A House bill that backers call “the biggest money laundering reform” in a generation –reforms that may land hard on private fund advisers – has advanced to a vote on the floor, as reported by affiliate title Regulatory Compliance Watch.
The House Armed Services Committee passed The Enablers Act in a voice vote in late June. If it becomes law, it will force investment advisers, trust companies, lawyers, art dealers and other “middlemen” to comply with the due diligence rules under the Bank Secrecy Act. An earlier draft of the bill would have included real estate agents. They are excluded from the most recent draft.
It’s a victory for the fledgling House anti-kleptocracy caucus, a bipartisan group of legislators who say that the US needs to clean its books. “Middlemen in foreign transactions should be subject to the same anti-money laundering checks as banks, and this brings us one step closer,” Representative Joe Wilson said after the act advanced. “Nobody should be able to hide behind blood money to exploit democratic institutions for their benefit.”
‘A lot of questions’
The Biden Administration has promised to crack down on corruption. Private fund advisers – long exempted from the Bank Secrecy Act – have a big target on their back. Some compliance experts are worried that the industry isn’t prepared for what’s about to happen.
“We’ve fielded a lot of questions about Russian limited partners in funds,” says Robert Johnston, a partner at Lowenstein, Sandler. “It’s great that they’re aware of it as a problem, but it’s clear that they don’t have in-house expertise or policies and procedures.”
Johnston has some dearly bought experience here. He used to be a compliance officer at Och-Ziff, a hedge fund that paid $143 million to settle federal claims that Och-Ziff staff had bribed mining officials in the Congo and Libyan dictator Muammar Gaddafi.
Johnston is one who believes that trouble may be coming for private fund advisers whether the Enablers Act passes or not. In April, Deputy Attorney General Lisa Monaco said in a speech that prosecutors were going to prioritize sanctions cases.
The time for fund advisers to think about new due diligence policies and procedures is now, Johnston says. Sanctions are subject to strict liability—that is, it doesn’t matter whether you intended to violate them or not—but there’s also risk under the Foreign Corrupt Practices Act, he says.
“This is not a theoretical risk,” Johnston tells RCW. “JP Morgan, Credit Suisse, Deutsche Bank have all had FCPA cases. Listen to what the government is saying. Obviously, they’re looking for someone to make an example of. You don’t want to be that example.”
The question for fund advisers, Johnston says, is what kind of conversation they want to have with regulators when they come calling.
“You’re going to be in a much better place in a dialogue with them if you can say, ‘Look at this robust, state-of-the-art compliance program and gee whiz, something fell thru the cracks,’” he says. “If you say, ‘We don’t have any compliance program at all,’ it’s going to be a much different conversation.”