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The twenty-year fight over investment adviser money laundering rules

The twenty-year fight over investment adviser money laundering rules

Rule Changes
By Newzino Staff | |

FinCEN's fourth attempt to regulate $125 trillion industry delayed until 2028

January 2nd, 2026: Final Two-Year Delay Effective

Overview

FinCEN just delayed anti-money laundering rules for investment advisers by two years, pushing compliance from January 2026 to January 2028. It's the fourth time since 2002 that federal regulators have tried—and struggled—to close what transparency advocates call a $125 trillion loophole that sanctioned Russian oligarchs, corrupt foreign officials, and fraudsters exploit to access U.S. markets. The rule would force 15,000 advisory firms to implement the same suspicious activity reporting that banks face.

The delay pits deregulation against national security. Industry groups say compliance costs are crushing and duplicative—advisers don't custody assets, banks do. Transparency organizations counter that Treasury's own assessment found more than 80 U.S. advisers managing money for Russian oligarchs, advisers laundering funds stolen from Malaysia's government, and Chinese state actors using venture capital to acquire sensitive technology. The two-year pause gives FinCEN time to revisit the rule's substance, with $1.5 billion in industry cost savings at stake—and unanswered questions about what protections survive.

Key Indicators

$144.6T
Assets under management
Total AUM controlled by registered investment advisers in 2024, up 12% from 2023
80+
Advisers serving oligarchs
U.S. firms Treasury identified managing funds for Russian oligarchs
4th
Regulatory attempt
Number of times FinCEN has proposed investment adviser AML rules since 2002
$1.5B
Estimated cost savings
Net present value of compliance costs avoided by the two-year delay

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People Involved

Andrea Gacki
Andrea Gacki
Director, Financial Crimes Enforcement Network (Leading FinCEN's review of investment adviser AML rule under Treasury Secretary Scott Bessent's direction)
Mark Warner
Mark Warner
U.S. Senator (D-VA) (Leading congressional pressure for investment adviser AML requirements)
Jack Reed
Jack Reed
U.S. Senator (D-RI) (Co-leading Senate opposition to AML delay)
Scott Bessent
Scott Bessent
U.S. Treasury Secretary (Overseeing FinCEN's review and potential revision of investment adviser AML rule)
Elizabeth Warren
Elizabeth Warren
U.S. Senator (D-MA), Ranking Member, Senate Banking Committee (Leading congressional opposition to AML delay alongside Kim and Waters)
Andy Kim
Andy Kim
U.S. Senator (D-NJ), Ranking Member, National Security Subcommittee (Co-leading congressional opposition to AML delay)
Maxine Waters
Maxine Waters
U.S. Representative (D-CA), Ranking Member, House Financial Services Committee (Co-leading congressional opposition to AML delay)

Organizations Involved

Financial Crimes Enforcement Network (FinCEN)
Financial Crimes Enforcement Network (FinCEN)
Federal Agency
Status: Reviewing investment adviser AML rule during two-year delay

FinCEN is Treasury's financial intelligence unit responsible for enforcing the Bank Secrecy Act.

Investment Adviser Association
Investment Adviser Association
Industry Trade Group
Status: Successfully lobbied for two-year delay

The IAA represents SEC-registered investment advisers managing client assets.

FACT Coalition
FACT Coalition
Transparency Advocacy Organization
Status: Leading opposition to AML delay

The Financial Accountability and Corporate Transparency Coalition advocates for financial system integrity.

Timeline

  1. Final Two-Year Delay Effective

    Regulatory

    FinCEN published final rule delaying AML requirements until January 1, 2028, with $1.5 billion in estimated cost savings.

  2. FACT Coalition Submits Opposition Comments

    Advocacy

    Transparency groups argued delay creates two-year window for illicit finance and sanctions evasion.

  3. Proposed Two-Year Delay Published

    Regulatory

    FinCEN formally proposed delaying effective date to January 1, 2028, citing deregulatory agenda and review needs.

  4. Senate Letter Opposes Delay

    Political

    Warner and colleagues warned delay exposes national security vulnerabilities as industry manages $144.6 trillion.

  5. Exemptive Relief Order Issued

    Regulatory

    FinCEN exempted advisers from all AML requirements until January 1, 2028, signaling substantive review coming.

  6. Final Rule Published

    Regulatory

    FinCEN issued final rule requiring 15,000 advisers managing $125 trillion to implement AML programs by January 1, 2026.

  7. FinCEN Withdraws 2015 Proposal

    Regulatory

    Concurrent with 2024 final rule, FinCEN withdrew the 2015 proposed rule that remained pending.

  8. SEC and FinCEN Propose Customer ID Requirements

    Regulatory

    Joint proposal for customer identification programs—a critical component the IAA said shouldn't be separated from AML compliance.

  9. Fourth Attempt With Risk Assessment

    Regulatory

    FinCEN proposed comprehensive AML rule, accompanied by Treasury risk assessment documenting illicit finance cases involving advisers.

  10. Senators Pressure Treasury After Ukraine Invasion

    Political

    Warner, Reed, and colleagues urged FinCEN to revive the 2015 rule, citing Russian oligarch sanctions evasion.

  11. Third Attempt: AML Programs and SAR Filing

    Regulatory

    FinCEN proposed minimum AML program standards and suspicious activity reporting requirements for investment advisers.

  12. First Withdrawal After Industry Opposition

    Regulatory

    FinCEN withdrew both proposals, reasoning that advisers transact through banks already subject to BSA requirements.

  13. Second Proposal for Investment Advisers

    Regulatory

    FinCEN proposed AML program requirements for certain investment advisers, expanding beyond the 2002 proposal.

  14. FinCEN's First Attempt

    Regulatory

    FinCEN proposed requiring unregistered investment companies and private funds to establish AML programs under the Bank Secrecy Act.

Scenarios

1

Rule Survives Review, Compliance Begins January 2028

Discussed by: Legal analysts at Arnold & Porter, Norton Rose Fulbright, and compliance consultants

FinCEN completes its review, makes minor adjustments to reduce compliance burden for smaller advisers or specific low-risk business models, but preserves core AML program and suspicious activity reporting requirements. The 15,000 covered advisers implement programs by January 2028, hire compliance officers, and begin filing SARs. This scenario assumes the national security rationale—documented cases of Russian oligarchs and foreign corruption—outweighs industry cost concerns, and that Treasury's $1.5 billion savings estimate from delay doesn't justify permanent abandonment.

2

Rule Significantly Weakened or Scope Dramatically Narrowed

Discussed by: Investment Adviser Association, FACT Coalition warnings, Senate critics

During the two-year review, FinCEN substantially narrows the rule to cover only advisers managing private funds or clients with specific risk profiles—potentially exempting the majority of the 15,000 firms. The IAA's argument wins: most advisers serve retail clients and don't custody assets, making blanket AML requirements duplicative. Customer identification program rules never finalize, leaving advisers unable to verify beneficial owners. Transparency groups warn this creates permanent loopholes, but the administration prioritizes reducing the $1.5 billion compliance burden. Implementation occurs in 2028 but affects far fewer firms.

3

Rule Withdrawn Entirely, 24-Year Effort Collapses

Discussed by: Deregulation advocates, concerns raised by FACT Coalition and Senate Democrats

FinCEN withdraws the rule entirely—the second withdrawal after 2008—concluding that extending Bank Secrecy Act coverage to advisers is unnecessary because their transactions flow through banks and broker-dealers already filing SARs. The agency cites the administration's deregulatory mandate and $1.5 billion in avoided costs. Transparency organizations argue this abandons national security interests at the worst moment, with adversaries exploiting private funds to evade sanctions. Senate Democrats introduce legislation mandating investment adviser AML requirements, but it stalls. The regulatory gap that has existed since 2002 becomes permanent.

4

Congressional Mandate Overrides Agency Discretion

Discussed by: Senate Banking Committee correspondence, national security policy analysts

Bipartisan national security concerns—particularly regarding Chinese technology acquisition and Russian sanctions evasion—drive Congress to legislatively mandate investment adviser AML requirements, removing FinCEN's discretion to delay or withdraw. Warner, Reed, and Senate Intelligence Committee members attach provisions to must-pass legislation requiring advisers managing over a threshold amount (possibly $1 billion) to implement AML programs regardless of administrative priorities. This scenario mirrors how the Corporate Transparency Act imposed beneficial ownership reporting despite agency hesitance. The rule takes effect in 2028 but with Congressional backing that survives future administrations.

Historical Context

2008 Withdrawal of Investment Adviser AML Proposals

2002-2008

What Happened

FinCEN proposed AML requirements for investment advisers in 2002 and 2003 but withdrew both in 2008 after reviewing its broader AML framework. The agency reasoned that advisers conduct transactions through banks, broker-dealers, and other financial institutions already subject to Bank Secrecy Act requirements, making separate adviser obligations unnecessary. Industry groups successfully argued the rules would be duplicative and costly without meaningfully reducing money laundering risks.

Outcome

Short Term

Investment advisers remained exempt from BSA requirements for another seven years.

Long Term

The regulatory gap persisted, enabling the illicit finance activity that Treasury documented in its 2024 risk assessment.

Why It's Relevant Today

The same arguments industry deployed in 2008 are resurfacing now—advisers don't custody assets, compliance is duplicative—raising the question of whether history will repeat with another withdrawal.

USA PATRIOT Act Expansion of Financial Institution Definition

2001

What Happened

Following the September 11 attacks, Congress passed the USA PATRIOT Act, which amended the Bank Secrecy Act to require financial institutions to establish comprehensive anti-money laundering programs. The law expanded what entities fell under "financial institution," bringing broker-dealers, insurance companies, and other sectors under stricter oversight. The legislation gave Treasury and FinCEN broad authority to designate additional entity types as threats emerged.

Outcome

Short Term

Immediate expansion of AML requirements across financial sectors, with significant compliance costs.

Long Term

The framework successfully identified terrorist financing networks and became the foundation for modern financial intelligence.

Why It's Relevant Today

FinCEN's authority to add investment advisers comes from PATRIOT Act powers—the same powers the current administration is using to review whether that designation remains appropriate.

Corporate Transparency Act Implementation and Delay

2021-2025

What Happened

Congress passed the Corporate Transparency Act in 2021, requiring most companies to report beneficial ownership information to FinCEN starting January 1, 2024. The rule aimed to prevent shell companies from hiding corrupt officials and money launderers. After successful implementation launched in early 2024, legal challenges and political opposition led to administrative delays and scope revisions in 2025, with FinCEN facing pressure to ease reporting burdens under the new administration's deregulatory agenda.

Outcome

Short Term

More than 1.7 million companies filed beneficial ownership reports by mid-2024 despite controversy.

Long Term

The database's utility depends on whether access expands and whether political will sustains enforcement.

Why It's Relevant Today

The Corporate Transparency Act's trajectory—legislative mandate, successful launch, then administrative pullback—shows how politically contentious financial transparency rules can be, and suggests investment adviser AML requirements may face similar whiplash between security and deregulation priorities.

15 Sources:
+9
Federal Register FinCEN Senator Mark Warner U.S. Securities and Exchange Commission Investment Adviser Association FACT Coalition U.S. Senate Banking Committee InvestmentNews Financial Action Task Force AML Intelligence Federal Register FinCEN U.S. Senate Banking Committee InvestmentNews Investment Adviser Association