TBML links in major national security and corruption threats presented by opaque US private investment firms

The US$11 trillion US private investment industry presents major national security and corruption threats and represents a gaping hole in the country’s anti-money laundering (AML) framework according to a joint report released yesterday by the Financial Accountability and Corporate Transparency (FACT) Coalition, Global Financial Integrity and the Transparency International US Office.

The report, Private Investments, Public Harm, says this makes the US an attractive destination for illicit financial flows (IFFs), sometimes facilitated by trade-based money laundering (TBML).

Lack of accountability

Nearly 13,000 investment advisers with little or no AML due diligence responsibilities operate in the US according to the report.

It points out that since 2021 the US Corporate Transparency Act addresses the use of TBML and the art and antiquities trade in particular to facilitate IFFs in and out of the US. But the private investment industry – which includes hedge funds, private equity, venture capital firms, and family offices – is subject to the barest of government disclosure requirements.

TBML and banks

The report describes several cases emblematic of the national security and corruption risks posed by the private investment industry, two of which focus on the use of TBML.

In some cases the opacity resulting from a lack of disclosure requirements for private investment funds increased the difficulty of banks and other institutions endeavouring to conduct their own AML and due diligence processes.

Sanctions avoidance

One case study in the report describes how hedge funds were established to facilitate TBML schemes and evade US sanctions

The US Federal Bureau of Investigation (FBI) reported that, in 2019, an individual representing a hedge fund proposed a scheme to use shell corporations and hedge funds in Luxembourg and Guernsey to evade regulatory requirements when transacting with sanctioned companies.

The FBI concluded the intent of the scheme was to help the companies export prohibited items from sanctioned countries into the US.

Black Market Peso Exchange

In another case the report describes how the Black Market Peso Exchange, the TBML system to convert drug dollars into local Latin American currencies, was employed to help a real estate investment company to purportedly launder millions of dollars in drug proceeds.

The report describes how Florida-based Sefira Capital and its subsidiaries received millions of dollars in criminal proceeds from “investors” who were actually drug trafficking organisations laundering funds through the Black Market Peso Exchange.

Sefira allegedly accepted the funds without asking questions about the true owners of the investment accounts and apparently ignored discrepancies between the supposed investment amount and the actual amount Sefira received.

The report, Private Investments, Public Harm, can be found here.


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