For more than 20 years, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has attempted to impose anti-money laundering (AML) rules on private fund managers by expanding the definition of “financial institution” under the Bank Secrecy Act of 1970 to include certain investment advisers. As far back as 2002, FinCEN has proposed – and then withdrawn – rules that would have required designated investment advisers to, among other things, implement AML programs and file suspicious activity reports. FinCEN was finally successful in August 2024, when it adopted final AML rules (Rules) that, with limited exceptions, apply to all advisers registered or required to register with the SEC under Section 203 of the Investment Advisers Act of 1940, as well as all exempt reporting advisers. “A lot of rulemaking is naturally reactive. When investigations began uncovering money from Russian oligarchs flowing through private funds, officials may have thought, ‘Can that finally get us over the hump to getting AML rules in place?’ I think that’s, in part, what’s happened here,” explained Arnold & Porter partner Kevin M. Toomey. “We’ve worked on some complicated criminal investigations involving the perceived laundering of money from Russia into the U.S., and but for moving the money through private funds, those bad actors may not have been able to achieve their goals. The DOJ is clearly focused on this method of moving money.” This second article in a two-part series examines the key challenges hedge fund managers will face in complying with the Rules and provides the steps they should take. The first article discussed the applicability of the Rules, their key provisions and how they differ from the original proposal. See our two-part series on the 2015 FinCEN AML rule proposal: “How Hedge Fund Managers Can Establish an AML Program” (Nov. 5, 2015); and “How Hedge Fund Managers Can Operate an AML Program” (Nov. 12, 2015).