US Tries to Extend Anti-Money Laundering Reach Through Hedge Fund Registration

Stephen Harris

21 March 2006

There is a close similarity between the SEC's hedge fund registration rules and the US Treasury's abortive 2003 attempt to impose anti-money laundering rules via its FinCEN unit according to Martin Livingston of Cayman Islands law firm Maples & Calder. In a recent article published by online hedge fund publication service, Albourne Village, Mr Livingston says: “Using similar criteria to that imposed by the Treasury, US advisors having more than $30 million of assets under management, 15 or more clients and who either hold themselves out as investment advisors or advise registered investment companies will now need to be registered. “Historically, advisors were allowed to regard the hedge funds themselves as their ‘clients’. The rule now includes as clients the investors of private funds, which are essentially defined as any unregistered investment companies with less than a two-year lock-up period.” Mr Livingston points out that the registration requirements extend to non-US advisors with more than 15 US-resident clients which was also the case with the Treasury rules. The SEC appears to have ignored the need for offshore advisers to have managed assets over $30 million according to Mr Livingstone. Although SEC registration does not make an investment advisor a financial institution, as defined under the Bank Secrecy Act for the purposes of the Patriot Act, it does bring them one step closer to being subject to the US anti-money laundering regime. However, most US investment advisors adopt anti-money laundering programmes based on Patriot Act requirements anyway.