Russian investments in the United States: Hardening the target

foreign, without disclosing their names or nationalities.  

  Fund managers are not required to disclose their investments in the United States. SEC rules generally mandate that fund managers disclose only positions in publicly traded stock.(4) Recently passed reforms to the Committee on Foreign Investment in the United States (CFIUS), which reviews foreign acquisitions for national security risk, will improve the U.S. government’s ability to block high-risk transactions that were previously outside the Committee’s purview, especially transactions in which foreign actors gain influence but not control over a U.S. company. Increased disclosure requirements for private investment funds would be complementary to, rather than duplicative of, the CFIUS process and would help inform the allocation of the Committee’s resources.(5)

  Fund managers are not required to maintain an AML compliance program or file suspicious activity reports. By contrast, banks, broker-dealers, and mutual funds must do both.  Since private investment firms are among financial institutions’ most important clients, this opacity inhibits the effective functioning of banks’ and broker-dealers’ compliance programs. The Treasury Department issued a proposed rule to close this gap in 2015 (after withdrawing its 2002 rulemaking in 2008) but has yet to complete the process. Congress called for such requirements in Section 352 of the USA PATRIOT Act, passed in 2001. Closing this gap would also bring the United States into compliance with global AML standards.(6)

In order to understand the landscape of strategic investments by the Russian government and Russian oligarchs that may be of national security concern, the U.S. government will need to rely on the help of the private investment fund industry. That means disclosing investors and holdings to the SEC, checking the sources of investors’ money, and reporting suspicious activity to Treasury.  Importantly, such confidential reporting would be collected by the government for internal use and not made public. This confidentiality would ensure that fund managers’ proprietary ideas, which give them their competitive edge, are protected. As the United States continues to strengthen the financial system’s defenses against illicit influence, it is prudent to harden the highest-value priority targets first. Private investment firms are the smart place to start.

1. The terms