Friday, April 26, 2013

The New New Thing: Hedge Funds And Money Laundering

Forbes reports that there are indications from Washington that hedge funds, long exempt from anti-money laundering reporting rules, may soon be brought into the fold under new rules proposed by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

1. While public hard data is scant on the amount of money laundering through hedge funds, we believe that hedge funds would easily fit into money laundering schemes. They offer varying degrees of: secrecy, offshore accounts and the ability to place large sums of money. While it is often thought that a “lock up” of the investment for long period would be a deterrent to money laundering, this may no longer be the case with more complex schemes.

Perhaps most importantly, hedge funds have traditionally delegated the anti-money laundering function to admistrators, who will do a very good job performing as much checking and monitoring as required under applicable law and their own internal procedures.  However, the administrators may be at a disadvantage in spotting the launderer because their personal contact with the investor is cursory at best– and the personal contact element in the hedge function scenario may be the most important…..

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