Proposed regulations aim to close loopholes in AML/CFT laws.

The US Treasury Department's Financial Crimes Enforcement Network (FinCEN) has unveiled proposed regulations that would extend Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) laws to investment advisers, including those overseeing private equity and venture capital funds.

Historically, investment advisers have operated without the stringent AML and CFT regulations imposed on banks, broker-dealers, and mutual funds, despite managing substantial sums of money. According to the Treasury's 2024 Investment Adviser Risk Assessment, private funds held over US$20 trillion in assets under management in Q4 2022, highlighting the significant risk they pose in enabling illicit actors to access the US financial market.

The proposed regulations seek to address gaps in AML/CFT laws that allow sanctioned individuals, drug traffickers, corrupt foreign officials, fraudsters, tax evaders, and foreign adversaries to exploit weaker compliance programs of certain investment advisers. Additionally, foreign adversaries could utilize investment advisers and the private funds they oversee to access technologies and services crucial to US national interests, potentially through investment in startups developing such technologies.

As the Treasury moves forward with the rulemaking process, stakeholders in the investment industry are closely monitoring developments and preparing for potential changes to their compliance obligations. The proposed regulations signal a proactive approach by US authorities to combat money laundering and terrorist financing, underscoring the importance of robust regulatory frameworks in safeguarding the integrity of the global financial system.