US Hedge Funds Move Towards Self-Regulation

by Philip Morton, Investors Offshore.com

01 May 2002

A Financial Times report published on Tuesday has suggested that, despite the fact that no evidence has yet been found linking hedge funds to the terrorist financing for the September 11 attacks, a combination of self-interest and 'a new spirit of cooperation among the financial community' in the United States have meant that the industry has taken significant steps towards self-regulation.

Hedge funds require large minimum investments and a long-term commitment from investors, which makes them less attractive to criminals and drug dealers. However, argued the FT, this might prove less of a disincentive for terrorist financiers, who raise an estimated 70% of their funds legally, via donations, and also have a long time frame for investment, and a need for opacity.

Rowan Bosworth-Davies, a Financial Crime Consultant, told the Financial Times that many hedge funds, worried about what an investigation would do to the fund's reputation, have already begun to act on improving know-your-customer procedures.

'Hedge funds are going to have to start to develop a track record of what their customers' needs are and slowly evaluate changes in customer behaviour,' he explained.

However, others within the US financial services community believe that there are less cynical reasons for the changes now being implemented by the hedge fund industry.

'A lot of people in the New York Financial Community lost friends (in the September 11 attacks) and the practice here is changing because of it,' John Moscow from the Manhattan District Attorney's Office told the newspaper. 'There's just a totally different level of involvement, a commitment and interest in wiping this out once and for all.'

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