The deadline is looming for Bermuda's exempt companies and hedge funds to register or face a fine and/or imprisonment of their owners as the Bermuda Monetary Authority (BMA) tightens up its regulation of funds Island-wide in the wake of the Madoff scandal which rocked the financial world.

The BMA said any businesses or funds that have been exempted or excluded under either The Investment Business Act or The Investment Funds Act were required to register for Anti-Money Laundering (AML) purposes under The Supervision and Enforcement Act.

If they carry on business without being on the AML register, they would be committing an offence and incur a $25,000 fine or 12 months' imprisonment (or both) on summary conviction or a $100,000 fine or five years' imprisonment (or both) on indictment.

Those which were in existence on January 1, 2009 have until June 30 to apply for registration and those which started business after that date are required to register immediately.

Financial institutions which were already licensed, registered or authorised under existing regulatory legislation are not required to register separately under The Supervision and Enforcement Act.

Two investment funds which suffered heavy losses as a result of the $65 million Madoff 'Ponzi scheme' fraud - Fairfield Sentry Ltd., run by Fairfield Greenwich Group, and the $2.8 billion Kingate Global Fund Ltd., run by Bermuda-based Kingate Management Ltd., were not licensed or regulated by the BMA, but Fairfield was regulated by the US Securities and Exchange Commission (SEC), according to the Authority.

Thomas Galloway, senior legal counsel at the BMA, said: "The significance of the AML registration requirement at this time is that all businesses that are not currently licensed with the BMA but are within scope of the regulations need to ensure they are not contravening the regulations after the June 30 2009 registration deadline.

"The AML regime applies to the majority of financial institutions; for the insurance market it applies to the long-term sector."

Conyers Dill & Pearman said that the updated legislation defined "financial institutions" as persons who, among other things, carry on the business of a "fund administrator" within the meaning of the Investment Funds Act 2006 (IFA); or are "operators" of investment funds within the meaning of the IFA.

"The core obligations of financial institutions are to establish and maintain adequate and appropriate policies and procedures to forestall and prevent operations relating to money laundering and terrorist financing," Conyers said in a statement on the impact of the new Bermuda AML regime by associates Kathleen Moniz and Elliot Hubbard.

"The AML/CFT systems and controls should enable financial institutions to identify, assess, monitor and manage money laundering and terrorist financing risk and should be comprehensive and proportionate to the nature, scale and complexity of their activities."

Conyers said that investment fund operators and fund administrators were required to appoint a money laundering reporting officer to whom reports should be made and who would have responsibility to make reports when suspicious circumstances require.

The law firm said that the BMA would establish, maintain and publish a register of AML/CFT-regulated financial institutions comprising "licensed persons" and "non-licensed persons".

"A number of such financial institutions are currently non-licensed persons, in particular, investment businesses and operators of investment funds which are exempted or excluded from the licensing requirement under the Investment Business Act 2003 or the authorisation requirement under the IFA," it read. "These institutions are required by the Supervision Act to be registered with the BMA.

"It is a requirement for 'non-licensed persons' to register with the BMA by 30 June 2009 using the BMA's prescribed form and paying the relevant fee. Failure to comply will result in their inability to carry on business activities."

The BMA will be holding an AML Registration Information Session at BMA House on Wednesday, June 3, which is open to any businesses which come under the enhanced AML regime. Anyone interested in attending can contact aml@bma.bm