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The two Democrats last week cited a New York Times report on the highly complex financial holdings of an oligarch, Roman Abramovich, who has invested billions of dollars through private funds. (Mr Abramovich has been the subject of sanctions by UK authorities, but not by those in the United States.)

“The status quo is clearly unsustainable,” the senators wrote.

A spokesman for the Treasury Department declined to comment on the letter from lawmakers. The SEC did not immediately comment.

Calls for tougher oversight of foreign money in hedge funds and private equity firms go back about two decades, when the private fund sector was much smaller than it is today. But some argue that the rationale for exempting those sectors no longer holds, given the impact of hedge funds and private equity on the markets.

“Right now, broker-dealers, mutual funds and banks are required by law to understand who their clients are and evaluate the source of their clients’ money before investing them,” said Elise Bean, former staff director and chief advisor to the permanent subcommittee. of the Senate. on Investigations, which specializes in money laundering investigations. “But hedge funds, private equity and venture capital funds don’t — which makes no sense.”

Ms. Bean advises a coalition of more than 100 organizations that filed a commentary letter with the SEC last week saying that regulators should require private funds to provide regulators with a list of all the “ultimate owners” of the money they accept from investors. and to identify the countries where these investors reside.

The groups, calling themselves the Financial Accountability and Corporate Transparency Coalition, said it would take private funds to make those disclosures to help regulators detect the potential “presence of illicit financial flows in private markets.” The Russian invasion of Ukraine, they said, showed how difficult it is to keep an eye on money from political insiders who made secret investments while not subject to government sanctions.

An SEC spokeswoman said the commission “benefits from strong public engagement” but generally does not respond publicly to comment letters.

There are a number of competing ideas to bring private funds and unregulated investment advisors to the same know-your-customer standards as banks.

Ms. Warren and Mr. Whitehouse suggested in their letter that the Treasury could interpret the additional powers given to financial regulators in the wake of the September 11 terror attacks as covering private funds.

Some proponents of increased oversight say the Investment Advisers Act gives the SEC the power to require private funds to conduct know-your-customer checks.

Another option is to extend the 50-year-old banking secrecy law, which requires banks and other regulated financial institutions to vet their customers carefully and stop possible money laundering.

The Enablers Act, which was introduced in the House of Representatives last autumn, would extend those rules to investment advisers at private funds, among others.

“It’s not a bad thing to understand who you’re taking money from,” said Daniel Tannebaum, a financial crime expert at the consultancy Oliver Wyman.

But the fate of the Enablers Act is uncertain. A similar bill has yet to be introduced in the Senate, and no committee has agreed to consider it in the House. The scope of the legislation can also pose a problem: lawyers, PR agencies and art dealers should carry out the same checks, and the inclusion of so many professions increases the chance of resistance.

The assets of wealthy and powerful Russians have come under intense scrutiny after the United States and other Western countries targeted their ability to do business after the invasion of Ukraine. Private funds in the United States are required to inform the Treasury if they hold assets belonging to Russians on the sanctions list, but they are not required to provide that information to other investors.

And oligarchs’ finances are highly complex, which can obscure their role as the source of the money: The Times reported that Mr. Abramovich had invested several billion dollars in US hedge funds and private equity funds through a variety of shell companies. In some cases, the participants didn’t even know whose money they were helping to manage.

A large part of Mr. Abramovich was facilitated by a small company, Concord Management, based in suburban Tarrytown, NY. Concord Management previously said it recommended investments, but did not manage money directly. Representatives of Mr Abramovich in London did not immediately respond to messages asking for comment.

In another example, Fort Ross Ventures, a California venture capital firm, has taken investment dollars from Sberbank, a Russian state-owned bank. Both the US and UK governments have imposed sanctions on Sberbank.

Ross Ventures said in a statement that it is “analyzing all international sanctions announced against Russia and Sberbank and will act in accordance with applicable law.”

The proposals from Ms. Warren and Mr. Whitehouse, as well as from the FACT coalition, include revisions to a private fund disclosure requirement called Form PF — enacted in the wake of the financial crisis more than a decade ago — that the SEC already considering revising.

The SEC has proposed that hedge funds, private equity firms and other investment advisers required to file a Form PF provide regulators with updates on “extraordinary investment losses” or large exposures to other investors that could impact the markets.

The FACT coalition has said that the existence of money from questionable sources in private funds is also potentially destabilizing for the financial system, which is why regulators must have access to real-time information about those investors.

Representatives of the trade associations representing the hedge fund and private equity industries said further reporting and know-your-customer requirements for private funds was largely unnecessary, as neither sector has historically been a magnet for money laundering. Has been.

The associations note that, even if a private fund manager in the United States does not do its own background checks, many funds employ independent companies to manage their offshore investment vehicles to conduct know-your-customer and anti-money laundering checks on foreign investors.

Bryan Corbett, chief executive officer of the Managed Funds Association, which represents more than 140 hedge funds and other investment funds, said private funds are already “working with banks and specialist managers, conducting standardized, rigorous due diligence on those who invest in funds.”

In the case of offshore funds, many third-party managers are located in the Cayman Islands and are complying with sanctions orders from both the United States and Great Britain. When the UK government imposed sanctions on Mr Abramovich, many executives decided to freeze assets in entities that could be linked to him.

Shortly before the sanctions orders were issued, representatives of Mr. Abramovich attempted to restructure some of the entities that had invested in those funds, three people briefed on the matter said. But those maneuvers failed to evade sanctions orders, the people said, speaking on condition of anonymity because they were not authorized to comment publicly on the matter.

But critics have said the checks are not foolproof because many wealthy offshore investors like Mr. Abramovich have relied on shell companies to disguise their ownership, and private fund managers are often unaware of who the beneficial owner of shell companies is.

“It is clear that significant Russian money has entered US private investment markets, but we do not know exactly how much, where it is invested or who is subject to sanctions, due to a lack of transparency,” Ms Bean said.