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TARP Investment Program

By Matt Squire for moneylaundering.com

The proposed governmental program allowing the purchase of toxic bank assets “presents an ideal opportunity” for criminals wishing to launder money, a U.S. watchdog agency said Tuesday.

The disclosure comes as part of 250-page report by the Office of the Special Inspector General citing possibilities for criminal exploitation of the government’s $700 billion Troubled Asset Relief Program (TARP).  The plan contributes $75 billion to a separate initiative, known as the Public-Private Investment Program (PPIP), that offers incentives to investors who buy up bad bank loans.

Money launderers may view the investment program as an opportunity to disguise dirty cash through investments that require few beneficial ownership disclosures, the report said. Total funding for the PPIP will range between $500 billion and $1 trillion, according to U.S. Treasury Department projections.

Criminal organizations that invest in the fund would not only profit from government-backed leverage but ensure that the money appears “to be PPIF investment gains rather than drug, prostitution, or illegal gambling proceeds,” the inspector general said in the report.

Special purpose vehicles created by asset management companies specifically to invest in the PPIP may not have enough transparency for the U.S. Treasury to discern their “true participants,” according to the report. And while the program requires that government managers screen individual investors, it remains unclear to what degree Treasury Department officials will check the background of program participants, the report said.

The PPIP is also vulnerable to fraud and conflict of interest problems, the inspector general said. To date, the watchdog has initiated close to 20 criminal investigations involving potential abuses of the program

Qualified fund managers under the PPIP are required to agree to fraud, waste, and abuse protections, according to the report. But the inspector general urged the Treasury Department to develop additional rules to control conflict of interest issues and improve transparency of ownership and transactions.

About the Author

Kevin Sullivan, CAMS, CCI is a retired New York State Police Investigator and Federal Agent who dedicated his career to AML and continues that work through his company, The AML Training Academy and Advisory LLC. Kevin coordinated AML investigations for the state of New York while being detailed to one of the worlds largest AML task forces, the NY High Intensity Financial Crime Area (HIFCA) El Dorado Task Force. He has helped develop and implement global AML guidelines and trained and advised all industries and government agencies requiring AML around the globe. He helped to write various certification programs for the Association of Certified Anti-Money Laundering Specialists’ (ACAMS) and was the co-founder and former chair of their inaugural chapter which was in NY. Follow Kevin or reserve a seat in one of his live webinars. Space is limited!

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