The FinCEN Delay Is a Pause, Not a Pass

In late December, the Financial Crimes Enforcement Network (FinCEN) finalized a rule postponing the effective date of the Investment Adviser Anti-Money Laundering Rule until January 1, 2028. For registered investment advisers and exempt reporting advisers, this delays the requirement to implement AML programs and related compliance obligations that would expand compliance and reporting expectations for investment advisers.

At first glance, the message appears straightforward—the formal AML framework is paused.

But risk doesn’t pause.

For GPs, legal teams, and executive leadership, the more important question is not when a rule takes effect, but how existing obligations are being met in the meantime.

Investment advisers are not currently subject, under the Bank Secrecy Act (BSA), to customer due diligence or beneficial ownership identification requirements applicable to covered financial institutions. There is no legal obligation today under the BSA to collect ownership information or verify ultimate beneficial owners solely by virtue of adviser status.

At the same time, advisers remain fully subject to US sanctions laws administered by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). GPs may not engage in prohibited transactions involving sanctioned individuals or entities, including entities that OFAC deems owned or controlled by sanctioned persons pursuant to its ownership and control guidance.

That obligation exists independently of any AML program requirement.

This creates a practical tension. GPs are responsible for avoiding sanctioned counterparties, yet they are not required today to ask the questions that most reliably surface where sanctions risk actually sits.

In practice, many GPs screen only the name of the investing entity. That approach is understandable. It aligns with explicit legal requirements, minimizes onboarding friction, and avoids introducing additional complexity into investor relationships.

But it leaves a critical blind spot.

If sanctions laws prohibit transacting with sanctioned individuals or entities, how does a GP gain confidence that those individuals are not sitting behind an entity investor if ownership and control are never examined?

Not asking the question does not eliminate the risk. It simply makes the risk harder to identify and more difficult to manage when it eventually surfaces.

OFAC enforcement history illustrates this dynamic. In a recent enforcement action, OFAC announced a civil monetary penalty against GVA Capital Ltd., a US-based investment firm, for sanctions violations involving transactions connected to a sanctioned Russian individual.

In that matter, the sanctioned individual was not the named counterparty to the transactions. The sanctions exposure arose through ownership and control relationships within the investment structure. Based on the facts and circumstances, OFAC determined that the firm failed to take sufficient steps to identify and mitigate sanctions risk and, as a result, engaged in prohibited conduct.

Notably, the enforcement action did not turn on the existence of a formal AML or beneficial ownership program. It was grounded in sanctions obligations that already applied.

The lesson is not that GPs are expected to operate like banks. It is that the absence of a mandated CDD framework under the BSA does not insulate firms from sanctions liability where ownership structures obscure sanctioned persons.

Understanding ownership and control is not about prematurely complying with a future rule. It is about answering a basic governance question: 

Is the manager confident that their fund is not transacting with sanctioned parties, and can they demonstrate a reasonable, good-faith process to support that conclusion?

Many GPs address this risk by adopting a proportionate, risk-based approach to understanding ownership and control of entity investors and screening individuals and entities with meaningful interests. This approach is not mandated by law today, but it is commonly adopted across segments of the private markets industry as a practical way to manage sanctions risk in complex ownership environments.

The FinCEN delay gives GPs a choice.

Some will wait until a rule requires action, which can result in retroactive remediation, operational disruption, and increased complexity later in the fund lifecycle. Others will use this period to implement measured, future-ready processes that reduce sanctions risk today and make eventual regulatory transitions more manageable.

This is not just a compliance consideration. It affects LP experience, capital activity, banking relationships, and the credibility of the firm’s control environment. Asking for ownership information upfront, in a structured and transparent way, is often far less disruptive than attempting to reconstruct it later under pressure.

The Investment Adviser AML Rule has been postponed, but it has not been abandoned.

Sanctions obligations remain very real. The question for GPs is not whether a formal AML program is required today. It’s whether current practices reasonably enable firms to meet the obligations that already apply to them.

Not asking the question does not make the risk disappear. It only delays the point at which it becomes unavoidable.

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