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FINRA Whacks Large BD with $10 Million Fine for AML Compliance Failures

FINRA has fined a large broker-dealer $10 Million for widespread anti-money laundering compliance failures arising from failed systems, insufficient resources, and poorly-designed supervision.  FINRA charges that the firm’s wire transfer surveillance system failed to collect required data and thereby omitted information that should have been transmitted to the AML surveillance system.  FINRA also faults the firm for significantly understaffing the AML surveillance team, resulting in cursory reviews.  The firm was also faulted for improperly allocating supervisory responsibility over surveillance of penny stock trades.  FINRA rules require member firms to implement an anti-money laundering program to ensure compliance with the Bank Secrecy Act.  A FINRA Enforcement official chided the industry, noting that the regulator “continues to find problems with the adequacy of some firms’ overall AML programs, including allocation of AML monitoring responsibilities, data integrity in AML automated surveillance systems, and firm resources for AML programs.”

Anti-Money Laundering compliance remains a huge challenge for broker-dealers that must spend significant resources on both technology and personnel to ensure adequate monitoring.  Regardless, we recommend upgrading your systems and processes before the regulators force your hand with enforcement actions and multi-million fines.  

Compliance Officer Failed to File Suspicious Activity Reports

A compliance officer was fined, and faces further action, for failing to file Suspicious Activity Reports.  The SEC asserts that the respondent observed significant red flags indicating illegal activity including high trading volume in companies with little business activity.  He also received alerts about suspicious trading activity from the clearing firm.  The SEC faults the respondent for ignoring his own Written Supervisory Procedures by failing to file reports, investigate suspicious trading, or produce a written analysis demonstrating that he had considered filing SARs.  His firm was previously censured and fined.

OUR TAKE:  The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) maintains that a compliance officer is liable for up to $25,000 for every SAR not filed.  It’s not enough to have policies and procedures.  A compliance officer must implement those procedures and monitor and address potential violations.

 

FINRA Fines BD $550,000 for Weak AML Procedures Related to DVP Accounts

FINRA fined a broker-dealer $550,000 for failing to properly monitor and detect red flags related to small cap securities traded via delivery versus payment accounts.  According to FINRA, the respondent did not implement the same level of due diligence as it utilized with accounts held at the broker-dealer.  FINRA also alleges that the firm failed to enhance its compliance procedures even after warnings from the SEC and its clearing firm.  FINRA faults the firm for over-relying on branch managers to conduct surveillance and report red flags.

OUR TAKE: It’s never a good idea to rely on producers or their supervisors to monitor activities.  They are not regulatory professionals, and they often have a significant conflict of interest with respect to activities that affect their compensation.

 

SEC Prosecutes Current and Former Compliance Officers for AML Failures

The SEC fined and barred from the industry an anti-money laundering compliance officer for failing to file Suspicious Activity Reports.  The SEC asserts that the AML CO ignored red flags about heavy trading in low-priced securities including specific alerts provided by the clearing firm and warnings from the SEC OCIE staff.  The SEC also commenced proceedings against the previous AML CO for similar failures. The Bank Secrecy Act and the firm’s Written Supervisory Procedures specifically required filing of SARs for several transactions that the respondents ignored over a 2-year period.    The SEC also fined the firm and its CEO.

OUR TAKE: This firm did not have the requisite compliance “tone at the top” when 2 compliance officers and the CEO all ignored AML red flags, yet the SEC seeks to hold the compliance officers specifically accountable.  Also, compliance officers should take note that they don’t escape liability for past actions when they quit a job.  The SEC can still bring charges against former employees for misconduct that occurred while they acted in a compliance function.

http://www.sec.gov/litigation/admin/2018/34-82957.pdf

http://www.sec.gov/litigation/admin/2018/34-82958.pdf

Bank-Affiliated BD Hit with a $13 Million Fine for AML Monitoring Flaws

The SEC fined a large bank-affiliated broker-dealer $13 Million for weaknesses in its anti-money laundering program and for failing to file suspicious activity reports over a 5-year period.  The SEC faults the firm for utilizing a patchwork monitoring system across its large enterprise that often failed to monitor certain accounts and uncover potential money laundering activity.  The SEC raised specific concerns about transactions in brokerage accounts that utilized banking services such as ATMs, check-writing, and wire transfers.  The firm also failed to quickly remedy some of the AML monitoring issues that it self-identified.

OUR TAKE: As firms get larger (especially through acquisition), account monitoring and AML management becomes much more difficult.  Larger firms should consider appointing an enterprise-wide AML czar to take control of all monitoring activities.

https://www.sec.gov/litigation/admin/2017/34-82382.pdf

Clearing Broker Charged with Failing to File SARs

The SEC instituted enforcement proceedings against a clearing broker for failing to file required Suspicious Activity Reports as required by the Bank Secrecy Act.  Although the broker-dealer had appropriate Written Supervisory Procedures, the firm failed in practice to implement its compliance program.  The firm filed nearly 2000 SARs that omitted necessary descriptive information, failed to file follow-up SARs with respect to another 1900 transactions, and did not file 250 SARs within the required time frames.  The SEC claims that the deficient SARs “facilitated illicit actors’ evasion of scrutiny by U.S. regulators and law enforcement.”

OUR TAKE: The BSA is no joke.  Failure to file SARs can result in crippling fines (up to $25,000 per failed SAR) and land you in jail.  It should be Chapter 1 of a broker-dealer’s compliance program.