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1. Anti-Money Laundering

Regulation and Compliance > Legislation

Must-Pass Defense Bill Includes AML Rule for Advisors

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What You Need to Know

  • If the provision is passed, it “presents a sea change for the industry.”
  • The Treasury Department’s Financial Crimes Enforcement Network proposed a similar rule change in 2015, which failed to gain traction.

Included in the must-pass defense bill, H.R. 7900, the National Defense Authorization Act for Fiscal Year 2023, is a provision that would require investment advisors to adopt anti-money laundering policies.

Page 1,229 of the massive bill, which is scheduled for a vote this week, includes a provision “to impose anti-money laundering safeguard on all necessary gatekeeper professions, including art dealers, investment advisors, real estate professionals, lawyers, accountants, trust or company service providers, public relations professionals, dealers of luxury vehicles, money service businesses, and other similar professions.’’

Nicolas Morgan, a partner at Paul Hastings in Los Angeles, said that if it stays in the bill, the provision is a “potentially huge” development for advisors.

Going back as far as September 2015, the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, proposed a rule change “that would massively increase the impact of anti-money laundering requirements to include a previously unaffected portion of the financial services industry: investment advisors,” Morgan said in a Tuesday email to ThinkAdvisor.

According to Morgan, that proposed rule change “has languished, perhaps in part because of doubts about whether FinCEN had the statutory authority for such a substantial modification of the definition of ‘financial institution’ under the Bank Secrecy Act.”

At a recent House Financial Services Committee hearing, FinCEN’s acting director, Himamauli Das, said that FinCEN is “exploring regulation of investment advisors, and in particular looking to apply the FinCEN special collection [anti-money laundering] authorities on the investment advisor — potentially private equity sector — in order to support any future rulemaking,” Braddock Stevenson, former deputy associate director of enforcement at FinCEN and currently a partner at Paul Hastings, said on a recent episode of SEC Roundup.

“If Congress and the President provide that statutory authority by turning this bill into law, the same onerous AML compliance obligations that apply to banks and brokers will apply to investment advisors large and small,” Morgan added. “This presents a sea change for the industry.”


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