This year is Anti-Money Laundering year for registered investment advisers. FinCEN promulgated the Investment Adviser Rule. With the Bank Secrecy Act now applicable to registered investment advisers, with a compliance deadline for January 1, 2026, fund managers and advisers will need to update their anti-money laundering policies and procedures to deal with the new regulatory requirement.
Of course, most advisers are already have some sort of anti-money laundering procedures in place. Some even say so in their in their marketing materials.
Of course, the classic compliance rule for investment advisers is: “Do What You Say You do.”
Navy Capital Green Management represented in offering and other documents provided to prospective and existing investors in pooled investment vehicles that Navy Capital conducted specific AML due diligence on prospective investors and ongoing AML due diligence monitoring on existing investors. It also represented that it was voluntarily complying with AML due diligence laws that did not apply to investment advisers.
But, Navy Capital’s actual AML due diligence practices were materially inconsistent with its representations to investors in the pooled investment vehicles it managed, so the SEC charged Navy Capital with violation of Section 206(4) of the Advisers Act and Rule 206(4)-8.
Even worse, Navy Capital admitted a suspect person into one of its funds. Navy Capital did not conduct its stated pre-investment AML due diligence on the investor. Navy Capital did not even know the name of the investing entity until three days after the initial effective investment date. Navy Capital missed red flags in widely-circulated public reports of suspicions that the investor might have been connected to money laundering activities. That was what Navy Capital’s anti-money laundering policies and procedures were supposed to address.
Navy Capital accepted investments from other investors that disclosed on their subscription agreements they had zero assets. Hard to fund your commitment if you have no assets. Navy Capital should have obtained information about the source of the money funding the investment.
Sources:
