FinCEN Withdraws Proposed AML Regulation for Unregistered Investment Companies and Advisers

On October 30, 2008, the Financial Crimes Enforcement Network (FinCEN) withdrew its proposed anti-money laundering (AML) regulations for unregistered investment companies, commodity trading advisors (CTAs) and certain investment advisers, originally published in 2002 and 2003. FinCEN will continue to consider whether or not to re-propose regulation for such entities.


The USA PATRIOT Act of 2001 (“Patriot Act”) amended the Bank Secrecy Act to require “financial institutions” to implement AML programs that, at a minimum, (a) include internal policies, procedures and controls; (b) designate a compliance officer; (c) train employees on an ongoing basis; and (d) include an internal audit to test programs. The Patriot Act required the Department of the Treasury to adopt regulations to prescribe minimum standards for such AML programs.

In 2002 and 2003, the Department of the Treasury, through FinCEN, proposed regulations relating to unregistered investment companies, CTAs and certain investment advisers to require them to implement AML programs and adopted an interim final rule to exempt such entities from being required to implement an AML program until final rules were adopted.

Withdrawal of Proposed Regulations

On October 30, 2008, FinCEN withdrew the proposed regulations for unregistered investment companies, CTAs and certain investment advisers. FinCEN determined that it would not require such entities to adopt an AML program without publishing new rule proposals and allowing for additional comment. FinCEN stated that it will continue to consider its approach to such entities but recognized that regulation may not be necessary because such entities’ business is conducted through entities that are already regulated by FinCEN, such as banks, broker-dealers and futures commission merchants.

Despite FinCEN’s withdrawal of its proposed regulations relating to AML programs, unregistered investment companies, CTAs and investment advisers will continue to be subject to criminal laws that prohibit knowingly engaging in transactions that relate to the proceeds of unlawful activity, as well as to sanctions relating to dealings with persons or countries specified on the Office of Foreign Asset Control’s list and certain reporting requirements under the Bank Secrecy Act. In addition, such entities conduct their business through regulated industry participants that will likely continue to expect their customers to have AML programs. The program requirements set forth in FinCEN’s original proposed regulations continue to provide guidance relating to best practices for the implementation of AML programs.


If you have any questions regarding this alert, please contact-

Mark H. Barth 212.872.1065 New York
David M. Billings 44.20.7012.9620 London
J.P. Bruynes 212.872.7457 New York
James A. Deeken 214.969.4788 Dallas
Christopher Gorman-Evans 44.20.7012.9656   London

Barry Y. Greenberg 214.969.2707 Dallas
Robert M. Griffin Jr. 44.20.7012.9676 London
Leon B. Hirth 212.872.1059 New York
Ira P. Kustin 212.872.1021 New York
Arina Lekhel 212.872.8018 New York
Burke A. McDavid 7.495.783.7835 Moscow
Prakash H. Mehta 202.887.4248 Washington, D.C.
Lisa A. Peterson 817.886.5070 Dallas
Eliot D. Raffkind 214.969.4667 Dallas
Fadi G. Samman 202.887.4317 Washington, D.C.
William L. Sturman 212.872.1035 New York
Ann E. Tadajweski 212.872.1087 New York
Simon W. Thomas 44.20.7012.9627 London
Stephen M. Vine 212.872.1030 New York