Defining and capturing information on the beneficial ownership of investment funds

  • Publication date: 28 March 2024
  • Authors: Ramandeep Kaur Chhina, Alanna Markle

Misuse of investment funds

Given their involvement in such a significant share of the global economy, not knowing who ultimately owns, controls, or benefits from investment funds risks undermining a range of policy objectives that countries typically pursue through BOT. For example, investment funds have been associated with sanctions evasion [23] and threats to national security via public procurement contracts. In one case, the lack of disclosure of private funds obscured the fact that a majority stake in a US voting management firm in 2018 was owned by a Russian oligarch, calling into question election security. [24] BOI about investment funds is also collected for tax purposes via the Common Reporting Standard (CRS) for automatic exchange of information that is implemented by over 100 countries, though gaps in the framework exist. [25] Moreover, investment funds are a common means through which ownership and control are held in extractive industries, including in the mining of critical minerals for the energy transition. [26]

Finally, investment funds have been used to facilitate corruption. Their long-term outlook can make them attractive to corrupt, authoritarian rulers planning for decades-long rule. [27] For example, a former president of the Philippines is alleged to have earned around USD 400 million in investment interest on funds originating from stolen origins. [28] In Brazil, a settlement valued at over USD 3 billion was paid by two brothers involved in a corruption scandal in which an umbrella investment fund that owned and controlled the family business conglomerate was used for corruption payments to state-owned banks, illegal campaign donations, and bribes to a state-controlled pension fund. [29] International AML standards are a key policy driver for BOT reforms, and most documented cases of misuse of investment funds involve money laundering and related financial crimes. There are several factors that contribute to the potential for misuse of investment funds relevant to BOT, including: [30]

  • The types of corporate vehicles used: Although investment funds can be incorporated as companies, they are more often structured as trusts or limited partnerships; these types of corporate vehicles are often subject to different registration and BO disclosure requirements across jurisdictions than companies are.
  • The prevalence of indirect ownership, control, and benefit: There are usually a number of intermediary actors and corporate vehicles between the investor and investment fund, as well as between the investment fund and the underlying financial assets. [31] This makes it difficult to identify the ultimate investor or beneficial owner of the assets being held as investments.
  • The fragmentation of information: Due to the prevalence of intermediaries, each party holds only partial information about the full picture of ownership, control, and benefit, which adds layers of secrecy and complexity in identifying the ultimate investor or beneficial owner (see Box 1 above).

Financial institutions and other intermediaries are usually obliged to perform CDD and know-your-customer (KYC) checks under regulations for AML. However, AML regulations for private investment funds in particular are lacking in some jurisdictions. In addition, the trade secrecy practices underpinning the investment industry and securities trading may significantly undermine measures to address tax evasion, corruption, and money laundering. For example, omnibus accounts are commonly used to prevent other intermediaries or competitors from identifying investment funds’ clients and stealing business. Finally, the complexity that arises from the involvement of various intermediaries makes it difficult for all stakeholders, including authorities such as law enforcement agencies, to obtain all the pieces of information necessary to create a complete picture.

Documented risks of misuse

Investment funds have recently been identified in a number of countries as a vehicle to launder the proceeds of crime. The documented risks of misuse to date point to private (or alternative) investment funds being riskier than retail funds. In the Netherlands, for instance, investment funds are included among the 15 greatest money laundering threats in its 2019 national risk assessment. The high money laundering risk rating of investment funds is mainly attributed to the use of unlicensed private investment funds, funds established outside the Netherlands, and limited knowledge and awareness of funds’ misuse for money laundering. [32]

Similarly, in May 2020, the US Federal Bureau of Investigation (FBI) highlighted concerns that “threat actors”, including “financially motivated criminals and foreign adversaries”, are likely using private fund structures “to launder money, circumventing traditional [AML] programs”. [33] It also emphasised that the AML compliance programs within the US private funds industry are not sufficient to effectively mitigate money laundering risk in the sector. [34] The US private investment industry alone was valued at USD 11 trillion in 2021, making it equivalent to the world’s third largest economy. [35] It has proven to be attractive for both domestic and international illicit financial flows from the proceeds of drug trafficking, fraud, corruption, tax evasion, and other illegal activities. [36] The lack of AML obligations for real estate professionals could also be an exacerbating factor. [37] At the time of writing, new rules are being developed to counter money laundering risks from both investment funds and real estate in the US (see Box 5).

Case studies on the misuse of investment funds for money laundering and corruption have also been emerging from Latin America. For instance, a recent study has shown that family offices are increasingly being used in Brazil, the region’s largest private investment market, to make investments abroad. [38] Family offices are relatively unregulated fund structures available in many jurisdictions that are primarily regarded as extensions of private individuals and a means of managing personal wealth without external investors. [39] Due to this, family offices are subject to lax regulatory oversight domestically in Brazil and internationally, including weak or non-existent AML and BO disclosure requirements, which reportedly resulted in their increased use for foreign investments in Brazil. The research also highlighted the involvement of investment firms, particularly in Canada, Switzerland, and the US, in laundering and investing illegal funds generated from drug trafficking, corruption, and fraud in Venezuela and other Latin American countries in international markets. [40]

Case studies

The following case studies detail multiple ways in which investment funds have allegedly been misused. First, investigative journalists have reported cases of private investment funds being used for money laundering by organised crime groups as well as to potentially cover up the use of dubious funds to invest in professional sports (Boxes 2 and 3). Second, investment funds have reportedly been used to amass and trade positions in shares of PLCs, allegedly to manipulate or artificially inflate share prices (Box 4). Finally, investment funds have been the target of civil forfeiture action due to their alleged receipt of funds originating in money laundering networks used for international drug trafficking (Box 5).

Box 2. Suspected money laundering through investments in gambling companies [41]

In 2017, a Dutch investment fund invested in a Malta-based gambling and betting company, which was active in Italy under a different name. The gambling and betting company appeared to be involved in an international money laundering network operating in the period 2015-2017 and was suspected of being run by the Italian organised crime group Ndrangheta. A successive investment of the Dutch investment fund in another gambling and betting company linked to the group resulted in the Italian authorities suspecting the owner and staff of the Dutch investment institution of being involved in money laundering. Beyond this case, between 2015 and 2019, Ndrangheta reportedly attracted approximately USD 1.6 billion in legitimate international investment from hedge funds, family offices, pension funds, and other market participants, including one of Europe’s largest private banks, by selling private bonds backed by front companies embedded in Italy’s health sector. [42]

Box 3. Potential misuse of investment funds to buy a football club using criminal proceeds [43]

In 2021, a professional enabler allegedly presented the use of investment funds to a team of undercover journalists as a solution for hiding the origin and owners of funds for purchasing football clubs in the UK. The scheme involved setting up an investment fund with 20 or 21 small companies as investors, each company being held in a separate trust and with a stake of 5% or less in the investment fund. The real owner would be hidden in a master trust behind the small investors. However, due to the small size of shareholding of each investment company, the name of the beneficial owner of these companies would not be required to be disclosed to the English Football League (EFL) or any registry or other authority. Journalists later reported that the EFL – which bans anyone with an unspent criminal conviction and a minimum 12 months’ jail sentence from owning a football club – reviewed its owners’ and directors’ test following this revelation of misuse of investment funds. [44]

Box 4. Alleged misuse of investment funds to hide controversial shareholding in listed companies [45]

A report by investigative journalists alleged that an investment fund in Bermuda and two in Mauritius have been misused to amass and trade large positions in shares of one of the largest and most politically connected business conglomerates in India, which includes four PLCs. The report claimed that the Bermuda-based fund was used by two associates of a close relative of the group’s founder to bypass rules for Indian companies that aim to prevent share price manipulation. According to the Indian stock market rules, promoters (as they are called in India) or corporate insiders are prohibited from owning more than 75% of shares in PLCs in order to prevent artificial share price inflation. As a member of the so-called promoter group, the family member’s affiliation with the investors in the Bermuda-based fund is significant since their indirect control of the fund via these apparent nominees would constitute a violation of stock market regulations.

In this case, the two Mauritius-based investment funds have been alleged to be the fronts for the owners of the conglomerate and used exclusively to trade its stocks. Through the funds, the apparent nominees acting on behalf of the group’s insiders were alleged to have secretly controlled between 8% to 14% of the shares available to be traded by the public in three of the four PLCs in the group in January 2017. These funds, including the Bermuda-based fund, have therefore been alleged to be indirectly controlled by the group and misused to manipulate or artificially inflate the share pricing.

Box 5. Settlement of civil forfeiture claims against millions laundered into real estate [46]

In January 2021, the settlement of a civil forfeiture action against over USD 50 million was announced in the US. The defendant was a Florida-based private investment company that had raised over USD 100 million to invest in real estate. From 2016 to 2019, the company or its subsidiaries allegedly received millions of dollars in criminal proceeds from investors as part of the investors’ efforts to launder the funds via a black market currency exchange network. The network was reportedly allowing drug trafficking organisations to transfer narcotics proceeds from the US to the country in which they operated, concealing the nature of the funds.

Throughout 2018, the US Drug Enforcement Administration used undercover accounts to transfer millions worth of narcotics proceeds to subsidiaries of the company at the instruction of money-laundering brokers. The company accepted these funds without inquiring about their source. In addition, millions of dollars of criminal proceeds were used to fund other investments in the company. The company reportedly ignored red flags for those investments, including discrepancies between the purported investment amount and the actual amount the company received, as well as discrepancies between the purported investors and the entities sending the funds. The defendant company and 31 of its subsidiaries agreed to forfeit USD 29 million in the settlement. It also agreed to conduct reasonable due diligence on future investors, and not to accept funds from apparent nominees but only from the actual investor.


[23] For example, see: “Clearstream pays $152 million over Iran sanctions violations”, LuxTimes, 24 January 2024,

[24] Hanichak et al., Private Investments, Public Harm.

[25] Knobel, Beneficial ownership in the investment industry, 15.

[26] For example, see: María Victoria Sibilla and Edgardo Litvinoff, Litio y transparencia en Argentina: Aportes desde el estándar EITI a 2 proyectos que explotan litio en Argentina (Córdoba: Fundeps and Ruido, 2023),

[27] Hanichak et al., Private Investments, Public Harm.

[28] Lucy Kosimar, “Marcos’ Missing Millions”, In These Times, 2 August 2002,

[29] Kumar, Private Investment Funds in Latin America, 16.

[30] Knobel, Beneficial ownership in the investment industry, 15.

[31] For more information on how the involvement of intermediaries in investment funds adds a further layer of secrecy and enables sanctions evasion, money laundering, and corruption, see: Joshua Kirschenbaum and Adam Kline, “Russian Investments in the United States: Hardening the Target”, Alliance for Securing Democracy, 21 August 2018,

[32] See: Alanna Markle, Coverage of corporate vehicles in beneficial ownership disclosure regimes (s.l.: Open Ownership, 2023), 14,; Tom Debets and Lisette de Zeeuw, “Private Investment Funds and Money Laundering”, Anti Money Laundering Centre, 1 July 2021,

[33] Shae Armstrong and Jennifer Commander, “ACFCS Exclusive Contributor Report: The Corporate Transparency Act introduces Beneficial Ownership Disclosure Requirements for Investment Funds”, Association of Certified Financial Crime Specialists, 21 June 2021,

[34] See: Markle, Coverage of corporate vehicles in beneficial ownership disclosure regimes, 14; Armstrong and Commander, “ACFCS Exclusive Contributor Report”.

[35] Kumar, Private Investment Funds in Latin America.

[36] Hanichak et al., Private Investments, Public Harm.

[37] Sofia Gonzalez, Sophia Cole, and Ian Gary, Dirty Money and the Destruction of the Amazon: Uncovering the U.S. Role in Illicit Financial Flows from Environmental Crimes in Peru and Colombia (Washington DC: The FACT Coalition, 2023), 44,

[38] Kumar, Private Investment Funds in Latin America, 12-15.

[39] Family offices are reported to have been subject to light regulatory oversight in most parts of the world, if any at all. Due to the unregulated nature of family offices, many hedge funds have returned clients’ capital and converted to family offices. See: Francois Botha, “Family Office Regulation and What the Pandora Papers Reveal about Rising Reputational Risks”, Forbes, 15 October 2021,

[40] Kumar, Private Investment Funds in Latin America, 12-15.

[41] Debets and de Zeeuw, “Private Investment Funds and Money Laundering”. Also see: Matteo Civillini, Lorenzo Bagnoli, Dario De Luca, Coen Van de Ven, “Gambling on Crime”, Organized Crime and Corruption Reporting Project (OCCRP), 24 July 2019,; Matteo Civillini, “Boekhoorn and Partners accused of Money Laundering”, OCCRP, 2 October 2019,; Matteo Civillini, Dario De Luca, and Lorenzo Bagnoli, “Troubled Maltese Gambling Co Faces $137M in New Tax Claim”, OCCRP, 19 August 2019,

[42] Fred Imbert, “International investors reportedly bought bonds backed by the Italian mafia”, CNBC, 7 July 2020,

[43] David Harrison and Al Jazeera Investigative Unit, “How a convicted criminal can buy a famous English football club”, Al Jazeera, 10 August 2021,

[44] David Harrison, “English football reviews rules after Al Jazeera investigation”, Al Jazeera, 20 August 2021,

[45] Harrison, “English football reviews rules after Al Jazeera investigation”; Anand Mangnale, Ravi Nair, and NBR Arcadio, “Documents Provide Fresh Insight Into Allegations of Stock Manipulation That Rocked India’s Powerful Adani Group”, OCCRP, 31 August 2023, See: HT Correspondent, “Financial Times cites secret paper trail, says it reveals hidden Adani investors”, Hindustan Times, 31 August 2023,

[46] U.S. Attorney’s Office, Southern District of New York, “Acting Manhattan U.S. Attorney Announces Settlement Of Civil Forfeiture Claims Against Over $50 Million Laundered Through Black Market Peso Exchange”, Press Release, 12 January 2021,

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