BuzzFeed News and the International Consortium of Investigative Journalists (ICIJ), revealed the leak of 2,100 suspicious activity reports (SARs) filed by financial institutions that described multiple instances of investment fraud and money laundering in the U.S., Europe and across the world. Of issue is the fact that the institutions did not seem to stop their activity or relationships with money launderers, and regulators in possession of these SARs did not act upon the reports to investigate or deter the illegal activity. The leaked SARs appear to indicate that several global financial institutions facilitated transactions totaling over $2 trillion for a broad range of illicit operations, including Russian, North Korean, Middle Eastern, and other criminal organization between 1999 and 2017.
Separately, a leaked report from the FBI’s Criminal Investigative Division dated May 2020, highlighted the vulnerabilities of anti-money laundering (AML) regulations specifically relating to investments offered by hedge funds and private equity firms that can be used to launder money. The report describes the lack of regulatory scrutiny applied to private investment funds or investment advisers sponsoring the funds and implies that enhanced AML regulations would reduce the appeal these investments have to money launderers.
Shortly after the reported leaks, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) published an Advance Notice of Proposed Rulemaking (ANPRM) describing its intent to enhance the effectiveness and efficiency of AML programs. The ANPRM seeks industry comments on a variety of AML areas and specifically notes that FinCEN is reviewing the following considerations:
- Enhance the understanding between regulatory agencies, primarily in charge of enforcing AML regulations such as the Securities and Exchange Commission (SEC), and financial institutions regarding the necessary elements of AML programs
- Better define an “effective and reasonably designed” AML program by considering the incorporation of risk assessments, compliance with Bank Secrecy Act (BSA) requirements, and reporting of information with a high degree of usefulness to government authorities
- Impose an explicit requirement for a risk assessment process - The issuance of national AML priorities every two years
As part of the ANPRM, FinCEN seeks to gather comments from the public and provides several open-end questions to be considered for potential rulemaking and guidance concerning “effective and reasonably designed” AML programs. One of the questions seeks feedback as to whether FinCEN should consider any regulatory changes or define “effective and reasonably designed” based on specific industries. This provides an opportunity for registered investment companies, broker-dealers, and financial institutions in the securities industry to establish a more relevant regulatory framework where, for example, the concepts of reliance and/or delegation of AML functions to third parties is one of the foundations of AML programs.
As FinCEN Director Kenneth Blanco emphasized in his remarks during the ACAMS AML Conference on September 29, 2020, the ANPRM’s intention is not to impose an additional regulatory burden on financial institutions but rather assist in allocating resources in the most efficient and effective way and enhance collaboration between the industry, FinCEN, and its regulatory partners.
Absent from the ANPRM and FinCEN’s recent press releases is any consideration to expand the BSA and AML regulations to investment advisers, private investment funds or other industries, which could address the risks highlighted by the FBI’s leaked report or the now stagnant 2015 FinCEN’s proposed rulemaking to subject registered investment advisers to BSA and PATRIOT Act regulations.
How We Help
ACA works with financial firms around the globe to ensure they meet the requirements of applicable AML regulations. We can assist with the establishment of a risk-based, tailored AML program for registered investment companies, broker-dealers, bank asset managers, investment advisers, and private funds. We also conduct tests of AML programs to help firms meet regulatory requirements and industry best practices.
ACA also helps with investor identification and risk assessments that meet Customer Identification Program/Customer Due Diligence (CIP/CDD) requirements established by U.S., European, and Cayman Islands regulations. We assist with key aspects of these requirements including conducting identity validation of investors with documentary and non-documentary verifications as well as beneficial owners and control persons, checking against sanctions and AML high-risk databases, and carrying out ongoing investor monitoring. We also provide automated, ongoing AML monitoring through ComplianceAlpha® powered by ComplyAdvantage’s market-leading risk monitoring.
For More Information
For more information, please contact your ACA consultant or Alvaro Soto.