Anti-money laundering compliance for the mutual fund industry

The USA Patriot Act and its implementing regulations required mutual funds to implement anti‐money laundering (AML) programs by July 24, 2002. This legislation, which substantially amended the Bank Secrecy Act (BSA), no doubt will have the most far‐reaching affect on the fund industry since the Investment Company Act was adopted in 1940. It also will present new challenges to fund legal counsel and compliance personnel. Until the Patriot Act was signed into law, the regulatory framework for funds generally focused on protecting investors through mandatory disclosure obligations and self‐dealing prohibitions. AML programs add a new focus. An AML program must be designed to, among other things, prevent a fund from being used for money laundering or the financing of terrorist activities. While banks have had AML programs for several decades, these requirements are uncharted waters for mutual funds, as well as for most other securities firms.