US authorities plan to tighten anti-money laundering rules on investment advisers, the Treasury Department announced on Tuesday, after identifying “illicit finance and national security risks” in the sector.
“Thousands of investment advisers overseeing the investment of tens of trillions of dollars into the US economy are generally not subject to comprehensive anti-money laundering and countering the financing of terrorism” measures, the Treasury Department said in a notice.
The proposed rule would require investment advisers registered with the Securities and Exchange Commission (SEC) to implement such measures – including reporting suspicious activity and keeping records on the movement of funds.
The Treasury Department said the sector has “nearly doubled in assets under management” since 2015, stressing the need to strengthen the regulatory environment.
Investment advisers may serve retail investors, high net worth individuals and government entities – with clients often granting advisers the ability to decide which securities to buy and sell.
But the Treasury Department said it has identified cases where sanctioned individuals and corrupt officials used investment advisers “as an entry point to invest in US securities” and other assets.
There were cases where “foreign adversaries, including China and Russia”, invested in early stage companies through such advisers, seeking to gain access to “sensitive information and emerging technology”.
The rule, if enacted, would make it easier to identify similar attempts, the department said.
A senior Financial Crimes Enforcement Network (FinCEN) official told reporters that there have been cases where US investment advisers with significant ties to Russian oligarchs invested in companies developing artificial intelligence and autonomous vehicle technology.
“Concerningly, we’ve also seen this pattern with respect to investments in US government, military and intelligence contractors,” added the official, who spoke on condition of anonymity ahead of the proposed rule’s announcement.
Besides investment advisers registered with the SEC, those reporting to the commission as exempt reporting advisers will also be covered by the latest rule.
While the FinCEN official did not have an overall estimate on how much funding in the sector was used for illicit means, it has flagged cases “of millions and billions of dollars”.
The comment period for this rule will be open until April 15.
Last week, FinCEN issued another proposal to deter money laundering in the residential real estate sector.
AFP