The continuing threat of money laundering is most effectively
managed by understanding and addressing the potential money laundering
risk associated with customers and their transactions. The Wolfsberg
Group (1) has developed
this Guidance to assist mutual funds and other pooled investment
vehicles (together referred to in this Guidance as "Pooled
Vehicles", "PV" or "PVs") to manage their
money laundering risk.
Investors in many jurisdictions invest in PVs to seek professional
management, diversification, and access to investment opportunities
that might otherwise not be available.
PVs include unit investment trusts, hedge funds, private equity
funds, and funds-of-funds. They vary greatly in the legal forms
they take (e.g., corporations, trusts, partnerships, or contract),
the investment objectives they pursue, the jurisdictions in which
they are organized, the level of regulation to which they are subject,
the type of investor they solicit, and the manner in which their
shares, units or interests (collectively referred to in this Guidance
as “Shares”) are distributed.
Given the variety of PVs and the different levels of money laundering
risk, PVs should develop and tailor their anti-money laundering
("AML") policies and procedures to address the particular
risks of their business. It should be understood that this Guidance
is not intended to discourage PVs from engaging in activities that
may be perceived to be higher risk. Rather this Guidance sets out
relevant considerations for PVs to consider in identifying and
dealing with situations entailing different levels of money laundering
risk. This Guidance does not supersede applicable laws and regulations
where they are more stringent.
It is the responsibility of the PV’s management (e.g., directors,
trustees, or partners) to establish, implement and monitor the
operation of an appropriate AML program. This Guidance may assist
in that process. Depending on applicable legislation, the AML program,
including the customer due diligence (“CDD”) process
set forth in Section 4, will be conducted either by the PV or by
its designated Service Providers (2) such
as transfer agents, investment advisors, registrars, banks, etc.
(collectively referred to in this Guidance as “Service Provider”).
This Guidance does not address the relationship between the PV
and any such Service Provider in any detail in respect of AML responsibilities,
except to note that where such arrangements are in place, and where
applicable legislation does not otherwise regulate this situation,
a clear understanding should be reached on the respective roles
and responsibilities of the PV and the Service Provider, and the
PV should exercise due care to ensure that the Service Provider
is capable of carrying out the role agreed.
1. Money Laundering Risk
This Guidance is intended to apply to all PVs generally, notwithstanding
the variety noted above. However, such variety means that the money
laundering risk associated with respect to particular PVs differs.
While it is difficult to generalize, many PVs are perceived to
entail a lower risk of money laundering for a number of reasons,
including the following:
- assets typically flow into PVs from (and interests in PVs are
typically distributed by) other financial institutions which
are themselves regulated for AML purposes. This reduces the risk
of a PV being involved in money laundering activities;
- many PVs have measures and controls in place that make them
less attractive for money laundering purposes – such as
restrictions on cash withdrawals from, or on transactions with,
parties other than the investor; and
- PVs are commonly used for long term investment purposes (and
some may have minimum investment periods and/or weighted fee
structures) making high turnover or short term investment unattractive
However, because of the sheer size of the PV industry, the ready
accessibility of PVs to investors, and the ease with which money
launderers can simulate the behaviour of legitimate investors,
it is possible that PVs will be used by criminals laundering the
proceeds of their crimes in a manner that may be extremely difficult
(at times impossible) to detect. To mitigate these risks, PV's
should consider how to implement a reasonably designed risk based
AML program taking into account the factors mentioned in this Guidance.
2. Relationships between PVs and Investors
Fundamental to an understanding of any PV's AML obligations is
a recognition that the overall arrangements by which Shares in
PVs are offered to investors and the overall arrangements under
which a PV consequently deals with investors will fall into one
of two broad categories as described below. One PV may have both
categories of relationships, and the relationship used in any particular
case depends on a variety of characteristics, including the nature
of the PV and the jurisdiction in which such Shares are issued
The two categories of relationships between PVs and investors
can be summarised as follows:
In these cases, the PV has a direct relationship with the investors
because the PV processes their applications and/or receives funds
directly from the investors. Applications for Shares can be received
either by the PV or by a Service Provider to which the PV has delegated
the activity of processing the application and/or receiving the
In these cases, the PV does not directly process the application
and/or receive the funds directly from the investor. Shares are
distributed by or through intermediaries such as banks, broker-dealers,
insurance companies/agents, investment advisers, financial planners,
or other financial institutions (collectively referred to in these
principles as “Intermediaries”). Shares may be held
by or through the Intermediaries in so-called “omnibus accounts” (3).
In such situations, and subject to the considerations set out in
Section 5, the PV’s customer is the Intermediary. Accordingly,
the PV has no direct relationship with the investors (regardless
of whether the investors are the shareholders of record or not).
This Guidance, therefore, differentiates between direct and indirect
relationships between the PV and the investors – although
in all cases, a risk-based approach should be considered in implementing
the AML standards described.
3. Customer Due Diligence
There is no one approach to CDD that can, as a matter of general
principle, be adopted by all PVs, due to the variety of characteristics
of PVs and due to the different distribution channels through which
Shares may be offered to investors as described above.
In general terms, CDD commonly includes:
- identification and verification of the identity of the investor
and the beneficial owner;
- understanding the purpose of the investment (which may
be self-evident in the case of certain specific products and
- conducting ongoing due diligence on investors and scrutiny
of their transactions.
Reflecting the lower risk of money laundering described above,
simplified CDD measures may be applied in many cases when accepting
investors into a PV.
To determine the appropriate level of CDD required in the context
of any particular PV, the PV should consider the following factors:
- Investor Risk - The type of investors it will deal with e.g.
whether the investors will be financial institutions or otherwise
regulated or public companies (including publicly traded companies
and government entities – but see below on country risk)
(all lower risk of money laundering) compared with complex and
non-transparent investors e.g. trusts, foundations or other private
investment vehicles (higher risk of money laundering). Similarly,
given the nature of the investors to which the PV is directed,
retirement pension funds will generally undertake simplified
CDD on investors;
- Country Risk - The breadth of distribution of its Shares (e.g.
direct distribution to investors resident in the same jurisdiction
as the PV will generally involve a lower risk of money laundering
when compared to direct distribution to investors resident in
a large number of different countries or even distribution globally);
- Condition Risk - The characteristics of the PV itself. Some
PVs entail higher risk of money laundering (e.g. funds allowing
redemption without limitation of time, amounts, etc.); and
- Value Risk - The amounts of any investment (which may be affected
by any minimum investment requirements) and any restrictions
on methods of payment of subscriptions (e.g. a PV receiving comparatively
small investments and restricting subscriptions and redemptions
to funds transferred to it from (or by it to) accounts with financial
institutions held in the name of the relevant investor will generally
present lower risk of money laundering).
In a direct relationship, the PV should perform risk-based CDD
on the investor.
In an indirect relationship, the PV should consider the level
of due diligence that should be performed on the Intermediary,
as described in Section 5, taking into account the regulatory environment
in the relevant jurisdiction, and the Intermediary’s responsibilities
in respect of AML policies, procedures, and controls. Depending
upon the outcome of the PV's due diligence on the Intermediary,
(and also depending on the requirements of local law), the PV should
determine the level of CDD (4) (if any) that it
should undertake on the investor. Where the PV considers it necessary
to perform its own CDD measures on the investor, but is unable
successfully to do so, the investment should not be accepted by
Sections 4.2, 4.3, and 4.4 apply to PVs in direct relationships
and in indirect relationships in which PVs determine that they
should perform a level of CDD on the investor.
3.2. Identification of Investors and Verification of
The PV (or the Intermediary in cases described in Section 5) should
take reasonable measures to identify and verify the identity of
The extent of identification procedures undertaken by the PV should
be risk-based, reflecting the nature of the investor, the PV and/or
the particular transaction. In lower risk situations, simplified
identification procedures may be applied.
The identity of investors must be verified at least in accordance
with applicable laws and regulations. Appropriate verification
methodologies may include documentary or non-documentary (e.g.
electronic database screening) methods and/or include cross-checks
to verify information via reporting agencies, public databases,
or other reliable sources (e.g. ensuring that tax identification
or social security number information is valid and corresponds
to the investor). Appropriate verification methodologies may also
include checking that funds are received from an account held in
the name of the investor with an appropriately regulated financial
Where they are required to be obtained, identification documents
should be current at the time of account opening.
The PV should normally have obtained all required documentary
(or non-documentary) evidence of the identity of the investor by
the time of account opening. In cases where the documentation is
not provided promptly and remains incomplete, then on any redemption
request (and subject to applicable law and regulation), the PV
should retain the redemption proceeds and should not accept any
further transactions as long as the required documentary evidence
has not been received. In addition, in such cases, the PV should
also consider making a suspicious activity report to the appropriate
3.3. Beneficial Ownership
A PV should apply a risk based approach (taking into account the
factors mentioned at Section 4.1) in determining whether identification
of the beneficial owner and/or enhanced due diligence (see Section
4.4) is required on an investor.
The PV should identify the beneficial owner only where this is
reasonable and practicable taking into account the particular circumstances
of the investment (type of investor, product, transactions etc.)
and the PV's overall risk based approach and where it is apparent
that the investor is acting on behalf of another party.
3.4. Enhanced Due Diligence
Enhanced due diligence on investors will generally be required
only in the context of situations (identified based on the factors
outlined at Section 4.1) involving an investor that appears to
present a particularly higher risk of exposure to money laundering.
In identifying these situations, a PV should also consider issues
of country risk and investor risk (5) (investor
risk including particularly situations where investors are “Politically
Exposed Persons” (6)).
The management of the PV should review investors that present
higher risks and are subject to enhanced due diligence.
A variety of Intermediaries may be involved in the conduct of
indirect relationships, and the PV should always undertake risk
based due diligence on the Intermediary.
Each PV shall define its own policy in this regard, but in all
cases, this risk based approach to due diligence on the Intermediary
should focus on the level of regulatory supervision to which the
Intermediary is subject, on the country in which the Intermediary
is based, and the reputation and integrity of the Intermediary
to determine whether the Intermediary is:
- itself subjected to adequate AML regulation in the context
of its dealings with its clients and is supervised for compliance
with such regulation (an Intermediary meeting the standards described
in this bullet point being referred to in this Guidance as a "Regulated
- otherwise an Intermediary that the PV reasonably believes employs
adequate AML procedures such that the PV concludes that it would
be reasonable for the PV not to ascertain the identity of the
Intermediary's customers itself (e.g. where the Intermediary
is an affiliate of an adequately regulated entity or otherwise
as described in Section 5.4) (an Intermediary meeting the standards
described in this bullet point being referred to in this Guidance
as an "Acceptable Intermediary").
Laws and regulations to which PVs are subject frequently refer
to the distinction between countries having AML regulation that "effectively
implements and meets FATF standards" (7) and
those which do not for the purposes of determining whether AML
regulation applicable to the Intermediary is adequate. Whilst making
reference to this indicator, this Guidance does not advocate that
this is the only standard to be employed.
Due diligence on Intermediaries may be performed by different
entities, depending on the circumstances and whether or not a Service
Provider is involved. (8)
Any distribution agreement entered into between the PV and an
Intermediary will not generally affect the outcome of the due diligence
undertaken on the Intermediary but may assist the overall CDD process
by creating contractual obligations for the Intermediary to perform
Establishment of relationships with Acceptable Intermediaries
should be approved by the management of the PV. As required by
the circumstances, periodic due diligence or review of all Intermediaries
should also be carried out by the PV.
4.2. Intermediaries in Countries Meeting FATF Standards
4.2.1. Regulated Intermediaries (9)
The PV does not have to perform its own CDD measures on the investors
as set out in Section 4. The PV is not required to "drill
down" to the regulated Intermediary's customers.
In such cases, the PV may allow the Intermediary to open an "omnibus
account". It may be opened in the Intermediary's name for
all transactions that the Intermediary places with the PV on behalf
of the Intermediary's customers and the PV need not obtain any
information on the underlying investors.
4.2.2. Unregulated Intermediaries (10)
If the PV does not consider Section 5.4 applicable, the PV has
to perform its own CDD measures on the investors as set out in
Section 4. The PV is required to “drill down” and perform
risk based CDD on the unregulated Intermediary's customers.
In such cases, the PV should either open individual accounts in
the name of each investor in its register or open an "omnibus
account" in the name of the Intermediary, provided that the
PV also receives a complete list of the investors from the Intermediary
to allow it to perform its own CDD measures on the investors.
4.3. Intermediaries in Countries Not Meeting FATF Standards
Unless the PV reasonably concludes that Section 5.4 is applicable,
the absence of an adequate AML framework in the country in question
would normally require the PV to "drill down" to perform
its own risk based CDD measures on the investor as set out in Section
The PV may still open individual accounts in the name of each
investor in its register or open an "omnibus account" in
the name of the Intermediary, provided that the PV receives a complete
list of the investors from the Intermediary to allow it to perform
its own CDD measures on the investors.
4.4. Acceptable Intermediaries
If the Intermediary is an Acceptable Intermediary, then the PV
may decide that it need not “drill down" to perform
its own CDD measures on the investors.
One example in which such a decision may be made is the case of
an Intermediary that is a member of a group of companies where
their parent is based in a country meeting FATF standards and the
particular Intermediary is subjected to and applies a group wide
AML policy reflecting those standards.
Another example in which such a decision may be made is the case
where, after review of the Intermediary's AML policies and procedures,
the PV concludes that the Intermediary's AML program is sufficiently
comparable to the one of the Regulated Intermediary.
In all such cases, the PV should review the Intermediary on a
regular basis and update its due diligence accordingly to assure
itself that it remains appropriate to treat the Intermediary as
an Acceptable Intermediary.
5. Monitoring of Unusual and Reporting
of Suspicious Activities
Monitoring forms an integral part of AML procedures and should
be carried out on transactions, to control adherence to AML policies
and procedures, and support the detection and investigation of
unusual or suspicious activities. Depending on the type of Shares
and type of investors, a PV may decide to monitor the investor’s
transactions by comparing them with those of a “typical investor”.
The PV may decide to what extent fulfillment of these monitoring
responsibilities will need to be supported through the use of automated
systems or other means.
As required by applicable law, the PV, its Service Provider, or
the Intermediary must report suspicious activities to the appropriate
6. Record Retention
The PV should establish record retention arrangements for all
AML related documents. The documents must be kept for a minimum
of five years after the date the relationship is closed or the
transaction record is made.
7. AML Program
The management of the PV retains overall responsibility for the
PV's AML program and should therefore approve the PV's AML program
on establishment and review its continued effectiveness on a regular
The AML Program should reflect this Guidance and will include
the identification of a Money Laundering Reporting or Prevention
Officer who will support and advise the PV's management of the
establishment, implementation and monitoring of the PV's AML Program. (11)
The PV's AML Program will also include training on the prevention,
identification and reporting of suspicions, of money laundering
for, at a minimum, employees who have investor contact and for
compliance personnel. Regular training (on commencement of employment
and regularly thereafter) should also give guidance on the PV's
own internal procedures and the risks of money laundering to which
the PV is exposed and on how to identify unusual or suspicious
activities. In addition, employees should be informed about major
changes in applicable AML laws and regulations.
1) The Wolfsberg Group consists
of the following leading international financial institutions:
ABN AMRO, Banco Santander, Bank of Tokyo-Mitsubishi-UFJ, Barclays,
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP
Morgan Chase, Société Générale, and
This Guidance was prepared in association with Dexia Group, Lloyds
TSB and RBC Financial Group.
2) Operational and administrative
services are usually conducted either by affiliated organizations
or unaffiliated third parties. Hereafter in this Guidance, unless
otherwise indicated, reference to the PV includes the Service Provider.
3) “Omnibus accounts”,
which may also be called “nominee” or house accounts,
are used when an Intermediary acquires the Shares on behalf of
its customers (i.e., the investors). In such cases, the Shares
are usually acquired in the name of the Intermediary, but there
may be cases where the Intermediary establishes an account with
the PV that specifies sub-accounts on behalf of the investors.
Even in such cases, the customers of the Intermediary would not
be treated as customers of the PV.
4) Where this Guidance refers
to "CDD" or "customer due diligence" in the
context of an indirect relationship, where the PV should
perform its own CDD measures on an investor, performance of such
due diligence does not render the investor a customer of the PV.
In such situations, the investor remains the Intermediary's customer.
5) Country risk and Customer
risk are considered in the Wolfsberg Statement on Guidance on a
Risk Based Approach for Managing Money Laundering Risks (see www.wolfsberg-principles.com)
and the factors described in that Statement are applicable to assist
Pooled Vehicles in developing a risk based approach for their CDD
6) See the Wolfsberg Group
Frequently Asked Questions with Regard to Politically Exposed Persons
7) A country's AML laws and
regulations may meet FATF standards without that country being
a member of the FATF.
8) In case of an unaffiliated
Service Provider and depending on the nature of the contractual
relationship between the PV and each unaffiliated Service Provider
or on the legal framework in the jurisdiction of the PV, due diligence
on Intermediaries will be the responsibility of the PV but may
be delegated to and performed by the Service Provider.
9) Regulated Intermediaries
are to be understood in this Guidance as being under the regulatory
supervision of the local authority and having to comply with domestic
10) Unregulated Intermediaries
are those Intermediaries which are not (or not sufficiently) supervised
by the local regulatory body on AML matters and / or not subject
to AML law or regulation.
11) Implementation of the
measures described in Sections 6 to 9 (inclusive) of this Guidance
will depend to some extent on the size and nature of the PV. Many
PVs have no employees and in such cases AML obligations will frequently
be undertaken by a relevant Service Provider. In such situations,
these requirements may not be applicable to the PV itself in practice
although the PV and its management retain responsibility for ensuring
that such matters are properly addressed. PVs that have only a
small number of employees may incorporate some of these measures
internally and require others to be handled by relevant Service
© 2012 by The Wolfsberg Group