The Anti-Money Laundering (AML) requirements for investment advisers in the United States are an important part of regulatory compliance. The main sources of AML obligations for SEC-registered investment advisers stem from the Bank Secrecy Act (BSA) and PATRIOT Act. Under these laws, investment advisers must establish AML programs, perform customer due diligence, monitor for suspicious activity, and file Suspicious Activity Reports (SARs) when warranted. Understanding the key AML requirements is crucial for investment advisers to avoid penalties and reputational damage.
Investment advisers covered by AML requirements
The AML requirements apply to all SEC-registered investment advisers, regardless of their size or type of clients. This includes traditional money managers, hedge funds, private equity firms, and venture capital funds. The requirements also apply to exempt reporting advisers, who manage under $150 million in assets and are not required to register fully with the SEC. All these entities must comply with the BSA and implement AML programs.
Main elements of an AML compliance program
Under the BSA, investment advisers must establish a written AML program that includes: 1) Policies, procedures and internal controls based on the adviser’s money laundering risk assessment; 2) Independent testing of the program; 3) Designation of an AML compliance officer; 4) Ongoing training for appropriate personnel; 5) Customer due diligence and enhanced due diligence for higher risk clients.
Obligations for customer due diligence
Investment advisers must establish risk-based procedures for conducting customer due diligence (CDD). This includes gathering information at account opening to verify client identity and assess risks. Ongoing monitoring of accounts is also required to identify suspicious transactions. Enhanced due diligence applies for foreign clients, including foreign financial institutions.
Requirements for Suspicious Activity Reports
A key obligation is filing SARs to report suspicious financial activity. The timeline for filing a SAR is 30 days after initial detection of suspicious activity. Advisers must file SARs for things like money laundering, fraud, terrorist financing, or use of the adviser to facilitate criminal activity.
The AML requirements for SEC-registered investment advisers are extensive under US law. Failing to establish adequate AML procedures can result in SEC penalties and reputational harm. Advisers must continually evaluate risks and implement controls to detect illicit financial activity occurring through accounts under management.