Corporate & Securities Law

By Jim Hamilton

The Treasury has withdrawn its proposal to subject hedge funds and other private equity funds to anti-money laundering regulations in light of the fact that the financial institutions they deal with are subject to such regulations. Treasury may propose in future placing hedge funds and the others under the ant-money laundering regime, with another public comment period, but for now the effort has been abandoned. For similar reasons, Treasury also withdrew a proposal to subject investment advisers to the anti-money laundering rules.

It was in September of 2002 that Treasury proposed to require hedge funds and private equity funds to establish and implement anti-money laundering programs. As time progressed, Treasury adopted rules requiring banks and brokerage firms to implement anti-money laundering program. Even more, Treasury required banks and brokers to establish and implement customer identification programs and due diligence programs for foreign correspondent accounts.

Since the financial transactions of hedge funds and their participants must be conducted through other financial institutions that are subject to these various Bank Secrecy Act requirements, reasoned Treasury, assets within any of these unregistered investment pools typically are carried with these financial institutions. Thus, Treasury concluded that their activity is not entirely outside the current money laundering and other regulatory regimes erected under the Bank Secrecy Act.

Full post as published by Jim Hamilton's World of Securities Regulation on November 01, 2008 (boomark / email).