Just a few notes on AML

Hey there, busy over here. Year-end always comes too quickly. I wish you all well in the markets and in your securities business. Hang in there.

Kinda recently, FinCEN published their newest SAR Activity review… here is the link: FinCEN Publishes SAR Activity Review- By the Numbers – Issue 11

Here is their summary analysis regarding SAR filing increases in the first 6 months of 2008:

Suspicious Activity Reports characterizing the suspicious activity type as Credit/Debit Card Fraud increased 58%, compared to the corresponding six month period in 2007.

In 2008, Suspicious Activity Reports characterizing the suspicious activity type as Mail Fraud increased 49%, compared to reports filed during the same period in 2007.

The total suspicious activity reporting volume in the first six months of 2008 increased 18%, compared to the same period in 2007.

Suspicious Activity Reports characterizing the suspicious activity type as Money Laundering/Structuring increased 15%, compared to the corresponding six month period in 2007.

And, this came out last month… as you know, investment advisers are not currently required to have AML programs in place, although most these days are adopting programs to meet the expectations of investors and broker-dealers. The announcement (see below) informs us that the proposed rule to require IA’s (SEC-registered IA’s and unregistered IA’s with $30mm under management) to have AML programs has been dropped. They say that if IA’s in the future are to be subject to FinCEN AML program requirements, a new rule will have to be proposed and adopted.

What that means for you, maybe: if you as a BD had hoped your unregistered IA friends would have their own darned AML rules to follow, so that you could rely on them to do it for you when they introduce investors to you, well, forget it. The currently-effective SEC no-action letter (effective 1-12-08) allows you to rely on federally-regulated IA's to do that--not unregulated IA's. I have that letter in my files; if you want me to email it to you, just ask.

Here is FinCEN's announcement, pulling the proposed IA rule proposal:
From: http://www.fincen.gov/news_room/nr/html/20081030.html
October 30, 2008

FinCEN Withdraws Dated AML Rule Proposals for Unregistered Investment Companies, Commodity Trading Advisors, and Investment Advisers

VIENNA, Va. – As part of its overall effort to increase its efficiency and effectiveness in administering the Bank Secrecy Act (BSA), the Financial Crimes Enforcement Network (FinCEN) has withdrawn its proposed anti-money laundering (AML) program rules for unregistered investment companies, commodity trading advisors and investment advisers. The withdrawals of the proposed program rules have been submitted for publication in the Federal Register.

Given the passage of time since these rules were first proposed in 2002 and 2003, FinCEN has determined that it will not proceed with BSA requirements for these entities without publishing new proposals and allowing for industry comments. FinCEN will continue to consider whether and to what extent it should impose requirements under the BSA on these entities.
Since the proposed rules were first published, FinCEN has concluded rulemakings for banks, broker-dealers and futures commission merchants. The financial transactions of unregistered investment companies, investment advisers, and commodity trading advisors and their clients must be conducted through, and their assets carried by, other financial institutions that are subject to BSA requirements. Thus, as FinCEN continues to consider the extent to which BSA requirements should be imposed on these entities, their activity is not entirely outside the current BSA regulatory regime.

In an effort to make its rulemaking processes more transparent, FinCEN today also established a section of its website entitled "Pending Rules" where those rules that are still awaiting comments or finalization will be made easily available.