures” imposed by FinCEN pursuant to Section 311 of the USA PATRIOT Act. At this time, there is no customer identification requirement for investment advisers under the Rule. FinCEN and the SEC intend to implement a customer identification program in the future. Likewise, the subjected investment advisers do not need to collect beneficial ownership information for legal entity customers. The proposed Rule would not require investment advisers to apply the AML/CFT program or SAR filing requirements to mutual funds they advise.

Under the proposed rule, covered investment advisers would be required to comply with the rule on or before 12 months from the final rule’s effective date. The comment period for the Rule is open until April 15, 2024.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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