Articles Tagged with Anti Money Laundering

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In a press release issued by the Securities and Exchange Commission on December 20, 2018, the SEC’s Office of Compliance Inspections and Examinations (OCIE) announced its 2019 Examination Priorities.

This year’s examination priorities, although not exhaustive, are divided into 6 categories:

  1. Compliance and risk at registrants responsible for critical market infrastructure;
  2. Matters of importance to retail investors, including seniors and those saving for retirement;
  3. FINRA and MSRB;
  4. Digital assets;
  5. Cybersecurity; and
  6. Anti-money laundering programs.

Read the OCIE 2019 Examination Priorities in full HERE.

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The following are some of the important annual compliance obligations investment advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) and commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) should be aware of.

This summary consists of the following segments: (i) List of Annual Compliance Deadlines; (ii) 2017 Enforcement Priorities In The Alternative Space; (iii) New Developments; and (iv) Continuing Compliance Areas.

Table of Contents


Table of Annual Compliance Deadlines……………………………………………………………. 3

2017 Enforcement Priorities In The Alternative Space………………………………………. 5

New Developments………………………………………………………………………………………. 7



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At the end of this month, the annual updating amendments for investment advisers’ Form ADV will be due. The following are some of the important annual compliance obligations investment advisers either registered with the Securities and Exchange Commission (the “SEC”) or with a particular state (“Investment Adviser”) and commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”) registered with the Commodity Futures Trading Commission (the “CFTC”) should be aware of.

This summary consists of the following segments: (i) List of Annual Compliance Deadlines; (ii) 2016 Enforcement Priorities In The Alternative Space; (iii) New Developments; and (iv) Continuing Compliance Areas.

See the deadlines below and in red



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The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking on August 25, 2015 which, among other things, would add SEC-registered investment advisers to the “financial institutions” regulated under the Bank Secrecy Act (BSA). This represents another step by the U.S. government to expand the professions and industries deemed anti-money laundering (AML) gatekeepers. Covered investment advisers will face new AML program, reporting and record-keeping requirements, with implications for hedge, private equity and other funds; money managers; and public or private real estate funds.

FinCEN has long expressed an interest in regulating investment advisers, which it believes may be vulnerable to or may obscure money laundering and terrorist financing. Should the rule become final, SEC-registered investment advisers would be included in the regulatory definition of “financial institution” and, as a consequence, required to establish and implement appropriately comprehensive written AML programs and comply with a variety of reporting and recordkeeping requirements under the BSA. Investment advisers that already implemented AML programs would need to evaluate them to ensure they comply with BSA requirements.

Who are Covered “Investment Advisers”?

Investment advisers provide advisory services, such as portfolio management, financial planning, and pension consulting, to many different types of clients, including institutions, private funds and other pooled investment vehicles, pension plans, trusts, foundations and mutual funds. According to the proposed rule, an “investment adviser” would be defined as “[a]ny person who is registered or required to register with the SEC under section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(a)).”

The definition would cover all investment advisers, including subadvisers, subject to Federal regulation which, generally speaking, would include advisers that have $100 million or more in assets under management. This includes investment advisers engaging in activities with publicly or privately offered real estate funds. Small- and medium-sized investment advisers that are state-registered and other investment advisers that are exempt from SEC registration requirements would not be captured by the proposed rule. FinCEN indicated, however, that future rulemaking may include those types of advisers.


Read this article and additional publications at  You can also download a copy of the Client Alert.

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In a release issued today, the Financial Crimes Enforcement Network (FinCEN) has proposed anti-money laundering (AML) regulations for investment advisers. The proposed rule requires investment advisers registered or required to be registered with the Securities and Exchange Commission (SEC) to establish AML programs and report suspicious activity to FinCEN pursuant to the Bank Secrecy Act (BSA). The SEC would be delegated authority by FinCEN to examine investment advisers for compliance. The proposed rule also makes investment advisers fall under the definition of “financial institution,” requiring them to file Currency Transaction Reports (CTRs) and comply with record keeping obligations under the BSA.

A full copy of the proposed rule is available HERE.

A related article about the new AML regulations was posted in our blog last week.

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The U.S. Treasury Department’s Financial Crimes Enforcement Network will soon propose new rules that may require investment advisers to establish and implement written anti-money laundering programs designed to prevent advisory clients from using advisers to launder funds or perpetrate other criminal activities. The rules also may require advisers to report suspicious client activity.

The new rules may be similar in certain respects to rules proposed by Treasury in 2003, when the Department attempted to subject investment advisers to the AML provisions of the Bank Secrecy Act. The 2003 rules would have required advisers to (1) establish and implement policies, procedures and controls reasonably designed to prevent advisers from being used to launder money or finance terrorist activities, (2) provide independent testing of compliance by the advisory firms’ personnel, affiliates or third parties, (3) designate persons responsible for implementing and monitoring the operations and internal controls of the program and (4) provide ongoing training for appropriate persons who are involved with the program.

The new rules are likely to reflect comments received in response to the 2003 proposal and may be informed, in part, by certain practices followed by advisers in offshore jurisdictions. It is unclear whether the rules will require investment advisers to apply their anti-money laundering programs to their clients’ beneficial owners.

If the new rules are adopted, investment advisers will need to review and update their compliance manuals, as necessary, to incorporate anti-money laundering policies and procedures that are tailored to their business, clients and risks. In addition, private offering memoranda, fund governance documents, advisory agreements and other client communications should be updated to include information about the anti-money laundering program and suspicious activity reporting requirements.

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Written by:  Kimberly Mann

Private investment fund structures frequently include one or more vehicles that are organized under the laws of the Cayman Islands. The Cayman Islands is a preferred jurisdiction because there is no tax on income, profits or capital gains, nor is there withholding tax. In addition, at the time of its formation, an entity may purchase a tax exemption certificate which will preserve its tax-free status for several years. Formation in the Cayman Islands is relatively efficient and inexpensive and a number of different types of business organizational structures that offer limited liability for investors may be used. Advisors to Cayman funds also may avoid licensing requirements if they fall within an available exemption.

Cayman entities likely will become even more attractive to fund managers, sponsors and investors as a result of recent changes to Cayman law pertaining to fiduciary duties, third party beneficiaries of indemnification provisions, the manner in which fund documents may be executed, the use of foreign partnerships as general partners of Cayman limited partnerships and the adoption of a limited liability company statute, all of which help to bring Cayman law in line with Delaware law. However, fund managers are advised to remember important anti-money laundering obligations that apply to investment funds under Cayman law.

Anti-money Laundering Requirements

Notwithstanding the recent liberalization of certain laws and the absence of registration or licensing requirements in many cases, managers of Cayman vehicles are subject to strict anti-money laundering compliance requirements under the Proceeds of Crime Law (“PCL”) and the Money Laundering Regulations promulgated under the PCL. In addition, the Cayman Islands Monetary Authority Guidance Notes on Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (“Guidance Notes”) provide important guidelines for anti-money laundering compliance. Under the Cayman anti-money laundering regime, fund managers must
(i) establish client identification procedures, (ii) implement suspicious transaction reporting procedures, (iii) maintain know-your-client information and suspicious transaction records, (iv) develop internal controls, policies and procedures that are appropriate to prevent money laundering, (v) implement an anti-money laundering training program for staff members and (vi) designate a compliance officer at the management level with the requisite skills and experience to manage the compliance program and report to the board of directors or its equivalent.

The purpose of the Guidance Notes is to assist funds and other financial services providers to comply with applicable Cayman Islands Money Laundering Regulations. The Guidance Notes describe the types of documentation that should be used as evidence of the identity of investors and their beneficial owners and signatories. The type of documentation required depends, in large measure, upon the nature of the investor or beneficial owner. For example, identification documents for natural persons would include a current valid passport, a recent utility bill and a reference letter from a lawyer, accountant or other respected professional. Appropriate documentation for a corporate investor would include a certificate of incorporation, a copy of recent financial statements of the company, identification evidence of each of the principal beneficial owners holding a 10% or greater interest in the company or otherwise exercising control over the company and copies of the resolutions of the board of directors authorizing the investment in the fund. If copies of identifying documents are submitted, they should be certified by a lawyer, accountant, notary public, member of the judiciary or other suitable certifier. The Guidance Notes are not required to be followed slavishly; rather, the Cayman Islands Monetary Authority expects financial services providers to exercise prudent judgment and take the Guidance Notes into account when devising their anti-money laundering policies and procedures.

A Pragmatic Approach – Using an Intermediary

Under the Money Laundering Regulations, evidence of identity is satisfactory if it is reasonably capable of establishing that the investor is who it claims to be. There are circumstances under which it may be duplicative, onerous or unhelpful for a fund manager to obtain and verify identification evidence about a prospective investor. In those cases, it may be appropriate to rely on the due diligence of a third party intermediary that will serve as an “eligible introducer.” An eligible introducer is, among other things, (i) a lawyer or certified or chartered accountant or firm of lawyers or certified or chartered accountants, conducting business in a country with legislation equivalent to the Money Laundering Regulations, (ii) a member of a professional body in a country listed in Schedule 3 of the Money Laundering Regulations that is subject to disciplinary action for failure to comply with guidelines similar to the Guidance Notes or (iii) a financial institution in a country listed in Schedule 3 of the Money Laundering Regulations that has regulations equivalent to the Money Laundering Regulations, if the financial institution is subject to the jurisdiction of a regulatory authority outside the Cayman Islands that is the functional equivalent of the Cayman Islands Monetary Authority. Use of an eligible introducer may be pragmatic in order to create efficiencies in cases where the introducer would have already conducted procedures to verify the identity of the prospective investor. An eligible introducer must ensure that its documentation is accurate and up-to-date. The nature of the relationship between the introducer and the fund manager and between the introducer and the prospective investor, as well as the bona fides of the introducer, will determine whether it is appropriate to use the introducer as an intermediary for anti-money laundering purposes.

Required Due Diligence on the Intermediary

It is important for a fund manager to keep in mind that it is responsible for ensuring that the procedures utilized by the introducer are substantially in accordance with the Guidance Notes and that documentary evidence of the introducer upon which the manager will rely is satisfactory. Evidence is satisfactory if it complies with the requirements of the anti-money laundering regime of the country from which the introduction is made. Fund managers or administrators typically require an eligible introducer to provide a comfort letter or eligible introducer form providing assurances that (i) the intermediary qualifies as an eligible introducer, (ii) the introducer’s due diligence procedures are satisfactory, (iii) the introducer has information that clearly establishes the identity of the investor or the investor’s beneficial owner, (iv) the introducer will make available upon request copies of documentation that it has obtained regarding the identity of the prospective investor or the prospective investor’s beneficial owner and (v) due diligence and other identification documentation will be retained by the introducer for the time period required by the regulations to which the introducer is subject. In addition to the comfort letter or eligible introducer form, the fund manager should obtain independent evidence of the eligibility of the introducer, such as confirmation that the introducer is a regulated entity or a member in good standing of a professional body. It is also advisable to test, from time to time, the introducer’s ability to furnish requested identifying documentation promptly. If it turns out that reliance should not have been placed on an introducer, the fund manager must carry out its own due diligence procedures on the prospective investor or beneficial owner.

Exemptions for Certain Types of Investors

Documentary evidence of identity is not required under all circumstances. For example, evidence of identity is not typically required where the investor is a governmental entity, agency of government or a statutory body. In addition, financial institutions in countries listed in Schedule 3 of the Money Laundering Regulations, companies with securities that are listed on exchanges or other markets approved by the Cayman Islands Monetary Authority and pension funds are examples of entities for which exemptions exist.  For pension funds, evidence that the investor is a pension fund may consist of a copy of a certificate of registration or an order, approval or regulation of a governmental, regulatory or fiscal authority in the jurisdiction in which the pension fund was established. In the absence of any such evidence, the fund manager should obtain the names and addresses of the trustees or other persons authorized to make investment decisions on behalf of the pension fund.


The failure to take the Guidance Notes into account could result in sanctions under Cayman law. The Guidance Notes make clear that fund managers should consider money laundering and terrorist financing prevention as part of their risk management strategies and not as a stand-alone requirement. Policies should be tailored to the nature and scope of the fund’s business. Prior to accepting subscribers, a fund manager or its administrator should ensure that documentary evidence of the identity of each prospective investor has been provided and reviewed. Where there are questions, or if insufficient information has been provided by a prospective investor, the manager or administrator should follow up until the prospective investor and its beneficial owners have been adequately identified and determined to be suitable from an anti-money laundering perspective. Subscription materials should be reviewed and modified, if necessary, to include anti-money laundering attestations and documentary requests. Fund managers that are U.S. persons also should check the names of prospective investors and their beneficial owners to determine whether they are on the list of specially designated nationals published by the Office of Foreign Assets Control.  Managers that are registered with the U.S. Securities and Exchange Commission as investment advisors likely have an anti-money laundering system in place that meets the requirements of the Guidance Notes. Managers that are not registered investment advisors may not have such policies and procedures in place and may benefit from assistance from counsel or a consultant in establishing and maintaining a satisfactory system.