We’ve gotten questions from portals about AML. Many are under the misconception that they do not have AML obligations on their investors or issuers because the SEC Title III rules say “We are not, however, adopting proposed Rule 401(b). As described in more detail in Section II.D.4.b. below, we have determined that the imposition of AML requirements on funding portals should be addressed outside of the rules that we are adopting in this release.
” (page 272) https://www.sec.gov/rules/final/2015/33-9974.pdf
=> A quick read seems to reinforce a perception that AML is not required as it isn’t an affirmative requirement under the rules.
=> That quick read could wind up costing your business more than you can imagine.
The SEC does not regulate AML, just as they don’t regulate environmental protection rules, payroll taxes or other things. AML is under the purview of the US Treasury, and subject to the Bank Secrecy Act, the USA PATRIOT Act, and other regulations. Thus, in the final Title III rules the SEC states “we believe that AML obligations for funding portals are better addressed outside of the rules that we are currently adopting in this release, and that it would be more appropriate to work with other regulators to develop consistent and effective AML obligations for funding portals.
” (page 311)
An issuer whose offering winds up being used by any investor for money-laundering, terrorism, or other purposes may be in hot water if they didn’t take steps to meet AML obligations under US law. A portal who assisted with the offering, acting in a professional capacity, will potentially have both regulatory and tort liability (along with a lot of bad publicity) that is off the charts. All in an effort to save $2?
FundAmerica Securities provides Portals with comprehensive back office services, including AML review of both domestic and international investors and charges just $2 to conduct domestic AML identification verification ($60 for international). This confirms the investors identity, their physical address, and checks them against OFAC, FinCEN, FBI/Homeland Security, IRS and other databases. It also ensures funds being received into escrow are from the investor and not a different party. It clears general AML identification verification obligations so you don’t need to worry about developing your own comprehensive processes and procedures.
Securities regulations are complex, and often span multiple agencies. Make sure that you and your back-office providers are taking care of your compliance obligations as the risks to your business are both very real and very large if you take shortcuts to try and save a few pennies and do things wrong.
Reach out to me or anyone on the FundAmerica
These materials are my personal opinions and for informational purposes only and not for the purpose of providing legal or tax advice. The issues discussed include complicated areas of law and legal advice should only be obtained and relied upon from a securities attorney about your specific circumstances.