Sovereign Wealth Funds: The Blind Spot in Global Financial Crime

In the beginning of 2025, President Donald Trump signed an executive order¹ establishing the first-ever U.S. sovereign wealth fund (SWF), marking a historic shift in the U.S. economic policy. Around the same time, Indonesia launched Danantara SWF,² designed to attract investment in metal processing, artificial intelligence, oil refineries and renewable energy. Meanwhile, Mongolia established a uranium-backed SWF following³ a $1.6 billion investment deal with French energy giant Orano, strengthening its position in the global energy market.

This surge in new SWFs highlights the growing reliance on SWFs as economic tools. Yet, history warns that without strong oversight, these funds can become vehicles for corruption and global financial crime.

Governments originally designed SWFs⁴ as vehicles for national prosperity, allowing them to invest surplus wealth into strategic industries, infrastructure and economic development. Some SWFs in countries like Norway, New Zealand and Australia⁵ operate with high transparency, proving that SWFs can serve as effective economic drivers. As of 2025, SWFs collectively manage over $13 trillion,⁶ an amount exceeding the gross domestic product (GDP) of Japan, Germany and India combined, positioning them as key players in global financial stability.⁷

Vulnerabilities of SWFs

Many SWFs lack accountability,⁸ turning them into global financial loopholes. The existence of well-regulated funds does not erase the systemic risks posed by unregulated and opaque SWFs. Even well-regulated funds cannot eliminate the dangers of unregulated and opaque SWFs. For instance, Norway’s Government Pension Fund Global, widely regarded as the gold standard, has faced ethics investigations into suspected financial crimes.⁹ In 2023, its watchdog launched probes into three companies for alleged money laundering and tax evasion. If the world’s most reputable SWF encounters such risks, less accountable funds pose even greater concerns.

Advocates highlight that SWFs finance critical infrastructure projects, creating jobs and fostering economic growth.¹⁰ Many governments use SWFs to invest in renewable energy, transportation and technological innovation,¹¹ reducing dependence on foreign debt and investment. In addition, SWFs provide greater control over national resources,¹² ensuring that revenues benefit citizens rather than foreign corporations.

Yet, while SWFs can drive growth, they have also been weaponized for corruption and financial crime. Without binding regulations, such as anti-money laundering (AML) and know your customer (KYC) safeguards, SWFs remain vulnerable to misuse. Far from being mere investment tools, some SWFs have become an enabler¹³ for laundering billions, evading sanctions and financing illicit activities under the guise of economic development.

Malaysia’s 1MDB scandal¹⁴ exposed the vulnerabilities of SWFs. Officials embezzled over $4.5 billion through fraudulent bonds, offshore shell companies and political kickbacks, using state funds to finance luxury real estate, fine art and Hollywood productions like The Wolf of Wall Street. Despite international investigations, authorities have been struggling to recover much of the money.

Governments and watchdogs have uncovered similar SWF abuses worldwide. In Angola, officials used the sovereign fund to enrich themselves. The country’s leadership wired $500 million to offshore accounts under the pretense of “investment projects.” In Syria,¹⁵ Rifaat al-Assad, uncle of former President Bashar al-Assad and known as the "Butcher of Hama," was convicted by a French court in 2021 for laundering funds embezzled from the Syrian public treasury, resulting in a four-year prison sentence.

Meanwhile, Russia’s Direct Investment Fund (RDIF) has secretly moved money to bypass international sanctions,¹⁶ benefiting Putin’s inner circle. The U.S. Department of the Treasury labeled RDIF a "slush fund" and identified its role in asset concealment, money laundering and geopolitical financial maneuvers. These cases demonstrate that while sovereign wealth funds are designed to drive national development, weak oversight and regulatory loopholes have made some vulnerable to misuse for corruption and financial misconduct.

The Santiago Principles

Some argue that SWFs are not entirely unregulated, as many adhere to the Santiago Principles,¹⁷ a voluntary set of guidelines promoting transparency and responsible investment. Governments claim that independent audits and governance structures help prevent misconduct.

However, the Santiago Principles have no legal enforcement, allowing SWFs to ignore transparency measures without consequences. Unlike private financial institutions, which must comply with strict AML regulations,¹⁸ SWFs can move billions without disclosure. Surprisingly, in Qatar,¹⁹ one of the wealthiest Gulf states, authorities arrested former finance minister Ali Sharif al-Emadi for bribery and embezzlement, despite his key role in Qatar National Bank’s rise as the Middle East’s largest lender and his position on the board of the $475 billion sovereign wealth fund, Qatar Investment Authority, raising concerns about corruption at the highest levels of sovereign wealth fund management.

As new and existing sovereign wealth funds expand their influence, governments must learn from past failures. While SWFs can promote economic growth, their unchecked power poses serious risks to global financial integrity. Weak oversight in 1MDB, Angola’s sovereign fund and Russia’s RDIF has enabled money laundering, corruption and geopolitical manipulation.

Conclusion

Without stricter regulations, sovereign wealth funds will remain dangerously vulnerable to political interference and financial misconduct. Existing voluntary guidelines have proven insufficient in preventing corruption. Governments must close the loopholes that allow illicit financial activity by enforcing binding international regulations, independent external audits and strict AML/KYC standards.

The belief that transparency weakens financial performance is a myth. Norway and Australia’s SWFs²⁰ demonstrate the opposite—strong governance builds investor confidence, protects national wealth and reinforces financial stability. Norway’s fund, for example, has grown to over $1.8 trillion²¹ while maintaining rigorous oversight, proving that accountability is not a burden, but a competitive advantage.

SWFs have the potential to drive economic prosperity and financial stability, but their success depends on trust. We need binding international oversight, mandatory external audits, and real consequences for misconduct. If SWFs truly want to be trusted as global economic stabilizers, they must prove that they are not financial black holes for corruption and money laundering.

The consequences of neglecting these actions are evident. History demonstrates that without proper oversight, financial scandals become inevitable. Governments can act now to prevent another multibillion-dollar debacle.

Agrippina, financial crime analyst, master’s student, Harris School of Public Policy at The University of Chicago, Chicago, IL, USA, agrippina@uchicago.edu,