Saturday, July 8, 2023


There are a number of controversial topics that the American financial press will not touch; the extent of money laundering in the hedge fund industry, for example. I assume that this is because to name & shame any hedge funds would result in the immediate filing of civil litigation, especially in the area of defamation, which is costly, and media owners do not like to pay out large fees to lawyers which cannot be recovered even if they win, and are a major operating expense that nobody wants to deal with if they can avoid it. 

Another consistently underreported subject is whether family offices, which invest and protect the wealth of America's affluent class, are engaged in placing capital which originated as the proceeds of crime, but which since has been skillfully laundered through the financial system. It is important to understand that some criminal organizations have long-term goals for their "profits," which includes investing them in significant assets with not only good growth potential, but are protected from adverse events, which is a characteristic of the abilities of family offices. Some wisely want to build a portfolio for a future when they are no longer engaged in crime.

Furthermore, family offices often serve multiple clients simultaneously. When new business is referred to them by prominent local professionals, they generally welcome new business, after performing due diligence, and verifying both Source of Funds and Source of Wealth. 

But they also, like hedge funds, thrive on developing new business, and we wonder whether any due diligence shortcuts are taken from time to time, to allow them to accept new business. Say for the sake of argument, a client who has criminal proceeds carefully cleaned by an experienced money launderer engages a lawyer or law firm with established ties to individuals in a family office, specifically for the purpose of gaining entry as a client. The lawyer makes the referral, unaware of the dark origin of the capital involved, and unwittingly recommends what is a criminal organization. The family office thereafter efficiently and effortlessly invests millions into office buildings and other income-producing assets.

While we do not at the moment have any specific information, my decade on the dark side tell me that such situations not only exist, but they have been developed to the extent that superficial efforts to pierce them by law enforcement will fail. Only when one of the participants is charged with another crime, and chooses to mitigate his eventual sentence, will such an arrangement be uncovered. Meanwhile, the banks, which court the huge account balances family offices might offer as customers, are in the dark. We wonder when one will be exposed, and what the consequences will be.

Remember my rule: in the business of money laundering, you are only limited by your imagination. Expect that laundrymen have already embedded their clients in family offices.

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