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US Treasury to study how Russians could use PE and hedge funds to evade sanctions


Russian oligarchs and elites might look to use investment advisers as a low-risk way to evade US sanctions because of the industry’s vulnerability to illicit finance, a top US Treasury Department official has said.

Brian Nelson, the Treasury’s undersecretary for terrorism and financial intelligence, said last week at a conference hosted by the Securities Industry and Financial Markets Association that his agency is scrutinising the illicit finance risks facing the investment adviser industry and wants to engage with it to determine whether additional rules are needed to help prevent the sector from being used for nefarious purposes.

Nelson’s remarks come as concerns grow that Russian oligarchs and elites are seeking to evade sanctions imposed on them after the country’s invasion of Ukraine. Nelson said the US is working with its allies to “prevent sanctions evaders from exploiting financial loopholes to hide and move their wealth.”

The Treasury’s National Money Laundering Risk Assessment, which became public in March, noted that certain financial intermediaries such as investment advisers aren’t subject to comprehensive anti money-laundering and counterterrorism financing regulations.

The Treasury also has issued 90 new and amended 76 frequently asked questions on its website since February to help provide the private sector with additional detail about the US sanctions programme, Nelson said.

Lack of consistency
Though there are no consistent industry-wide anti money-laundering standards for investment advisers, some voluntarily perform money-laundering screening and prevention. But inconsistencies in whether and how they do this can create vulnerabilities that illicit actors can exploit, Nelson said. In addition, the industry, which includes broker-dealers, hedge funds and private equity funds, is segmented and visibility into who ultimately owns these funds or controls these trades is limited, he said.

To fill in the gaps, the Treasury’s Financial Crimes Enforcement Network in 2015 proposed requiring certain investment advisers to establish anti money-laundering programmes and report suspicious activity. But the network never issued a final rule.

Nelson said the Treasury is engaging with law enforcement and other regulators, such as the Securities and Exchange Commission, to learn about the risk landscape investment advisers face. The Treasury is also looking for ways to gather information about how Russian elites, proxies and oligarchs could use hedge funds, private equity firms and other investment advisers to hide their assets.

“This information gathering effort will help us understand whether rulemaking is necessary and, if so, how to design it to ensure that it is appropriately tailored,” he said.

From The Wall Street Journal

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