Private Equity has been siting on the fringes of Anti-money laundering regulation for many years. It’s still illegal to be involved in money laundering and fund managers should be taking some steps to protect themselves and to identify problems. There’s just no set script. FinCEN is supposedly working on a new rule.
In the meantime, FinCEn has issued a new rule setting out the requirements for Non-Bank Mortgage Lenders and Originators.
The rule starts with a simple principle based approach:
Each loan or finance company shall develop and implement a written anti-
money laundering program that is reasonably designed to prevent the loan or finance company from being used to facilitate money laundering or the financing of terrorist activities.
What do you have to do to meet this standard? The rule goes on to set minimum requirements:
(1) Incorporate policies, procedures, and internal controls based upon the company’s assessment of the money laundering and terrorist financing risks associated with its products and services.
(2) Designate a compliance officer who will be responsible for ensuring that:
(i) The anti-money laundering program is implemented effectively
(ii) The anti-money laundering program is updated as necessary; and
(iii) Appropriate persons are educated and trained
(3) Provide for on-going training of appropriate persons concerning their responsibilities under the program.
(4) Provide for independent testing to monitor and maintain an adequate program, including testing to determine compliance of the company’s agents and brokers with their obligations under the program
The mortgage company is also now explicitly required to file suspicious activity reports.
Obviously, private equity firms are not subject to this rule. However, I would guess that the proposed rule for private equity will end up having many of these same elements.
- Financial Crimes Enforcement Network: Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for Residential Mortgage Lenders and Originators (.pdf)
- FinCEN Requires AML Program and SAR Filing for Non-Bank Mortgage Lenders and Originators Reporting Would Assist Law Enforcement with Fraud Detection