FBI Identifies Money Laundering Vulnerabilities at Private Equity Firms and Hedge Funds

Money launderers are exploiting vulnerabilities in private equity firms and hedge funds, according to a recently leaked FBI report. These firms are not subject to the same anti-money laundering (AML) requirements as other financial firms. For example, whereas banks and broker-dealers are required to have an AML program in place and must perform Bank Secrecy Act filings and customer due diligence, no such requirements exist for private equity firms and hedge funds.

The FBI identified the following red flags that indicate threat actors are using these investment vehicles to launder illicit funds:

  • Increases in private investment funds that consist primarily of shell companies registered in high-risk offshore countries maintaining an unverifiable client base
  • Increases in private investment funds operating as pass-through entities and not engaging in substantive medium-to-long term investments
  • Increases in private investment funds engaging in short-term (less than one year) investment activity
  • Increases in private investment funds transfer of ownership of an USBUS to an individual beholden to the government of a foreign adversary

According to the report, private investment funds under management as an asset class has grown over the past 25 years into a several trillion dollar industry in the United States, which provides ever-increasing opportunities for threat actors to co-opt investment funds without being overly scrutinized. Therefore, it is likely only a matter of time before these firms are regulated in the same way as other financial firms. The best strategy would be to put an AML program in place now using software like Jumio Transaction Monitoring before regulators step in. To learn more about how Jumio can help your firm prevent money laundering, schedule a demo today.


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