Trillium

On August 28, 2024, the Financial Crimes Enforcement Network (“FinCEN”) issued a Final Rule with the aim of addressing and preventing money laundering, terrorist financing, and other illicit finance activity through the investment adviser industry (the “IA AML Rule”). The IA AML Rule requires registered investment advisers (“RIAs”), including advisers to private funds and exempt reporting advisers (“ERAs”) to:

• Implement a risk-based and reasonably designed AML/CFT program;
• File certain reports, such as Suspicious Activity Reports (“SARs”) and Currency Transaction Reports (“CTRs”), with FinCEN;
• Comply with the Recordkeeping and Travel Rules, such as those relating to the transmittal of funds;
• Participate in FinCEN’s information-sharing program between and among FinCEN, law enforcement, agencies and other financial institutions; and
• Implement special due diligence requirements for correspondent and private banking accounts. 

The compliance date for the IA AML Rule is January 1, 2026, meaning that no later than this date, investment advisers must have implemented AML/CFT programs, commenced filing SARs when required, and begun complying with the other reporting and recordkeeping requirements.

Background

Historically, investment advisers were not “financial institutions” as defined in the Bank Secrecy Act (“BSA”) which meant investment advisers did not need to have AML/CFT programs in place or submit Suspicious Activity Reports (“SARs”). FinCEN has made previous attempts to bring investment advisers under its purview. However, in early 2024, the Treasury Department (the “Treasury”) specifically identified the illicit finance threats involving investment advisers saying “Investment advisers have served as an entry point into the U.S. financial system and economy for illicit proceeds associated with foreign corruption, fraud, and tax evasion, as well as billions of dollars ultimately controlled by sanctioned entities including Russian oligarchs and their associates.” The Treasury Department went on to say foreign states e.g. China and Russia were accessing “technology and services with long-term national security implications” through private funds, specifically exempt venture capital funds.

Key Takeaways

1. At a high level the IA AML Rule simply adds certain RIAs (there are exclusions for some registered and exempt investment advisers) and ERAs to the definition of “financial institution” under the Bank Secrecy Act. However, the addition of investment advisers has further implications. The Treasury and the SEC are reviewing comments and are working toward finalizing a proposed Customer Identification Program (“CIP”) rule (“IA CIP Rule”). As FinCEN and the SEC noted in IA CIP Rule proposal, adoption of CIP requirements for RIAs and ERAs would depend on—and not occur unless— investment advisers are first designated as “financial institutions” for purposes of the BSA.

2. There are a number of exclusions and exceptions built into the final rule for certain types of investment advisers (e.g. family offices and foreign private advisers) and/or certain types of clients (e.g. mutual fund. However, in almost all circumstances, the final rule applies U.S.-based private fund advisers.

3. Consistent with the proposed rule, FinCEN is delegating its examination authority for the requirements of this rule to the SEC. Similar to other past rulemaking, expect AML/CFT to begin popping up in examinations prior to the compliance date.

How Trillium Can Help

Compliance Program Development and Maintenance: Trillium helps you put in place policies and procedures that work for your firm. Developing, applying and maintaining up-to-date policies and procedures is paramount to fulfilling a firm’s regulatory obligations and fiduciary duty.

Regulatory Tracking: Trillium keeps track of changes in the regulation of private equity funds and informs clients through email, phone calls and in-person discussions. We quickly identify and analyze impactful regulations and diligently work with our clients to make the necessary amendments to policies and procedures to ensure ongoing compliance.