The bulletin cites four cases in which hedge funds and PE firms “have been used to facilitate transactions in support of fraud, transnational organized crime, and sanctions evasion”. “Over the last several years, hedge funds have fallen out of favor among many institutional investors, while private equity funds and other private markets vehicles have continued to grow in assets under management,” said Bryce Klempner, a partner at consultants McKinsey & Company in Boston. Both asset classes cater exclusively to institutional clients and accredited investors, or people whose net worth exceed $1 million. Unlike hedge funds, PE vehicles are illiquid, with long investor lockups being a signature of the asset class. The conventional PE strategy similarly uses high amounts of debt purchase underperforming companies or corporate assets, which managers then restructure. Hedge funds wager on public-market equity, debt, derivative, foreign exchange, cryptocurrencies, and other liquid investments. Private funds generally include hedge funds and private equity funds, according to the SEC. The Securities and Exchange Commission describes private funds as pooled investment vehicles that are excluded from the definition of 'investment company' under the Investment Company Act of 1940, which governs mutual funds. Specifically, the report uses information from “two human sources with direct access, one whose reporting has been corroborated through consensual monitoring and one whose reporting has not been corroborated and sensitive financial sources with direct access or firsthand knowledge of the financial industry.” PRIVATE FUNDS While the bulletin says its information is derived primarily from open source reporting from the Department of Justice, it also incorporates information provided to the FBI by multiple human sources. Security news blog Krebs on Security cited an analysis by the National Fusion Center Association that confirmed the validity of the leaked data cache, said to come from state-owned “fusion centers” that gather and disseminate law enforcement information. The documents were initially posted online by Distributed Denial of Secrets, a self-described “transparency collective” of journalists and online computer activists.Ī search of the online cache for Regulatory Intelligence revealed the FBI document. The bulletin was contained among a cache of law enforcement documents, dubbed “BlueLeaks”, which were obtained through a security breach at a web development firm. “As you know, the FBI neither confirms nor denies the existence of an investigation,” said Tina Jagerson, a bureau spokeswoman. The FBI’s assessment is made with “high-confidence”, the bulletin read. 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,” the FBI bulletin said. “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. One of those cases led to a criminal conviction. The FBI bulletin cites four cases of planned or reported laundering operations, involving hundreds of millions of dollars, using private funds. Additionally, the FBI assumes threat actors exploit this vulnerability to integrate illicit proceeds into the licit global financial system,” it said.Ī trade-group representative called the report misguided in its broad characterization of risk in the private-investment industry. “The FBI assumes AML programs are not adequately designed to monitor and detect threat actors’ use of private investment funds to launder money. It also said the industry lacks adequate anti-money laundering programs and called for greater scrutiny by regulators, which have yet to issue rules for the industry. “Threat actors” - including criminals in it for the money and foreign adversaries - “use the private placement of funds, including investments offered by hedge funds and private equity firms” to reintegrate dirty money into the legitimate global financial system, according to the bulletin. Federal Bureau of Investigation believes firms in the nearly $10-trillion private investment funds industry are being used as vehicles for laundering money at scale, according to a leaked intelligence bulletin prepared by the agency in May. presidential election in Washington, U.S. The Federal Bureau Investigation seal is seen at FBI headquarters before a news conference by FBI Director Christopher Wray on the U.S Justice Department's inspector general's report regarding the actions of the Federal Bureau of Investigation and the 2016 U.S.
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