FBI worried that private equity firms are being used to launder money

From: RegTech Analyst

A leaked FBI bulletin calls for increased regulatory scrutiny of private equity firms and hedge funds to better fight money laundering.

The bulletin was part of the major leaked data cache called BlueLeaks that was released in June. The leak contains law enforcement documents and was obtained through a hack of a security company.

The document in question is an intelligence bulletin prepared by the FBI in May 2020, expressing the view that private equity firms and hedge funds lack adequate anti-money laundering programmes, according to Reuters.

The failure to set up these programmes has enabled criminals and foreign adversaries to use investment companies to launder their dirty money, according to the report.

As a result, the authors of the bulletin called for more regulatory scrutiny to compel “private investment funds to identify and disclose the financial institutions the underlying beneficial owners of investment” to reduce the appeal of threat actors to use the industry to make their dirty cash seem more legitimate.

However, a representative of an private investment industry advocacy group deemed the report’s ideas to be misguided.

“If someone was trying to launder money, the last place he or she would want to put it is in a private equity fund,” Jason Mulvihill, general counsel for the American Investment Council, told Reuters.

“Private equity funds invest long-term in illiquid assets over a ten-year fund lifespan, and investors do not have general rights of redemption in these funds.”

Robert Mazur, a former U.S. Customs and Drug Enforcement Administration agent, also expressed apprehension about the report’s conclusions.

“There is absolutely no way on earth that investment funds should, or would, disclose to a bank the identity of every beneficial owner that invests in a fund,” he told Reuters.

“To disclose all investors in a fund to an institution would be an outrageous violation of the fund manager’s fiduciary responsibility to its investors.”

Mauzer also argued that disclosing the identities of all investors in huge funds would only result in “many millions of data points that would need to be disclosed” by those firms.

“Sorry, but whoever is making this proposal appears to lack insight about the complexity and breadth of the investment world,” he said.

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