Treasury proposes anti-money laundering rules for GPs

On Tuesday, US Treasury proposed a long-awaited rule requiring firms registered with the Securities and Exchange Commission (SEC) to establish anti-money laundering (AML) policies and report suspicious activity to its Financial Crimes Enforcement Network (FinCEN).

The 86-page proposal seeks to capture registered investment advisers under the general definition of a “financial institution.” Doing so would subject registered GPs to various requirements under the Bank Secrecy Act, including the requirement to file Currency Transaction Reports for any cash movements in excess of $10,000.

FinCEN is proposing to delegate its authority to monitor compliance with the new requirements to the SEC – likely as part of onsite inspections.

Among some of the proposal’s key requirements: GPs must designate an AML officer, such as the CCO; provide staff ongoing training on formal AML policies and procedures; and conduct independent testing, either by the compliance team or an outside consultant.

The threat of increased AML regulation has been brewing for more than a decade, with FinCEN proposing increased AML compliance requirements and customer identification data collection requirements for investment advisers and hedge funds back in 2002 and 2003. The proposals were withdrawn after languishing un-enacted for years.

In observance of these efforts, most of the private funds community has already adopted AML policies and procedures on a voluntary basis. However, legal experts warn the proposals will place greater scrutiny on firms’ AML efforts, which current best practices may not adhere to.