Russian investments in the United States: Hardening the target

dollars were layered through private investment funds. According to the complaint, the proceeds of a 1MDB bond offering were “invested” in Curacao-based private investment funds, which immediately transferred the same amount of money to shell companies controlled by the alleged perpetrator of the scheme. A similar technique may have been used in the alleged theft of hundreds of millions of dollars from Venezuela’s state oil company, with the proceeds layered through a Malta-based investment fund, according to a recently filed Justice Department criminal complaint. In the world of private equity, the Angolan government has sued a Swiss-based asset manager in the UK, claiming the Swiss firm (run by a friend and former business partner of the former Angolan president’s son) stole money from the country’s sovereign wealth fund via its Mauritius-based private equity funds. The claims have led to the opening of a criminal money laundering investigation in Switzerland. To be clear, the asset managers involved in the Malaysia, Venezuela, and Angola cases are not U.S.-based, but lax U.S. rules create the risk of similar malfeasance.

There is no evidence that any of the Russia-linked private investments funds described above, or their managers, have engaged in nefarious behavior in the United States. However, their extensive and wide-ranging holdings are often opaque and generally not subject to meaningful reporting requirements, such that the full universe of their positions is unknown. In fact, it is entirely possible that the Russian government and Russian oligarchs hold many billions more in undeclared venture capital, private equity, and hedge fund investments in the United States. 

Mind the gaps
Current rules prevent the U.S. government from understanding the full scope of foreign actors’ private investment fund holdings and assessing the risk that some of them could potentially be used as pathways for malign influence or other illicit activity.   

Under the current framework, there are three main gaps related to private investment funds: (3)

•  Fund managers are not required to report or maintain records of the identities of the beneficial owners of the funds they manage. Fund managers are only required to report to the Securities and Exchange Commission (SEC) the percentage of investors who are