The SEC fined a large bank-affiliated broker-dealer $3.5 Million for failing to file anti-money laundering Suspicious Activity Reports (SARs). According to the SEC, the firm had an effective AML Surveillance and Investigations group, but new management attempted to reduce the number of filed SARs, investigations, and related record-keeping. During the 15 months under the new management, the number of SARs filed per month dropped 60%, from 57 to 22. The SEC charges that the respondent failed to file at least 50 required SARs during that period. An employee complaint triggered an internal investigation that uncovered the failures. Broker-dealers are required by the Bank Secrecy Act to file SARs to report transactions that the BD suspects involved funds derived from illegal transactions, had no apparent lawful business purpose, or used the BD to facilitate criminal activity.
OUR TAKE: Given the SEC’s allegations that the broker-dealer’s management intentionally tried to reduce SAR filings, the respondent and its management is fortunate that they do not face more severe civil or criminal penalties under the Bank Secrecy Act. There is no regulatory upside for choosing not to file SARs. When in doubt, file and avoid second-guessing by the regulators.