In a statement, Sen Levin said there is a danger of the private investment pools being used as a conduit for money laundering and possible terrorist financing because they handle large amounts of offshore capital "without any legal obligation to check who is behind the funds or report suspicious activities", the Washington Post stated.
All financial institutions have an obligation under the 2001 Patriot Act to introduce AML measures.
However, the US Treasury announced earlier this week that it was withdrawing proposed AML laws for hedge funds because they were "dated".
Officials have argued that hedge funds represent a relatively low money laundering risk because of the large upfront investments required. They also said regulations would be difficult to implement because there is no central oversight body to enforce them.
Nevertheless, Sen Levin said the White House's move leaves a "regulatory gap" in the system that must be addressed.