FinCEN Unveils Proposed Regulations to Combat Money Laundering in Investment Sector

In a move aimed at bolstering the integrity of the U.S. financial system, the Financial Crimes Enforcement Network (FinCEN) unveiled today a set of proposed regulations targeting investment advisers to prevent money laundering and the financing of terrorism. This announcement marks a significant step following a recent proposal targeting the real estate sector, both initiatives part of a broader effort to close regulatory loopholes that can be exploited by alleged criminals and foreign adversaries.

FinCEN Director Andrea Gacki emphasized the critical role of investment advisers, stating, "Investment advisers are important gatekeepers to the American economy, overseeing the investment of tens of trillions of dollars." Gacki highlighted the need to address existing gaps in anti-money laundering (AML) and countering the financing of terrorism (CFT) requirements, asserting that such gaps are exploited by criminals and foreign entities to launder money and conceal illicit wealth.

The proposed rule, which revives a prior 2015 proposal, mandates investment advisers to implement programs specifically designed to thwart money laundering and terrorist financing. This requirement extends to advisers registered with the U.S. Securities and Exchange Commission (SEC), as well as those exempt from registration but reporting to the SEC.

Under the proposed regulations, investment advisers would be obligated to identify and report suspicious activities to FinCEN, aligning them with similar obligations placed on banks. FinCEN's risk assessment for the investment industry revealed instances where individuals subject to sanctions, alleged criminals, and foreign adversaries utilized investment advisers to gain access to U.S. assets, including securities, real estate, and sensitive technologies.

Importantly, the proposal does not mandate customer identification programs, as FinCEN anticipates addressing this aspect in future regulations jointly developed with the SEC.

The proposed rule is now open for public commentary until mid-April and may undergo modifications before final adoption.

In its statement, FinCEN outlined the objectives of the proposed rule, stating, "This proposed rule, which complements Treasury’s other recent actions to combat the illicit finance risks from anonymous companies and all-cash real estate transactions, will add further transparency to the U.S. financial system and help assist law enforcement in identifying illicit proceeds entering the U.S. economy."

The proposed regulations aim to bolster the transparency of the financial system, assisting law enforcement in identifying and combatting illicit financial activities. Investment advisers would be categorized as "financial institutions" under the Bank Secrecy Act (BSA), mandating the implementation of AML/CFT programs, reporting of suspicious activities, and fulfilling recordkeeping requirements.

Furthermore, the proposed rule would facilitate information-sharing between FinCEN, law enforcement agencies, and financial institutions, while also delegating examination authority to the SEC, given its expertise in regulating investment advisers.

This proposal aligns with the 2021 U.S. Strategy on Countering Corruption, underlining the importance of assessing risks within the investment adviser industry. FinCEN emphasizes that the proposed rule is tailored to address significant risks while minimizing potential burdens on legitimate investors and the U.S. economy.

FinCEN encourages the public to submit written comments on the proposed rule, with the comment period open until April 15, 2024.

By fLEXI tEAM