Private equity funds being used for mass-scale money laundering: FBI

Private equity funds are being used for mass-scale money laundering according to the US Federal Bureau of Investigation, which said the industry lacks adequate money-laundering programmes.

The FBI cited a lack of regulation of private equity and hedge funds, saying its assessment that bad actors were using the industry to circumvent traditional anti-money laundering programmes was made with “high confidence”.

It said, “The FBI assumes AML programs are not adequately designed to monitor and detect threat actors’ use of private investment funds to launder money.

“Additionally, the FBI assumes threat actors exploit this vulnerability to integrate illicit proceeds into the licit global financial system.

“The FBI assesses, in the long term, criminally complicit investment fund managers likely will expand their money laundering operations as private placement opportunities increase, resulting in continued infiltration of the licit global financial system.

“If greater regulatory scrutiny compelled private investment funds to identify and disclose to financial institutions the underlying beneficial owners of investments, this would reduce the appeal of these investment firms to threat actors, at which time the FBI will re-visit this assessment.”

But a statement to Reuters from Jason Mulivhill, general counsel for private equity industry body the American Investment Council, said, “If someone was trying to launder money, the last place he or she would want to put it is in a private equity fund.

“Private equity funds invest long-term in illiquid assets over a 10-year fund lifespan, and investors do not have general rights of redemption in these funds.”

The FBI 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.

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.

Source: AltAssets

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