June 2, 2022

Treasury Official Reviews Actions on Russia Sanctions, Pushes for Tighter AML Regulation on IAs

Michael T. Gershberg Commentary by Michael T. Gershberg

Treasury Under Secretary for Terrorism and Financial Intelligence Brian E. Nelson (i) reviewed the Department's efforts to target Russia's "war machine" and (ii) identified risks present in countering illicit finance.

In a speech at SIFMA's AML and Financial Crimes Conference, Mr. Nelson stated that Treasury targeted the supply chain for Russian military technology to further limit the country's ability to build and maintain weapons and other necessities. He cited Department actions that resulted in restricting transactions with approximately 80 percent of the banking sector. These efforts, he said, make it harder for Russia to raise capital to fund its war effort.

Mr. Nelson described additional actions taken to pursue Russian elites who may be exploiting financial loopholes to evade sanctions. He said that Treasury and the DOJ joined a multilateral task force ("Russian Elites, Proxies, and Oligarchs, or REPO, Task Force") to identify and terminate the tools and networks that Russian elites use to hide their wealth.

In addition, Mr. Nelson highlighted that private-sector compliance contributed to the success of these actions, and commended financial institutions for their efforts in complying with the constantly changing Russian sanctions. He stated that Treasury will continue to (i) provide extensive guidance, such as the U.S. Illicit Finance Strategy and Anti-Corruption Strategy; (ii) conduct outreach to the affected companies; and (iii) where necessary, enforce penalties against those who do not comply with the sanctions efforts.

More broadly, Mr. Nelson identified vulnerabilities in the current AML/CFT strategy focusing on investment advisers who are not legally required to follow AML/CFT regulations. He said that investment advisers may be associated with potential risks including exploitation by illicit actors due to (i) inconsistent standards across the industry and (ii) a lack of transparency in certain investment segments which do not require disclosure of identity. Mr. Nelson also cautioned that money launderers have been known to place funds with private investment firms (such as hedge funds and private equity funds) to bypass AML/CFT compliance programs. He noted that FinCEN is currently working on a proposed rule to tighten those restrictions.

Commentary

In 2015, FinCEN issued a proposed rule to expand the Patriot Act's AML compliance requirements for registered investment advisors. While that rule never became final, Treasury is apparently now rethinking whether further regulation may be appropriate. Most investment advisors already maintain an AML compliance program, so this would not be a new concept. However, formal regulation on par with banks and broker-dealers would likely add some level of compliance burden for many investment advisors, including potentially the need to monitor and report suspicious transactions.

Email me about this

Premium Content

Available only to Premium subscribers.

 

Tags