Do 506(c) Issuers Need to KYC and AML Their Investors?

The short answer

Rule 506(c) requires you to verify that each investor is accredited. It does not, by itself, require you to run identity (KYC) or anti-money-laundering (AML) checks. Those are two different questions from the accreditation question, and the exemption is silent on both.

But two things are true regardless of Regulation D. US sanctions law applies to everyone, with no dollar threshold and no private-offering carve-out. And the institutions around your raise — your bank, your fund administrator, any broker-dealer in the deal — run their own checks on the money and increasingly expect you to have confirmed who your investors are. So the honest answer is: accreditation is required of you; identity and AML screening usually are not legally required of the issuer itself, but they are prudent, they are cheap, and they are more and more often expected.

What 506(c) actually requires

Rule 506(c) is the exemption that lets you generally solicit — advertise a private offering publicly — provided every purchaser is an accredited investor and you, the issuer, take reasonable steps to verify that they are. That verification duty is the entire additional obligation 506(c) adds over 506(b). It is about accreditation, full stop.

The SEC's non-exclusive methods give you three practical routes for an individual: the income route (two years of IRS forms plus a written representation), the net-worth route (asset statements dated within the prior three months, a consumer report for liabilities, plus a written representation), or a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a certified public accountant. Nothing in any of those routes asks you to confirm the investor's identity against a government ID or to screen their name against a sanctions list. Accreditation and identity are simply different facts.

Where KYC and AML still reach your raise

The exemption being silent does not mean the subject is. Four things pull identity and AML back into a 506(c) raise even though the rule itself does not name them:

• Sanctions law (OFAC) applies to everyone. US persons and companies are prohibited from transacting with parties on the Treasury's sanctions lists. That prohibition is effectively strict liability, carries no minimum dollar amount, and has no Regulation D exception. If a sanctioned person wires into your deal, the fact that they also happened to be accredited is no help. A sanctions screen at the point of investment is the one check that protects you from the single category of investor you may never accept.
• The money chain expects it. Your bank, your fund administrator, and any broker-dealer in the offering run their own KYC/AML on the flow of funds. They frequently expect the issuer to have identity-checked its investors, and a file that already carries an identity and sanctions check clears their onboarding faster.
• Your own status may add obligations. If you or your manager are a registered investment adviser or otherwise a regulated financial institution, you may carry AML obligations of your own that a bare 506(c) issuer does not. Whether that describes you is a question for your counsel, not something to assume either way.
• Sophisticated LPs treat it as basic hygiene. Institutional co-investors and experienced limited partners increasingly expect a documented identity and sanctions check as ordinary diligence. Being able to show one is a credibility signal, not a burden.

Three different checks, often confused

Much of the confusion here comes from collapsing three distinct checks into one word. They answer different questions, look at different things, and are asked for by different people.

A CPA letter answers only the first row. It says nothing about whether the person handing over the ID is really them, or whether their name appears on a sanctions list. That is why identity and AML are add-ons to accreditation, not substitutes for it — and why a raise that wants all three has traditionally had to assemble them from separate places.

The practical problem: three vendors for one investor

Done the traditional way, covering all three means an accreditation service, an identity-verification vendor, and a sanctions-screening provider — three logins, three invoices, three data trails, and three separate steps for one investor. Each step lands at the same delicate moment: after someone has decided to invest but before their money has moved. The more separate hoops sit in that window, the more room there is for a committed investor to stall.

It also leaves you, the sponsor, holding three fragments of one answer. The accreditation letter lives in one system, the ID check in another, the screening result in a third, and nobody has assembled them into a single record you can hand your fund administrator or show your counsel.

Handling all three in one step

This is the gap AccreditedNow's investor onboarding closes. The same flow that produces the CPA-signed accreditation letter also runs the identity and AML checks, so a covered investor completes everything in one pass:

• A licensed CPA verifies accreditation and signs the letter, exactly as before.
• The investor completes a one-minute identity check — a government-ID scan and a short selfie with a liveness check — instead of uploading a photo of their ID.
• Their name is screened against global sanctions and watchlists (OFAC and international) and politically-exposed-person databases at the time they verify.
• A potential match does not decline anyone automatically. It flags the case for the licensed CPA to review before the letter is signed. The screening is advisory; a human makes the call.
• The outcome appears on the signed letter and on the public certificate as a single status line — "Identity & AML: Government ID verified · Sanctions & PEP screened — no matches" — and never exposes any underlying document or personal data.

For sponsors it is an optional add-on at $15 per seat, with no minimum — you turn it on only for the investors you choose to onboard, and your sponsor dashboard shows each covered investor's identity and screening status alongside their accreditation. One flow, one record, one place to look. You can read the full mechanics on the investor onboarding page.

What to ask any onboarding provider

Whether you use AccreditedNow or assemble it yourself, these are the questions that separate a real onboarding check from a checkbox:

None of this changes what 506(c) requires of you, which remains reasonable steps to verify accreditation. It answers the questions 506(c) leaves open — who this person is, and whether they are someone you are allowed to accept — that your bank, your administrator, and your own good sense will ask anyway. Confirm what your specific offering needs with your securities counsel; then make the check a one-minute part of verification rather than three separate errands.