Sanctions: Increased pressure on direct capital in the United States

Boomerang effect. Unlike banks, private equity funds are not subject to strict regulatory obligations to combat money laundering and terrorist financing. But with the war in Ukraine and sanctions against Russia, that advantage is likely to turn against them in the United States.

In late March, Democratic Senators Elizabeth Warren and Sheldon Whitehouse wrote to Janet Ellen, the Treasury Secretary, and Gary Hensler, the head of the Stock Exchange Constable (SEC), asking them to end this loophole that frees the industry from $ 11 trillion in private capital and private investment. hedge funds) to gather basic information about their clients when they receive huge sums of money.

“Liberation from the private capital industry threatens our national security and poses systemic risks to our financial system,” said the senator, who is known to be a favorite of Wall Street and co-authors. This allows criminals and sanctions victims, such as Russian oligarchs, to hide and increase their wealth. “

New scale

“Private investment is a huge black hole that avoids rules in the United States,” said Ryan Gurule, director of the Coalition for Financial Reporting and Corporate Transparency (FACT), an alliance of 100 national organizations. and international measures to combat tax evasion. and corruption related to financial practices.

The war in Ukraine is a time to put an end to this, he said, believing that the direct investment industry, which was still young when the attacks of September 11, 2001 and related regulations, could no longer take advantage of its “freshness”. Its enormous weight in the economy now imposes obligations on it.

Direct investment managers respond that they have not waited for the rules to conduct a proper audit. “These Russian riches do not give us their money over the phone,” said one. When you invest in a fund, you are closed for ten years. ” The fact remains that in one night Russian investors, who were considered good in all respects yesterday, became personas non grata.

Persona non grata

“So far, the sanctions have been aimed only at a limited number of people, but with Russia, whose economy is very interconnected with the rest of the world, given the hundreds of people affected, we have moved to another scale. There is a risk, says Brendan Hanifin, a partner at Ropes & Gray in Chicago. We have clients who ask questions, and I know of several situations where managers are forced to buy out or transfer a stake. ”

Concord Management, one of the investment structures of Roman Abramovich, a close ally of Vladimir Putin, invested in three Carlisle funds in the early 2000s. Very small lines with more than $ 300 billion in assets managed by the group, which, according to sources, are being “liquidated.” However, in the oligarch’s vehicle with $ 6 billion in assets alone, more than a hundred dollars with tickets for $ 100 million could be invested. Among the recipients is also the giant Apollo, which is not included in the list. The owner of the Chelsea football club is also actively involved in venture capital.

Heated part of the iceberg

But this is just the tip of the iceberg, according to Bill Browder, founder of Hermitage Capital Management, a conflict with Vladimir Putin. “Roman Abramovich was actually relatively open about these investments, but most of the time the oligarchs intervene through several structures,” he explains. The goal is simple: to avoid seizing their assets. Many foundations turned to an expert. “Most did not heed my advice to give up money from Russia,” he said. The result, if you have an investor, is a nightmare. “