Hedge Funds have rarely been on the frontline of the fight against money laundering, but scrutiny of the sector is on the rise as they feature a number of characteristics which have the potential to expose them to increased money laundering risk.
The customer base is often composed of wealthy individuals, including politically exposed persons (PEPs); shell companies and trusts are often used for investment purposes; and many hedge funds make use of complicated investment structures which may include multiple accounts in different jurisdictions, including tax havens.
KYC and AML are powerful complements to each other and important elements for Hedge Funds looking to protect themselves against fraud and financial crime. Both involve verifying the identity and legitimacy of individuals and organisations through rigorous checks. In itself, that makes it harder for criminals to operate. In addition, AML checks help to uncover the money trail, understanding where money comes from and how it’s spent so that organisations can ensure it’s not laundered through them.
In this industry report, we examine:
- Where Hedge Funds may be vulnerable to AML risk
- The current regulatory environment in the UK, EU, and US
- The requirements for customer due diligence (CDD) and enhanced due diligence (EDD)
- Screening for sanctions, ultimate beneficial owners (UBOs), and politically exposed persons (PEPs)
- How to ensure compliance with AML regulations
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