Reed Backs New Treasury Rule to Combat Money Laundering, Fraud, and Sanctions Evasion

WASHINGTON, DC - Today, after the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued new rules to require investment advisers to abide by anti-money laundering (AML) rules similar to what banks do, U.S. Senator Jack Reed (D-RI), who has been asking for these changes for years, strongly backed the move.

Reed said Treasury's final rule will go a long way toward cracking down on money derived from foreign corruption, fraud, and tax evasion entering the United States through unregulated private funds. This includes money from Russian oligarchs and Chinese Communist Party officials and military companies. FinCEN's rule strengthens oversight of investment advisers, who collectively manage tens of trillions of dollars, but until now, have been largely exempt from the AML regulations.

Reed, a senior member of the Banking Committee, stated: "The rule strengthens our national security. It prevents the worst actors in the world from profiting through investing in our public stock markets and in private U.S. companies. It also ensures that money from these bad actors does not seep into our communities. Americans should have confidence that private equity-backed companies on Main Street are not financed by foreign criminals who want to harm Americans. It also closes an avenue for foreign state-funded entities to gain access to sensitive technology like AI and quantum computing that they can use to gain a military edge. Treasury has said that the Chinese and Russian government entities conceal their investments in private funds, which own early-stage companies in these industries, and then steal this technology. This final rule ensures that institutional investors who invest in private equity funds and hedge funds, such as public pension funds and university endowments, will not have their money commingled with money from Russian oligarchs, entities linked with the Chinese military, and other transnational criminals.

"I look forward to vigorous enforcement of the rule and expect that the SEC will begin examining advisers for compliance shortly after the rule takes effect, beginning with the very largest funds that, according to press reports, have managed money for Putin's cronies involved with the war in Ukraine," concluded Reed.

In March of 2022, Reed led a letter to the Treasury Department urging the agency to revise and reissue proposed rules from 2015 that would have imposed anti-money laundering and suspicious activity report filing requirements on investment advisers, including advisers to private equity funds and hedge funds. In February of 2024, Reed led a letter urging the Treasury Department to adopt the rules as proposed.

Treasury's final rule reflects Reed's comments and will require investment advisers to verify their investors' sources of wealth and report suspicious activity to the government, among other requirements. That will make U.S. private equity funds and hedge funds far less attractive to Russian oligarchs, entities linked with the Chinese military, and other U.S. strategic competitors who exploit the existing rules to finance their efforts to destabilize the world and harm America.

"I commend Secretary Yellen for cracking down on criminals and going after ill-gotten gains," said Reed.

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