Reported by Chris Cumming

Under the rules—which can take effect following a 60-day comment period—fund advisers including private-equity managers will have to start programs to prevent money laundering and keep records of customer cash flows. Most significantly, lawyers say, they will have to report suspicious transactions to the government.

The rule is part of the Biden administration’s recent push to combat financial crimes and money laundering, following recent measures aimed at curtailing anonymous real-estate purchases and the use of shell companies.

But there is a continuing debate about whether private equity really plays a significant role in the illicit economy.

Relatively few examples have come to light of criminals using private funds to launder money. A leaked Federal Bureau of Investigation memo in 2020 said criminals are laundering money through private-equity and hedge funds, citing as an example a company tied to Russian organized crime passing more than $100 million through a New York firm, which the memo didn’t name.

The Treasury Department is also convinced of the threat. In a risk report this month, the agency said that “private funds can be an attractive entry point for illicit proceeds” because of the potential to generate high returns while providing anonymity, and that China and Russia use them to gain access to technology with national-security applications.

Others dispute this view. They argue that private-equity funds are an unlikely vehicle for laundering money because they require investors to lock up their capital for a long time—typically 10 years or more—and criminals want quicker access to their funds.

The American Investment Council, private equity’s chief lobbying group in Washington, has said that private funds are a low money-laundering risk and forcing them to follow the rules that apply to banks and other financial centers would be an unnecessary burden.

Read full report: https://www.wsj.com/articles/new-rules-will-force-buyout-firms-to-flag-suspicious-investments-2c7d4449