Joint report of the FACT Coalition, Global Financial Integrity and Transparency International-US Calls for US Reforms
WASHINGTON DC – US $ 11 trillion private investment industry represents gaping hole in US anti-money laundering framework and makes US attractive destination for illicit financial flows, report says joint published today by the Financial Accountability and Corporate Transparency (FACT) Coalition, Global Financial Integrity and the US office of Transparency International.
“We must ensure that the ill-gotten gains of kleptocrats, autocrats and criminals do not find refuge in our institutions of the rule of law”, said US Senator Sheldon Whitehouse, speaking at the launch of the report today. “Without strong protections against money laundering, private equity and hedge funds can help kleptocrats and criminals hide their ill-gotten gains.”
The private investment industry, which targets high net worth investors, does not have the same reporting requirements and anti-money laundering obligations as banks, brokers, or retail funds marketed to. ordinary investors. According to the new report, “Private Investments, Public Harm,” there are nearly 13,000 investment advisers with little or no anti-money laundering due diligence responsibilities.
“On the eve of the Democracy Summit, the glaring problems related to the risks of money laundering in the private investment sector must be addressed urgently by the Biden administration”, said Ian Gary, Executive Director of the FACT Coalition. “The risks of money laundering in this massive, opaque and complex industry endanger democracies around the world, damage US national security, and touch the lives of ordinary Americans.”
Today’s report describes several emblematic cases of national security and corruption risks posed by the private investment sector. For example, Russian and Chinese interests have researched sensitive US technologies through private investment vehicles. The opaque nature of private equity also obscured the fact that a Russian oligarch held a majority stake in an American vote management company operating in Maryland.
“Given that the Treasury Department identified the anti-money laundering risk associated with private equity funds 20 years ago, it is high time the industry was required to do due diligence on the issue. ‘origin of the money he invests’ said Tom Cardamone, President and CEO of Global Financial Integrity. “With some $ 11 trillion under management, the private equity industry is at great risk of being used to launder illicit proceeds.”
The joint report recommends that the Biden administration act independently through the Treasury Department to subject investment advisers and unregistered investment firms to anti-money laundering obligations. The Treasury Department can pass regulations to fill dangerous gaps in the US anti-money laundering framework without further action from Congress.
“While the stories in the report may be Hollywood quality with a lot of funding and deception, the risks and damage to society are very real. The secrecy surrounding private equity and similar markets allows corrupt and criminal actors to steal and launder money through their investments ”, said Gary Kalman, director of the US office of Transparency International. “Common sense suggests that investment advisers should make sure their investors are not criminals. This report provides proof of that. This helps us better understand the risks of an opaque market and the need for rules to help keep illicit funds out of our financial system. “
Notes to editor:
Coalition DONE – Erica Hanichak, ehanichak @badthefactcoalition.org
Global Financial Integrity – Lauren Anikis, lanikis @badgfintegrity.org
US Office of Transparency International – Annalize Burkhart,aburkhart @badtransparency.org