Preventing Financial Crimes

August 6, 2020 by ACA Compliance Group


Money laundering has become a global concern over the past several years, making waves with cases like the Panama Papers and the Troika Laundromat. In response, the U.S. has strengthened its AML regime by, among other things, requiring transparency and due diligence on the beneficial owners of corporate entities. The Cayman Islands Monetary Authority (CIMA) and the EU are also taking steps to increase anti-money laundering (AML) efforts in their jurisdictions, and it is likely that other countries will follow suit in the coming years.

Cayman Islands Monetary Authority

CIMA made significant changes to its AML regulations in October 2017. These updates include revising the definition of Financial Service Provider (FSP) to include private investment vehicles (hedge, private equity, and real estate funds) domiciled in the Cayman Islands, and therefore make them subject to CIMA’s AML regime.

CIMA requires FSPs to designate an AML Compliance Officer, a Money Laundering Reporting Officer, and a Deputy Money Laundry Officer. FSPs must also adopt risk-based policies and procedures that include:

  • Customer and investor due diligence (CDD)
  • Monitoring and reporting of suspicious activity
  • Identifying money laundering and terrorist financing risks relating to persons, countries, and activities, including checks against all applicable sanctions lists
  • Conducting appropriate employee training
  • A periodic audit function to test the AML program

Private fund sponsors (typically investment managers) may delegate most AML functions to third-party service providers, such as administrators; however, ultimate responsibility rests with the private funds, and sponsors must ensure that third parties have adequate policies, procedures and controls around their internal and delegated AML functions and consider whether appropriate independent review of their AML program has been conducted, according to the regulations.

The EU's 5th Money Laundering Directive

The deadline for Member States to implement the EU’s 5th Money Laundering Directive (MLD5) was January 10, 2020. MLD5 contains a series of amendments to the previous Directive which strengthen the fight against terrorist financing and improve the transparency of financial transactions. Transposed into UK law as the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (MLR), there are several amendments that firms will need to be aware of, including:

  • Heightened due diligence on financial transactions to and from high-risk third countries
  • Improving the transparency of new payment methods, such as virtual currencies and prepaid cards
  • Improved arrangements for maintaining up-to-date information on the beneficial ownership of corporate clients

U.S. Focus on AML and Recent Developments

The U.S. continues to make AML a focus through notices and rule updates, and during regulatory examinations. The Financial Crimes Enforcement Network (FinCEN) made effective the CDD Rule in May 2018 requiring banks, mutual funds, broker-dealers, futures commission merchants, and commodities brokers to determine and verify the identity of natural persons with certain beneficial ownership and/or control of legal entities opening accounts. FINRA also expanded its guidance for broker-dealer’s suspicious activity reporting obligations in May 2019 to include digital assets.

COVID-19 times have also brought new challenges and increased risks relating to money laundering and other illicit activity. FinCEN, for instance, has highlighted and provided guidance to financial institutions to be alert on a variety of pandemic-related scams, including imposters, investment schemes and insider trading activity.

Further, the Paycheck Protection Program (PPP) established under the CARES Act to provide support to small business affected by COVID-19 required lenders to establish AML programs, even when not required to do so under other regulations. Private lending funds, typically outside of the USA PATRIOT Act regime, would be required to implement an AML program and CDD procedures when originating PPP loans.

ACA Guidance

Firms should assess their anti-money laundering and sanctions risks and review their AML programs as well as their delegated functions to third parties to confirm they meet the regulatory requirements in the US and in other jurisdictions where they do business.

How ACA Can Help

ACA offers advisory services and solutions to assist financial service firms in addressing financial crime-related threats and regulatory concerns. Our team includes former SEC, FCA, OCC, and FINRA examiners allowing us to help your firm meet AML requirements of regulators around the globe.

Our online Anti-Money Laundering and Counter Terrorism Financing Awareness Training provides firms with an introduction and overview of money laundering, the current regulatory environment, and industry standards. It is designed to provide your staff with an awareness of their role within the firm’s AML program.

For More Information

For more information about AML regulations for the securities industry, or to find out more about ACA’s AML services and resources, please contact Alvaro Soto.

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