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Treasury Department Proposing Advisors Establish Anti-Money-Laundering Safeguards

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Treasury Department Proposing Advisors Establish Anti-Money-Laundering Safeguards



Investment advisors would be required to establish anti-money-laundering programs under a proposed rule issued last week by the Treasury Department.

Treasury issued the proposed rule as part of its authority under the USA Patriot Act, the legislation enacted in the aftermath of the Sept. 11, 2001, terrorist attack aimed at enhancing the ability of the government to track funds of terrorist organizations.

In the proposed rule, Treasury notes that investment advisors are not listed as the entities defined as “financial institutions” under current law that are covered by the USA Patriot Act.

Nonetheless, Treasury says, the Secretary has extremely broad authority to include additional types of businesses under the AML (anti-money-laundering) program upon a determination that they engage in certain financial activities.

Because of the types of activities engaged in by investment advisors, Treasury says, the department is proposing to require them to establish AML programs.

Treasury notes that investment advisors control some $21 trillion in assets and are often in a critical position of knowledge as to the movements of large amounts of financial assets through the financial markets.

“If some of these assets include proceeds of illegal activities, or are intended to further such activities, an anti-money-laundering program should help discover them,” Treasury says.

Generally, the proposed rule requires investment advisors to establish AML programs that have four components. First, advisors would have to establish and implement policies, procedures and internal control reasonably designed to prevent the advisor from being used to launder money or finance terrorist activities.

Second, the rule says there must be independent testing of compliance to be conducted by company personnel or a qualified outside party.

Third, the rule says advisors must designate a person or persons responsible for implementing and monitoring the operations and internal controls of the program.

Finally, the rule says there must be ongoing training for relevant employees.

Details on implementation of each of these program elements are spelled out in the proposed rule, which is available from the Treasury Departments Web site at

Carl Wilkerson, chief counsel with the American Council of Life Insurers, Washington, says that life insurers will be reading the proposed rule very carefully.

Many life insurers, he says, have investment advice units either directly or through affiliates.

On first reading, Wilkerson says, the proposal has many commendable aspects, such as a risk-based approach that focuses AML resources on activities that have the greatest probability of money laundering.

In addition, he says, the proposal does not take a “one size fits all” approach.

Reproduced from National Underwriter Edition, May 5, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.


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