Because They Are a Corrupt Criminal Enterprise, and They Buy Politicians Accordingly

The good folks at Pro Publica are asking, “Why Aren’t Hedge Funds Required to Fight Money Laundering?

They do a good job of looking at what is going on, but they miss the underlying why.

According to their own description, hedge funds work by recognizing, and exploiting, “Market inefficiencies.”

Translated into normal English, this means that they win by cheating.

What’s more, they know that they win by cheating, and so they know that reductions in corruption, or increases in transparency are a direct threat to their core business model.

The hedge funds are corrupt, and corrupting, to their core, and because of this, they spend a lot of money on campaign contributions, as well as on hiring former regulators, so that people there know, if they play the game, they can cash out when they retire:

For many years, the federal government has required banks, brokerages and even casinos to take steps to stop customers from using them to clean dirty money.

Yet one major part of the financial system has remained stubbornly exempt, despite experts’ repeated warnings that it is vulnerable to criminal manipulation. Investment companies such as hedge funds and private equity firms have escaped multiple efforts to subject them to rules meant to combat money laundering.


The Financial Action Task Force, an intergovernmental organization that seeks to combat money laundering around the world, characterized the lack of anti-money laundering rules for investment advisers, such as those who manage hedge funds and private equity funds, as one of the United States’ most significant lapses in a report two years ago.


Hedge funds and private equity funds can be attractive to big-dollar launderers who prize the funds’ anonymity, the variety of investments they offer and, in some cases, their use of off-shore tax and secrecy havens, experts say. After 2001, the number of annual hedge fund launches surged more than threefold, according to one report, and investments by high net worth individuals exceeded those of institutional investors.

“They’re a black box to everyone involved,” Kirschenbaum said. “They’re sophisticated and can justify moving hundreds of billions.”

Money launderers seek to hide illicit proceeds by making it appear they come from legal sources. Laundering hides crimes as diverse as drug dealing, tax evasion and political corruption. Experts say the massive, untracked streams of cash it creates can fuel more illegal activity, including terrorism.

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