Today, the Commission is considering a joint rule proposal with the U.S. Department of Treasury to help guard against illicit financial activity. The proposed rule is designed to align investment adviser Customer Identification Program obligations with those of other financial entities. I support this rule because it could reduce the risk of terrorists and other criminals accessing U.S. financial markets to launder money, finance terrorism, or move funds for other illicit purposes.

Congress enacted the Bank Secrecy Act in 1970 to fight against money laundering, the financing of terrorism, and other illicit financial activity. Such activities enable criminals, distort markets, and can have negative consequences for the public. The Bank Secrecy Act also helps protect U.S. national security.[1]

In the Bank Secrecy Act, Congress set forth recordkeeping and reporting obligations for entities they deemed “financial institutions.” Further, they authorized the Secretary of the Treasury to designate other entities as “financial institutions” from time to time. To address illicit finance risks in the investment adviser industry, the Treasury Department recently proposed to designate certain investment advisers as “financial institutions” under the Bank Secrecy Act.[2] That rule proposal would subject certain investment advisers to anti-money laundering and countering of the financing of terrorism requirements, including obligations to file Suspicious Activity Reports.

In 2001, Congress amended the Bank Secrecy Act through Section 326 of the USA PATRIOT Act.[3] These 2001 amendments required that financial institutions had to implement Customer Identification Programs. Subject to the Department of Treasury completing their related rule, today’s proposal would help extend this mandate to certain investment advisers, thus filling a gap in the current U.S. regime to guard against illicit financial activity. Currently, investment advisers have not generally been required to implement comprehensive obligations under the Bank Secrecy Act.

The proposed rule is designed to make it more difficult to use false identities to establish customer relationships with investment advisers. 

Today’s proposed rule would require registered investment advisers and exempt reporting advisers to:

• Implement procedures to verify the identity of any person seeking to open an account to the extent reasonable and practicable;
• Maintain records of the information and methods used to verify the person’s identity. Such records would enhance investment advisers’ internal compliance efforts and help them to detect and take measures to prevent potential illegal activity; and
• Determine whether the person appears on any federal government-provided lists of known or suspected terrorists or terrorist organizations.

The proposed rule would align investment adviser CIP obligations with those of other entities. Such harmonization would help reduce the risk of terrorists and other criminals accessing U.S. financial markets by using investment advisers to launder money, finance terrorism, or move funds for other illicit purposes.

I’d like to thank Treasury Secretary Janet Yellen, Under Secretary for Terrorism and Financial Intelligence Brian Nelson, and the staff of the Financial Crimes Enforcement Network for working with the SEC on this joint rule.

I’d also like to thank members of the SEC staff for their work on this rule proposal, including:

• Natasha Vij Greiner, Sarah ten Siethoff, Melissa Harke, Tom Strumpf, Adele Murray, Daniel Levine, Thoreau Bartmann, and Matthew Cook in the Division of Investment Management;
• Jessica Wachter, Alex Schiller, Justin Vitanza, Timothy Dodd, Daniel Chapman, Wei Liu, and Ross Askanazi in the Division of Economic Research and Analysis;
• Meridith Mitchell, Elise Bruntel, Natalie Shioji, Monica Lilly, and Amy Scully in the Office of the General Counsel;
• Brad Bartels in the Division of Examinations; 
• Andrae Eccles and Susan Schneider in the Division of Enforcement; and 
• Paul Gumagay, Kathleen Hutchinson, and Morgan Macdonald in the Office of International Affairs.