VCs under money-laundering scrutiny

As it attempts to put a stop to terrorism and monitor the money trail of potential terrorists, the US Treasury Department is now requiring a wide variety of financial companies, including venture capital firms, to screen investors.

The new guidelines, which require all financial institutions to have company-wide anti-money laundering programmes in place, follow the provisions of last year’s anti-terrorism law, the USA Patriot Act, which was passed following the 11 September terrorist attacks.

Banks, securities broker-dealers and futures commission merchants are expected to have their programmes in place this week.

Other financial companies, such as credit card operators Visa and MasterCard, money service businesses and non-mutual fund investment companies, which include venture capital funds and hedge funds, will have an additional 90 days to initiate similar programmes.

The National Venture Capital Association (NVCA), which has distributed guidelines to meet the current criteria, said this gives its members additional time to develop their compliance programs.

Among the guidelines, the group said members should establish, at a minimum, internal policies; procedures and controls; a designated compliance officer; an ongoing employee-training program; and an independent audit function to test programmes.

David Aufhauser, Treasury general counsel, said at a press briefing: ‘We only want to know enough to stop the next calamity. We are not regulating corrupt institutions. We are helping honest institutions from being corrupted by people who want to abuse and violate them.’

He pointed out that earlier this year the Treasury department said banks, credit card companies and securities dealers could share information for the purpose of identifying suspected terrorists and money launderers, and must report such information to the federal government.

‘The guidelines strike a balance between obtaining useful information on suspected terrorists and not creating a burden on business,’ Aufhauser said.

Financial institutions will be required to take steps to identify suspicious transactions, know their customers better and inform the government when things are erroneous.

The Treasury Department is also considering whether to apply anti-money-laundering rules to other industries, such as insurance companies, travel agents and automobile dealers.

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