September 12, 2024
New rule set to safeguard investment adviser sector from illicit finance activity. New rule also requires reporting of suspicious or illegal activities by investment advisers.
On September 4, 2024, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, published its final rule (Rule) in accordance with the Bank Secrecy Act (BSA) that imposes minimum standards for establishing anti-money laundering/ countering the financing of terrorism (AML/CFT) programs. The Rule requires Registered Investment Advisers (RIAs) and Exempt Reporting Advisers (ERAs) to report suspicious activity to FinCEN in compliance with the suspicious activity reporting (SAR) requirements.
The purpose of the Rule is to safeguard investments in the United States and help prevent criminals and other illicit actors from laundering money through the U.S. financial system. The Rule helps to mitigate the risk of money laundering, terrorist financing, and other illicit finance activities through the investment adviser industry, particularly in relation to sanctioned entities, the Russian Federation, and exploitation by foreign state sponsored enterprises, most notably from the People’s Republic of China and Russia.
The new Rule, Department of the Treasury, Financial Crimes Enforcement Network, 31 CFR 1010 and 1032 goes into effect on January 1, 2026.
Why This Matters to Whistleblowers
The BSA authorizes the Dept. of Treasury and its bureaus to impose reporting and other requirements on financial institutions and other businesses to help detect and prevent money laundering.
According to FinCEN, investment advisers serve “as an entry point into the U.S. financial system and economy,” and may be susceptible to participating in fraud and other illegal activity by sanctioned and other unscrupulous foreign entities.
FinCEN has adopted the SAR filing provisions in the Rule to include investment advisers, thereby requiring certain investment advisers to report illicit activity to FinCEN.
Individuals working for such investment advisers may feel encouraged to “blow the whistle” on suspicious activity involving money laundering, terrorist financing, and other illicit finance activity.
Overview of the New ALM/CFT Rule & New Definitions:
Financial Institution – FinCEN is broadening the definition of “financial institution” to include certain investment advisers, and pursuant to the BSA, requiring certain investment advisers to report suspicious activity to FinCEN.
Investment Adviser – FinCEN is narrowing and clarifying the definition of “investment adviser.”
The Rule defines investment advisers as:
- investment advisers registered with or required to register with the SEC, also known as RIAs; and
- investment advisers that report information to the SEC as ERAs.
The narrower definition of investment adviser excludes from the definition:
- RIAs that register with the SEC solely because they are (i) mid-sized advisers, (ii) multi-state advisers, or (iii) pension consultants; as well as
- RIAs that are not required to report assets under management (AUM) to the SEC on Form ADV.
FinCEN is not applying this Rule to State-registered advisers. Foreign private advisers or family offices
(as defined in SEC regulations) are also exempt.
No later than January 1, 2026, investment advisers must have implemented AML/CFT programs, commenced filing SARs when required, and begun complying with the other reporting and recordkeeping requirements as described in the Rule.
SARs and other BSA forms, filing requirements, and FAQ can be found on FinCEN or the BSA E-Filing System.
Is Legal Counsel Needed if I Become a Whistleblower and “Blow the Whistle” on New Rule Violators?
While it is not necessary for a Whistleblower to engage legal counsel at the time of reporting fraud, misconduct, or other violations, it is recommended. Legal counsel specializing in Dodd-Frank-related whistleblower matters can assist in not only assessing the gravity of the possible violations the Whistleblower has knowledge of but will complete and file the required form – Form TCR with FinCEN.
About the Author
Christina McGlosson, Special Counsel in Cohen Milstein’s Whistleblower practice, focuses exclusively on Dodd-Frank Whistleblower representation. She is the former Acting Director of the Whistleblower Office in the Division of Enforcement at the U.S. Commodity Futures Trading Commission. She was also Senior Counsel in the SEC’s Division of Enforcement, where she assisted in drafting the SEC rules to implement the whistleblower provisions of Dodd-Frank.
Christina represents whistleblowers in the presentation and prosecution of fraud claims before the SEC, CFTC, FinCEN, the Department of Justice, and other government agencies.
Christina McGlosson, Special Counsel: Dodd-Frank Whistleblower Practice
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, NW
Washington, DC 20005
E: cmcglosson@cohenmilstein.com
T. 202-988-3970
“FinCEN’s rule is long overdue. Investment Advisers are critical to the U.S. financial system and economy. At the same time, certain Investment Advisers are more vulnerable than others to sanctioned and other unscrupulous foreign entities. FinCEN’s final rule shores up the uneven application of the AML/CFT program across the industry and makes whistleblowing of suspicious activity an imperative,” said Christina McGlosson, Special Counsel: Dodd-Frank Whistleblower Practice at Cohen Milstein. It should be noted that Christina is the former acting director of the CFTC’s Whistleblower Office. She was also Senior Counsel to the Director of the SEC’s Division of Enforcement, during her fifteen-year tenure in the SEC’s Enforcement Division.”