AML Best Practices For Private Fund Managers: The Prudence Of Establishing An AML Compliance Program

I. Introduction

U.S. hedge funds, private equity funds, and venture capital funds (collectively, the Private Funds),¹ and their U.S. general partners, sponsors, and managers (Advisers), are not directly subject to the requirements of the Bank Secrecy Act of 1970 and its amendments (BSA). The current regulatory framework, including the most recent amendment to the BSA, the Anti-Money Laundering Act of 2020 (AMLA), excludes Advisers from the BSA's definition of financial institution (FI).²

Notwithstanding the foregoing, as a good business practice and to align with industry standards, Advisers are increasingly implementing for themselves and their Private Funds limited anti-money laundering (AML) programs that, at a minimum, conform to certain BSA requirements. Furthermore, the nature of an Adviser's or a Private Fund's relationship with the FIs in which it holds accounts (whether custody, trading, banking, debt, or otherwise) is often subject to (and may be