Key Takeaways

• On December 11, 2023, the U.S. Department of the Treasury (Treasury) released a Fact Sheet[1] noting that it likely will repropose some or all of the provisions of FinCEN’s September 1, 2015, Notice of Proposed Rule Making (2015 NPRM) which proposed to expand the application of the Bank Secrecy Act (BSA) to certain investment advisers (IAs).[2]
• Opponents of the 2015 NPRM argued that the compliance burden of extending the BSA’s anti-money laundering (AML) rules to IAs outweighed the benefits because of the relatively lower money-laundering risks facing many types of IAs and their activities. Opponents also argued that the 2015 NPRM’s protections were redundant with existing protections because many IA transaction activities flow through BSA-regulated entities and many IAs already have AML programs in place due to their interaction with financial institutions or their own voluntary implementation of AML measures.
• IAs should look out for Treasury’s forthcoming NPRM early next year and take advantage of the comment period and also consider whether and how they may need to revise their current compliance program to meet potential BSA requirements.

In connection with the Biden Administration’s ongoing crackdown on corruption, tax havens, and illicit financing, on December 11, Treasury released a Fact Sheet on its “efforts to address the illicit finance and national security threats posed by corruption.” The Fact Sheet discusses a range of topics, from preventing the laundering of corrupt proceeds by enhancing corporate transparency and safeguarding the residential real estate sector to using Treasury’s financial sanctions authorities to hold corrupt actors accountable and strengthening global anti-corruption efforts.

But perhaps most prominently, Treasury announced that it intends to revisit its efforts to apply the AML obligations of the BSA to IAs. Currently, the BSA’s AML requirements are not applicable to most IAs, which, according to Treasury, creates “the risk that corrupt officials and other illicit actors may invest ill-gotten gains in the U.S. financial system through hedge funds, private equity firms, and other investment services.” Treasury is now re-examining its never-enacted 2015 NPRM that sought to require many registered IAs to implement AML programs, including suspicious activity reporting, and aims to issue an updated NPRM in the first quarter of 2024.

The 2015 NPRM

In relevant part, the 2015 NPRM proposed applying the BSA’s AML standards to IAs that were registered or required to register with the Securities and Exchange Commission (SEC) and that generally had $100 million or more in assets under management. According to the 2015 NPRM, these IAs would be required to implement most of the pillars of an AML program, including (i) maintaining a risk-based written AML program to, among other things, monitor transaction activity and make suspicious activity and currency transaction reports as appropriate, (ii) designating an AML compliance officer to oversee the program, (iii) conducting employee training, and (iv) instituting an independent testing function. Although the 2015 NPRM did not seek to require investment advisers to implement a customer identification program or conduct customer due diligence, it noted that those items would be the subject of further joint rulemakings with the SEC.

Looking Ahead

The 2015 NPRM came under heavy industry scrutiny due to its perceived overbreadth in light of the different types of IAs and their respective risk profiles. Opponents of the proposed rulemaking argued that its blanket approach did not carve out types of IAs and IA activities that present low money-laundering risk. For example, comment letters noted that financial planners, pension consultants, research providers and other IAs that do not manage client assets should be excluded from the rulemaking. Similarly, many commenters argued that IAs to open-end and closed-end funds should also be excluded from the rulemaking. Other commenters noted that imposing AML requirements on IAs would be redundant because much of IA transaction activity is already under the oversight of financial institutions that have implemented AML programs. And others noted that extending AML requirements would be unnecessary or redundant because many IAs are already under enterprise AML programs since they are dually registered as securities brokers with the SEC, are part of a financial institution subject to the BSA, or have voluntarily implemented AML programs due to their interactions with financial institution counterparties.

Treasury hopefully will take these prior comments into consideration when drafting its forthcoming NPRM. Once the NPRM is published, IAs should carefully review it and participate in the comment period to inform Treasury’s cost-benefit analysis. However, given the current climate of increased regulation, IAs should consider preparing themselves for what might be expected of them if Treasury subjects them to the BSA’s requirements. IAs should compare the components of the new NPRM when issued against the AML controls and structure they may already have in place to determine whether they would meet the proposed regulatory requirements or may need to enhance their AML programs. IAs should also review the agreements they have with their clients to determine whether they allow for the information sharing that would be necessary to implement a BSA-compliant AML program. Proactively taking these steps will help reduce the burden on IAs should they be required by law to implement BSA/AML compliance programs down the road.

[1] The White House, FACT SHEET: U.S. Leadership in the Fight Against Global Corruption (Dec. 11, 2023), https://www.whitehouse.gov/briefing-room/statements-releases/2023/12/11/fact-sheet-u-s-leadership-in-the-fight-against-global-corruption/

[2] Financial Crimes Enforcement Network, Proposed Rule (Sept. 1, 2015), https://www.federalregister.gov/documents/2015/09/01/2015-21318/anti-money-laundering-program-and-suspicious-activity-report-filing-requirements-for-registered

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