GPs warned to keep tight books for AML sweeps

Firms should ensure they have detailed historical records of their investors, as British regulators are ‘not holding back’ when it comes to KYC/AML cases, warns legal consultant Lucy Kennedy.

Having detailed historical records of investors’ wealth is imperative should a firm become the subject of a know your customer (KYC) or anti-money laundering (AML) screening, Lucy Kennedy of QEB Hollis Whiteman, a law firm, said in a PE Connect webinar Friday.
Keeping these records can particularly become an issue when a GP has been working with a high-net-worth individual or sovereign wealth fund for many years and failed to document the proper due diligence at the beginning of the relationship. Going back and obtaining documentation from these clients is crucial.
“In many cases, [firms] have done the due diligence and then they don’t document it,” Kennedy said. “Regulators are only going to the paperwork and the paperwork has to speak for itself.” 
British authorities are “not holding back” in these cases, Kennedy noted, so she outlined some essential dos and don’ts for managers looking bump up their compliance for a KYC/AML screening. For example, in some cases, a thorough Google search on a politically exposed person (PEP) can be enough to satisfy regulators.
She noted that it is safer to conduct investor assessments in-house rather than to outsource to a third party although it depends on the GP’s resources and the compliance team’s capacity to handle the job.
If a client who has not been properly screened does come under suspicion for money laundering, a GP should never approach that investor with questions, possibly tipping them off to the investigation, Kennedy noted.
In the worst case scenario, an investigation will ensue, lasting months or possibly even years for longer firms. If it is found that a GP has failed to report potential suspicious activity or has warned the investor in regards to the investigation, it could result in hefty fines or prison time.
“A GP’s personal net worth can be at risk if they do not get this right,” Kennedy added.