Anti-Money Laundering Guidelines

While the main impact of the USA Patriot Act will be on broker/dealers, banks and other sell-side institutions, it will also impact buy-side investment advisors and any institution that manages or custodies funds or securities on behalf of an external third party. Broadly speaking the act requires you to:

Establish anti-money laundering policies and procedures.
Establish an internal training program to implement these policies and procedures. Design a compliance officer or group responsible for the implementation of this program. Establish an audit function to test the program and ensure it remains in compliance. Within these broad policy guidelines, the Act mandates more detailed record keeping and clearer disclosure in the following matters:

-Limits on Certain Deposit Activities - While Treasury and other regulations already mandate record keeping and identification procedures for cash transactions exceeding $10,000, the Act calls for more intensive examination to prevent such practices as "structuring" or the deposit/withdrawal of funds in smaller amounts but greater frequency, or across multiple accounts, so as to avoid detection.

-"Know Your Customer" (KYC) Laws - Going above and beyond existing KYC regulations administered by the NYSE and NASD, you are now mandated to:
Maintain a record of what sort of information was used to verify a client's identification.
Crosscheck new client names against a list of banned individuals and organizations maintained by the federal government.
Require even more detailed knowledge of offshore customers, such as detailed domicile information, tax and passport record keeping (for individual clients), and an outright ban on doing business with foreign shell banks or entities with no physical presence. For institutional clients, the Act allows more leeway in collecting data if the client involved is a reputable one, but again requires strict record keeping for institutions with little or no history, or those domiciled in jurisdictions which have been identified as having problematic disclosure or taxation policies.

-Suspicious Activity - Reporting suspicious activity can be broadly defined to mean trading activity which lacks a reasonable economic basis, a recognizable strategy, or which has abnormal transaction or funds and securities transfer activity compared with that client or class of clients' typical pattern. This area is quite subjective and requires the cautious exercise of judgment.

It is extremely important that you implement technology solutions that can help you comply with the Act as it stands today, but also will be flexible enough to adapt to any changes or clarifications from regulators as the Act evolves. SS&C's CAMRA and Antares products have extensive tables to register and track client, counterparty, portfolio and custodian information for auditing or record-keeping purposes.

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