Hedge funds a worry in money laundering

Banks are finally acknowledging that they deal with a labyrinth of “alternative assets” and financial institutions that make it difficult to track money laundering, writes Narayanan Madhavan.

So you thought only stock market regulators were worried by hedge funds? Wait till you meet a banker trying to grapple with New Age cash, in which you cannot easily tell the colour, or smell, of money: Is that from/for a terrorist? Is that a bribe billion getting whitewashed? Does it smell like cocaine?

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International auditing and financial accounting firm KPMG said in a statement on Thursday that banks are finally acknowledging that they deal with a labyrinth of “alternative assets” and financial institutions that make it difficult to track and crack down on money laundering.

“With international banks bolstering their presence in emerging market economies, and with a low interest rate environment driving growth in alternative assets including hedge funds, private equity and commodity investments, the need for more stringent anti-money laundering processes has only grown. Banks will need to work extremely hard from here if they are to maintain any advantage in the war against money laundering and terrorist financing,” said Deepak Sanwalka, head of KPMG’s forensic services in India.

KPMG said its study among 224 banks from 55 countries found that banks’ spending on anti-money laundering (AML) systems and processes has risen by an average of 58 percent over the last three years. In North America and in the Middle East and Africa, spending has increased by 70 percent or more. These increases are far in excess of banks’ own predictions when KPMG Forensic carried out its last study in 2004.