Two Democratic senators have called on financial regulators to close a two-decade-old loophole that has allowed hedge funds, private equity firms and other private funds to avoid having to carry out basic checks on the know your customer and the fight against money laundering.
In letters sent Tuesday to senior Treasury Department and Securities and Exchange Commission officials, Sen. Elizabeth Warren of Massachusetts and Sen. Sheldon Whitehouse of Rhode Island said it didn’t make sense to exempt funds from investment to do the same basic background checks on clients. that banks, brokerages, mutual funds and casinos have to do.
The exemption could complicate efforts to trace US assets of Russian oligarchs who are under sanctions following the war in Ukraine.
In their letter to Treasury Secretary Janet Yellen and SEC Chairman Gary Gensler, the senators said closing this loophole would “help the U.S. government track down the hidden wealth of sanctioned Russian elites and better fight against money laundering, terrorism, proliferation of weapons of mass destruction and other criminal activities.
U.S. authorities sometimes struggle to track money offshore because fund managers aren’t subject to the Bank Secrecy Act, which requires most regulated financial institutions to vet their customers carefully and stop money laundering. potential money.
Ms Warren and Mr Whitehouse suggested that the Treasury could interpret the additional powers granted to financial regulators following the September 11 terrorist attacks as covering private funds.
But there are other potential approaches. One is to amend the Bank Secrecy Act to cover investment advisers and others. And other proponents of increased oversight say the Investment Advisers Act gives the SEC the power to require private funds to conduct know-your-client checks.
The assets of wealthy and powerful Russians have come under intense scrutiny after the United States and other Western countries targeted their ability to do business following the invasion of Ukraine.
A Russian billionaire, Roman Abramovich, invested in US hedge funds and private equity funds through complex shell company arrangements that in some cases prevented participants from knowing who owned the funds they they were helping to manage, according to a report from the New York Times. (While the UK government has imposed sanctions on Mr. Abramovich, the US has not.)
In another example, Fort Ross Ventures, a California-based venture capital firm, took investment dollars from Sberbank, a Russian state bank that has faced sanctions from the US and UK governments.
But on the whole, private funds in the United States have been largely silent about whether they have money from Russian sources.