What is KYC/AML?


As a US venture capital fund, you need to make sure you’re raising funds from trustworthy sources. VC funds have an important responsibility to comply with AML laws, and KYC/AML regulations ensure that only legitimate, non-criminal investors contribute to your fund. 

Ensure you’re doing business with the good guys

Certain laws and regulations impose know your customer (KYC) requirements on financial market participants to verify their customers’ identities. For VCs, KYC helps make sure firms know the LPs they conduct business with. This allows firms to make reasonable decisions on whether to allow the LP into the fund partnership.

Anti-money laundering (AML) regulations target criminals who attempt to funnel money earned through criminal activity via legitimate channels, like VC firms. AML regulations require financial institutions to monitor customer transactions and report suspicious behavior. 

What happens to my fund if I don’t comply?

In the last decade, more than $26 billion in fines have been imposed in the United States for failing to comply with various aspects of KYC/AML regulations. KYC/AML regulations don’t state minimum qualification requirements for LPs, nevertheless a fund must set robust KYC/AML policies to ensure no suspicious or illegal activity is being conducted by your investors. 

AML regulations require that, at a minimum, you must:

  • Develop internal policies, procedures, and controls
  • Designate a compliance officer
  • Develop an ongoing employee training program
  • Hire an independent audit function to test programs
  • Make sure the program is in writing and approved by fund senior management

Financial regulators have authority to issue substantial fines every year for failing to enact a strong AML policy at your fund, so it’s important that you have robust AML policy and procedure in place. 

How can Carta help?

It’s important to stay up to date with your fund’s KYC/AML policies, so you don’t get fined for inadvertently promoting financial crimes. Carta can help your fund comply with KYC/AML regulations. 

Investor validation information

Carta confirms investors’ identities to help you ensure only legitimate sources invest in your fund, in line with industry standards. 

Global sanctions check

In the United States, US firms and individuals are forbidden from conducting business with certain entities. Carta verifies that LPs are not included in any global sanction lists from international governments or financial authorities.

Media search 

Carta checks common media sources to confirm there is no adverse publicity regarding financial crimes associated with LPs in your fund.

Risk assessment 

Carta works closely with your fund to determine how risky your LPs are. We rate LPs based on perceived risk, and advise your fund on those risks and how to proceed with enhanced due diligence.

Enhanced due diligence (EDD)

At the request of your fund, Carta can help conduct enhanced due diligence. This involves performing deeper dives and frequent checks into the background of LPs that are found to be potentially risky after the initial KYC check.


Assisting with KYC/AML compliance is just one of Carta’s many services for funds. Learn more here and watch our recent webinar on fund compliance, common compliance mistakes, and regulatory changes. And reach out to us if you want help with any part of your fund administration. 


DISCLOSURE: This communication is on behalf of Carta Investor Services, Inc. (“Carta”), an affiliate of eShares, Inc. dba Carta, Inc.  This communication is not to be construed as legal, financial or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. This post contains links to articles or other information that may be contained on third-party websites.  The inclusion of any hyperlink is not and does not imply any endorsement, approval, investigation, or verification by Carta, and Carta does not endorse or accept responsibility for the content, or the use, of such third-party websites. Carta assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided on such third-party websites.


Subscribe

Stay up to date with monthly blog highlights

Related articles


Watch our venture capital fund compliance webinar

Watch our webinar on fund compliance, common compliance mistakes, and regulatory changes.

Carta Investor Services

By automating the information flow between companies to funds to LPs, we hope to reduce the administrative burden associated with private market investing.

How to manage a new or emerging venture fund

There’s a ton of advice out there for startup founders on how to raise money, set up business infrastructure, and track performance in the early stages of a company’s life. But there’s not as much guidance for managers of new venture funds.

© 2019 ESHARES, INC. DBA CARTA, INC.