On Sept. 4, 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a final rule imposing new anti-money laundering (AML) and countering the financing of terrorism (CFT) requirements on certain registered investment advisers and exempt reporting advisers. The final rule takes effect on Jan. 1, 2026. The requirements of the new rules are risk-based, and will require advisers to buyout, venture capital, real estate and other types of private funds to analyze the risks that their funds may be used in connection with illicit activities.
Covered Investment Advisers
Generally, the new rules apply to all registered investment advisers other than those registered solely because they are mid-sized advisers (generally, those with assets under management of between $25 million and $100 million), multi-state advisers and pension consultants. Registered advisers that report no assets under management are also not included within the requirements of the new rule.
In addition to registered investment advisers, reporting advisers exempted under the venture capital adviser and private fund adviser exemptions (for advisers to private funds with assets under management of less than $150 million) are also covered by the new rule.
Risk-Based Approach
The legislative framework developed to address money laundering and terrorist financing is commonly referred to as the Bank Secrecy Act (BSA), which imposes obligations on covered “financial institutions.”1 Historically, investment advisers have not been included in the definition of financial institutions, but the final rule brings covered investment advisers within the definition and subjects them to the BSA.
While the rule sets forth certain minimal requirements, in general the requirements of the new rule are open ended and the applicable investment adviser bears the burden of designing an appropriate policy. Thus, the rule requires covered investment advisers to develop and implement an AML/CFT program “designed to prevent the investment adviser from being used for money laundering, terrorist financing, and other illicit finance activities and to achieve compliance with the applicable provisions of the BSA and implementing regulations.”2 FinCEN has made clear that the AML/CFT program requirement is not a “one-size-fits-all requirement”; rather, each program should be “risk-based” and “reasonably designed” so it addresses the specific risks posed by the covered investment adviser’s services and customers.3
AML/CFT programs must have certain minimum elements including internal policies, procedures and controls, independent testing, a designated employee to implement and monitor the program, employee training and customer due diligence. What these minimum requirements look like in practice will depend on an investment adviser’s money laundering and terrorist financing risks.
Identified Risk Factors
To assess the level of risk posed by a private fund, FinCEN expects investment advisers to private funds to collect information about the structure or ownership of the fund and to assess the money laundering risks presented by the investors in the fund.4 Information about underlying investors that is relevant to money laundering and terrorist financing risk includes the investor’s geographic location, source of wealth and investment objectives.5 Where an investment adviser cannot obtain information about the investors in a private fund, this may raise the risk profile of the fund.6
The money laundering, terrorist financing, or illicit finance activity risks for private funds may vary by the individual fund’s investment strategy, targeted investors, jurisdiction and other characteristics. Private funds with a long-term investment focus and illiquid nature, such as private equity funds, may be less attractive to money launderers or terrorist financiers, thus decreasing their risk profiles.7
A jurisdiction’s AML/CFT regulatory framework, degree of financial transparency, level of bribery and corruption and involvement in sanctioned activities, such as illegal narcotics, support of terrorism or human rights abuses, impact the level of risk posed by private funds and underlying investors domiciled in the jurisdiction. Some examples of jurisdictions with lower levels of money laundering and terrorist financing risk are Western European countries, Australia, New Zealand and Chile.8
In determining the risk profile of a private fund, investment advisers could also consider the fund’s minimum subscription amounts, restrictions on the type of investors, restrictions on redemptions or withdrawals and the types of currency transactions conducted with investors.9 A higher minimum subscription, which may make the use of paper currency infeasible for investors, should decrease a fund’s money laundering and terrorist financing risk. In addition, funds with restrictions on redemptions or withdrawals (which most private funds have) may pose less of a money laundering threat, but they may not be categorically treated as lower risk customers.10 Funds that prohibit the receipt of paper currency are also less likely to be used by illicit actors.11
Application to Advisers to Private Funds
Assessing the differing risks posed by private funds is an important step in forming an AML/CFT program. Many U.S. private funds only accept capital from U.S. investors, require contributions to be made in funds wired from U.S. banks, generally do not permit withdrawals, require manager approval for transfers, have relatively high minimum commitment sizes and have anticipated fund lives of 10 years or more. While the advisers to these funds must nevertheless adopt policies to comply with the rule, those policies may take into account the relatively lower risk that the funds would be used for illicit financial activities in light of these factors.
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1 31 U.S.C. § 5312.
2 Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers, 89 Fed. Reg. 72156, 72191 (Sept. 4, 2024).
3 89 Fed. Reg. at 72181.
4 89 Fed. Reg. at 72191.
5 Id.
6 Id.
7 Notice of Proposed Rulemaking Anti-Money Laundering and Countering the Financing of Terrorism Program, 89 Fed. Reg. 12108, 12127 (Feb. 15, 2024).
8 See Basel AML Index: Global Ranking in 2024, BASEL INST. GOVERNANCE (last visited June 27, 2025), https://index.baselgovernance.org/ranking.
9 Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers, 89 Fed. Reg. 72156, 72191 (Sept. 4, 2024).
10 Id.
11 Notice of Proposed Rulemaking Anti-Money Laundering and Countering the Financing of Terrorism Program, 89 Fed. Reg. 12108, 12127 (Feb. 15, 2024).
Palmer Dayhuff, a rising third-year law student at Wake Forest Law School and summer associate at Robinson Bradshaw, contributed to this post.
