- The US Treasury is proposing to extend its anti-terror
regulations to clamp down on hedge funds round the world.
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- It has drawn up rules that would compel any hedge fund
with a "US nexus" - taken to mean a US investor, manager or sponsor
- to give US authorities access to files on its investors.
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- Industry members said the proposal could threaten client
confidentiality, which has been cherished by many wealthy individuals who
make up the majority of hedge fund investors.
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- "Our client confidentiality is out of the window,"
said one London-based manager. "If you have one US investor - and
nearly all funds do - you will have to disclose all your investors to the
US."
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- "This will affect thousands of hedge funds",
said one London-based another European hedge fund manager on Monday. "The
implications of this are scary".
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- The new rules form part of an effort to extend the US
Patriot Act. The act, passed weeks after the September 11 attacks, is designed
to stop US financial institutions being used by terrorists to launder money.
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- It introduced requirements on financial institutions
to develop internal policies and procedures, appoint compliance officers,
train employees and test their controls through independent audits.
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- A Treasury official on Monday stressed that extending
the act to offshore hedge funds "was still a proposal". He added:
"We take very seriously the notion of not over-reaching when it is
not appropriate."
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- The Treasury plans to consult the industry before making
a final decision.
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- Hedge fund managers have reacted angrily to Washington's
move, particularly since many European-registered managers comply with
anti-money laundering rules in their jurisdictions.
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- "Offshore managers who are concerned have every
right to be concerned," said Satish Kini, US-based partner at Wilmer,
Cutler & Pickering.
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- Observers think this could be the first of many new regulatory
burdens on the industry, particularly since the Securities and Exchange
Commission is scrutinising US hedge funds after a series of high-profile
scandals.
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- Dermot Butler, chairman of Custom House, the Dublin-based
administrator, said hedge funds could end up trying to rid themselves of
US investors.
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- "There is a concern outside the US that the authorities
are not discrete and will go on fishing expeditions. People don't want
the US picking over their confidential files and seeing all their investors."
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- http://news.ft.com/servlet/ContentServer?pagename=FT
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