For many years, the federal government has required banks, brokerages and even casinos to take steps to stop customers from using them to clean dirty money.

Yet one major part of the financial system has remained stubbornly exempt, despite experts’ repeated warnings that it is vulnerable to criminal manipulation. Investment companies such as hedge funds and private equity firms have escaped multiple efforts to subject them to rules meant to combat money laundering.

The latest attempt, which began in 2015, appears to have ground to a halt, according to sources familiar with the process.

“You’ve got several trillion dollars, the management of which nobody is required to ask any questions about where that money is coming from,” said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency Coalition. “This is very problematic.”

The Daily Digest Get the latest news from ProPublica every afternoon.

The Financial Action Task Force, an intergovernmental organization that seeks to combat money laundering around the world, characterized the lack of anti-money laundering rules for investment advisers, such as those who manage hedge funds and private equity funds, as one of the United States’ most significant lapses in a report two years ago.

The push to regulate hedge funds and similar investment firms took off after the Sept. 11 attacks, when Congress passed the Patriot Act. Among other things, the law required federal agencies to take new steps to keep illicit money out of the U.S. financial system. The Treasury Department exempted investment firms at the time, planning to return to them after tackling other sectors. “Eighteen years ago, the Patriot Act required investment companies to install their own AML [anti-money laundering] programs,” said Elise Bean, a former staff director of the U.S. Senate investigations subcommittee who supports the proposed rule. “But Treasury has yet to enforce the law,” she said.

The Treasury Department, through its Financial Crimes Enforcement Network, or FinCEN, initially proposed rules in 2002 and 2003 requiring firms like hedge funds and their investment advisers to adopt anti-money laundering measures. That attempt languished as FinCEN waited for the Securities and Exchange Commission to retool its approach, said Alma Angotti, who wrote the original proposal while at FinCEN and is now co-head of global investigations for the consulting firm Navigant. So much time passed that FinCEN withdrew the proposed rules in 2008. FinCEN then launched its second attempt to impose such regulations seven years later.

That second attempt is the one that has now crawled to a virtual stop. “It’s the kind of thing that should have taken two to three years, not 17,” said Joshua Kirschenbaum, senior fellow focusing on illicit finance at the nonpartisan think tank the German Marshall Fund and a former supervisor in FinCEN’s enforcement division.

Hedge funds and private equity funds can be attractive to big-dollar launderers who prize the funds’ anonymity, the variety of investments they offer and, in some cases, their use of off-shore tax and secrecy havens, experts say. After 2001, the number of annual hedge fund launches surged more than threefold, according to one report, and investments by high net worth individuals exceeded those of institutional investors.

“They’re a black box to everyone involved,” Kirschenbaum said. “They’re sophisticated and can justify moving hundreds of billions.”

Money launderers seek to hide illicit proceeds by making it appear they come from legal sources. Laundering hides crimes as diverse as drug dealing, tax evasion and political corruption. Experts say the massive, untracked streams of cash it creates can fuel more illegal activity, including terrorism.

That’s one reason banks are required to implement protocols aimed at identifying and reporting dodgy transactions to authorities, and verifying that customers are who they say they are.

FinCEN’s latest proposed rule targets investment advisers who manage funds for clients such as hedge funds. The rule would apply primarily to the largest advisers with $100 million or more in assets under management, who are required to register with the SEC.

“As long as investment advisers are not subject to AML program and suspicious activity reporting requirements, money launderers may see them as a low-risk way to enter the U.S. financial system,” the proposed rule states, noting that in 2014, 11,235 advisers registered with the SEC reported roughly $61.9 trillion in assets for their clients.

Read More How the IRS Was Gutted An eight-year campaign to slash the agency’s budget has left it understaffed, hamstrung and operating with archaic equipment. The result: billions less to fund the government. That’s good news for corporations and the wealthy.

Foreign political corruption is one of the money laundering risks for investment advisers, Angotti said. Instead of needing quick access to their money, the ultra-wealthy involved in such graft often want to park their illicit profits somewhere safe, making them more tolerant of fund rules that can delay withdrawals for a year or more.

Having federal anti-money laundering protocols is no panacea. Regulators periodically conclude that certain banks and brokerages are not abiding by various aspects of the rules. Last year, for example, regulators announced more than $2 billion in penalties against Morgan Stanley Smith Barney, Charles Schwab & Co., UBS Financial Services, CapitalOne Bank and others, according to a company that tracks such enforcement. (The companies neither admitted nor denied the allegations against them.)

Experts say it’s impossible to quantify how much money may be laundered through hedge funds. And prosecutors retain the right to charge such a fund if it is proven to have participated in money laundering; but without the FinCEN rules, regulators cannot fine the fund’s managers for, say, not taking steps to prevent abuse.

There are multiple reasons the attempts to adopt rules have bogged down. The principal ones include the financial industry’s cascade of requests for modifications to the rule and inertia among federal bureaucracies, according to people familiar with the process.

The industry has tended to proclaim that it favors the principle of anti-money laundering rules — while simultaneously contesting many of the specifics. Several industry groups contend that the proposed rule overstates the risk that private equity funds will be used for illicit finance.

“We’re very supportive of having an aggressive AML regime,” said Jason Mulvihill, general counsel of the American Investment Council, which represents private equity funds. But, he added, “if you were trying to launder money, the last place you’d want to put it is in a private equity fund” because of the industry’s standard practice of requiring investors to leave their investments in place for 10 years. And, he added, most private equity firms already have some anti-money laundering policies in place, just in case.

Mulvihill’s organization has proposed that FinCEN exclude advisers who require investors to hold their investment for more than two years — a carve-out included in the original FinCEN proposal — which effectively would allow most private equity funds to remain exempt from the anti-money laundering rule.

The Investment Adviser Association also supports the goal of the regulations, said Karen Barr, the group’s president and CEO. But it worries that some advisers will need to implement costly changes that aren’t warranted. Those include advisers who also have clients for whom they provide recommendations, not money management. “We think investment advisers are a low risk because they don’t hold assets,” she added. More than half have 10 employees or fewer, she said, and “the sort of cumulative effect of all these regulations on small shops is really burdensome.”

In response to a request for an interview, a spokesman for the Managed Funds Association, which represents hedge funds, referred to a letter the group sent FinCEN in 2015, in which it stated that it “strongly supports adoption of the Proposed Rule.” The letter also included 25 pages of “background,” suggestions and requests for clarification.

Industry concerns were not the only reason for the rule’s stasis, said former FinCEN employees who spoke with ProPublica. They said staffing, competing agency priorities and other factors also contributed. The Trump administration’s general slowdown in rule-making added to delays, they said.

The rule’s implementation would also require coordination with the SEC, whose job it would be to make sure investment advisers are complying. Policing advisers has not been a major priority for the agency, which five years ago examined only 8 percent of registered advisers. The agency increased the number to 15 percent in 2017.

FinCEN and Treasury spokespeople did not return calls or provide answers to questions about the proposed rule that ProPublica sent by email. Many Treasury employees are not working because of the government shutdown. A spokesman for the SEC said the agency could not answer questions about the rule until the shutdown ended.

Seeing the rule flounder is vexing for Angotti. Some firms may be effectively executing their own anti-money laundering measures, she said. But without more scrutiny, she said, “who knows?” Such steps are expensive “and it requires them to turn away business,” Angotti said. “Without strong enforcement, it’s hard to get businesses to do this stuff.”