ABOUT THE AUTHOR: Ian Gary is the executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition based in Washington, D.C.

In October, U.S. Army Secretary Dan Driscoll and U.S. Treasury Secretary Scott Bessent hosted a forum with private equity groups, including Carlyle and KKR, to explore deals between the opaque $20 trillion private equity industry and the Pentagon in an effort to help fund an army infrastructure overhaul.

According to news reports, Driscoll said, “Hey, here are all the assets we have in our arsenals and our depots that we are underutilizing. … What are those types of deals where we can work with you and invite you in?”

While Driscoll sees the private equity industry as a source of billions of dollars to fund infrastructure, such an approach could pose grave national security risks. Who, exactly, would the Army be “inviting in” and would these projects provide a route for foreign adversaries into vital national security infrastructure?

There are well-documented cases of foreign adversaries and corrupt oligarchs laundering their money through private investment vehicles. Unlike banks and other financial institutions, the private investment industry is currently the only major U.S. capital market actor without a legal obligation to implement anti-money laundering and combating the financing of terrorism programs.

Last year, the Treasury Department’s Investment Adviser Risk Assessment said that “investment advisers and the private funds they advise have served as an important entry point into the U.S. financial system for wealthy Russians seeking to obscure their ownership of U.S. assets” and that China and other adversaries have used these pathways “to access certain technology and services with long-term national security implications.”

Our organization, the Financial Accountability and Corporate Transparency (FACT) Coalition, co-authored a 2021 report warning of the national security risks related to money laundering in the private investment industry. In 2018, Politico reported that a Pentagon study said that Chinese venture capital investments granted the Chinese government “access (to) the crown jewels of U.S. innovation.”

Press reports from Reuters said that Danhua Capital, a venture capital firm based in California, apparently established with the assistance of a Chinese state-backed firm, invested in startups that specialized in drones, cybersecurity and artificial intelligence.

And as recently as last year, the FBI launched a probe into a series of firms connected to Shan Xiangshuang, a Chinese tech multibillionaire, reportedly examining whether the firms “accessed information about the technology, finances or clients of start-ups for the benefit of its Beijing-based owner or Chinese authorities,” including one company with U.S. government contracts. Shan had previously touted that his $10 billion firm was building a “direct train” to Silicon Valley.

The national security risks are numerous, and they are evolving. What is not evolving, however, is how our adversaries access the U.S. financial system without detection. The same decades-long blind spots in the U.S. anti-money laundering framework – chief among them, anonymous shell companies and their roles in private investment – are only weakening the U.S. ability to secure highly sensitive defense innovation and protect American interests. The recent Treasury Department risk assessment and FBI testimony confirm this sad reality.

Anonymous shell companies can help obscure the source of funds and private equity firms may not know the true beneficial owners of investment vehicles used by foreign investors. (The “layering” of funds, or funds of funds, can also obscure the real identities of investors.) And with no obligation to “know their customer,” private firms may or may not take the requisite steps to understand who is truly represented in their capitalization tables.

As of last year, the U.S. was on track to finally plug the private equity loophole. In August 2024, the Treasury Department issued final rules requiring registered investment advisers to implement anti-money laundering and countering the financing of terrorism programs, and laid the groundwork toward establishing requirements to “know your customer.”

These rules were to come in force on Jan. 1, 2026. Unfortunately, earlier this year the Treasury Department proposed delaying effective implementation of these rules by two years and potentially watering them down. Members of Congress and national security experts have said this delay will put Americans at risk and threaten our national security.

Beyond the harms of this delay, the Treasury Department has also decided to gut the Corporate Transparency Act, a bipartisan 2021 law enacted to create a registry of the true owners of corporate entities. The Treasury Department has said it will not enforce the law for over 99% of covered corporate entities, making it even harder to detect the real owners of investments into the U.S. private equity market.

The Trump administration’s agenda to deregulate should not come at the expense of its responsibility to protect American national security and public safety. A long delay by the Treasury Department to implement the anti-money laundering rule for the private equity industry would be a self-inflicted wound, contradicting its own stated national security priorities.

Considering the Army’s recruitment of private equity firms as investment partners, the Treasury Department should not stall safeguards that would make it harder for our adversaries to evade sanctions and spy on our nation’s defense technology. Delaying these rules will put Americans and our national security at risk.