After 11 months of cringing and waiting for surely-unpleasant anti-money laundering legislation to roll out of Washington, most, if not all, venture funds appear to have been granted exemptive relief from conforming to the proposed regulations. The amendments to the Bank Secrecy Act won’t be finalized until after a 60-day comment period has expired, according to a proposal released Sept. 18 by the Treasury Department.
The new rules would apply only to companies that permit investors the right to redeem their interests within two years, which is much quicker than the illiquid nature of venture investing. Industry-advocate National Venture Capital Association, for which this decision represents a policy victory, assisted the Treasury Department as it was drafting the proposals.
The anti-money laundering regulations were part of the USA PATRIOT Act, which was designed to curb terrorist activities. The regulations are intended to prevent terrorists from shuffling money through American financial institutions, which include everything from traditional investment companies to casinos and pawn shops.
At the time, Paul Brownell, who was the NVCA’s vice president for public policy, said while he had been trying to educate Treasury Department officials on the improbability of venture funds being used to that end, the NVCA for patriotic reasons had refrained from heavy lobbying.
Financial institutions that allow redemption within two years and meet the regulation’s other criteria will have to implement a four-part money laundering program, which includes establishing program guidelines, appointing an anti-money laundering compliance officer and ongoing employee education.