Mutual fund complexes are beginning to realize that implementing anti-money laundering programs requires more than just flag-waving. In fact, the rules are complicated, expensive and, because they are being set in stages, confusing.
The USA Patriot Act, passed in October 2001, has forced the entire financial community to harvest all its resources to sniff out any suspicious activity that might indicate money is being funneled to terrorist operatives. As a result, fund houses are scrambling to upgrade their compliance teams to prevent being put at a disadvantage once implementation takes place.
Although the compliance officer and anti-money laundering portions have been effective since last April, the Treasury has not yet clarified other provisions. The know-your-customer and SAR, or suspicious activity reporting, portions are still pending. Treasury is expected to finalize the know-your-customer rule some time in the next couple of weeks to a month. The SAR rule will probably come later in the summer.
Many investment companies have already had some procedures in place for due diligence or "know your customer" requirements, but given the stark reality of the post-Sept. 11 world, it is a whole new ballgame. "The Patriot Act really ratchet[s] up the bar for the standard and quality of information that mutual funds have to provide," said Sharie Brown, a partner at Washington-based law firm Foley & Lardner. Implementing it is not as easy as fund companies had imagined, Brown said.