FBI Highlights Feared AML Deficiencies in Combating Private Equity Money Laundering

Courtesy of a leaked internal Federal Bureau of Investigation (“FBI”) document, it’s now no secret that the FBI suspects that many investment vehicles, such as private equity firms and hedge funds, are widely utilized for money laundering. The FBI apparently compiled a January 2019 report titled “Financial Crime Threat Actors Very Likely Laundering Illicit Proceeds Through Fraudulent Hedge Funds and Private Equity Firms to Obfuscate Illicit Proceeds.” Now, a recently leaked May 1, 2020 internal FBI report similarly titled “Threat Actors Likely Use Private Investment Funds to Launder Money, Circumventing Regulatory Tripwires” (the “Report”) purports to supplement the January 2019 report “by providing recent reporting of hedge funds and private equity firms used to launder illicit proceeds, and expands the threat context beyond financial threat actors to include foreign adversaries.”

The Report does more than simply identify the financial threat posed by this type of money laundering; it uses some real-world examples to explain the process by which criminals are perceived to be infiltrating the global financial system using hedge funds and private equity firms, and how the current anti-money laundering (“AML”) regulatory regime is ill-equipped to stop them. It’s safe to say the FBI certainly did not intend for this play-by-play money laundering “how to” guide to go public. Investment advisors and firms should consider whether this leaked Report might add at least some momentum to the otherwise moribund (and controversial) effort by FinCEN in 2015 to propose regulations that would have made investment advisors subject to the requirement to create and maintain full AML programs under the Bank Secrecy Act (“BSA”).
Continue Reading Leaked FBI Report Reveals Private Equity Under Enhanced Money Laundering Scrutiny