The USA Patriot Act, the US Treasury’s anti-money laundering policy announced in the aftermath of September 11, has been put on hold until October 2002 in order to evaluate the necessity of the act’s compliance procedures to private equity firms.
The Treasury Department said that it had granted an exemption to a range of institutions, including private equity funds, private bankers and insurance companies, in order to avoid imposing “unreasonable regulatory burdens with little or no anti-money laundering benefits.” The Treasury will use the time to assess the money laundering risks posed by the institutions exempted.
The US Treasury has also announced that it is reconsidering the description of private equity firms as ‘investment companies’ for the Bank Secrecy Act, forerunner of the Patriot Act. A spokesman for US law firm Debevoise & Plimpton said he believed that the department was likely to rule in favour of regulating PE firms under the Act. “We expect that private funds will be required to adopt anti-money laundering programs by 24 October this year, the proposed end date for the deferment.”
If, as expected, the Patriot regulations are brought into effect later this year, the implications for private equity firms will be considerable. Compliance with the Patriot Act is likely to become a checklist item for institutional investors and gatekeepers who will be keen to avoid the implications of investing in funds that do not comply with anti-terrorism laws.