Pursuant to recent FINRA guidance, broker-dealers will have until May 11, 2018 to amend their Anti-Money Laundering programs to include risk-based procedures for conducting ongoing customer due diligence as required FinCEN’s Customer Due Diligence Rule. Most significantly, BDs must identify the beneficial owner of each account and implement risk-based procedures for verifying customer identities. FINRA and FinCEN will allow firms to obtain such information by using FinCEN’s standard certification form. FINRA calls this beneficial ownership requirement the “fifth pillar” of a required AML program, which must also include reasonable policies and procedures, independent testing, a designated AML officer, and ongoing training.
OUR TAKE: Next May might seem like a long way off, but the work required to implement this fifth pillar will be significant. We recommend following FINRA’s guidance and using the FinCEN form as a starting point.
The SEC commenced an enforcement action against a broker-dealer’s chief compliance officer/anti-money laundering officer for failing to file Suspicious Activity Reports. The SEC alleges that the CCO/AML Officer had actual knowledge of red flags of illegal penny stock trading and money laundering. Such red flags included physical deposits of large blocks of penny stocks followed by rapid liquidation, simultaneous trading in two customer accounts, quick changes in issuer business plans, and clearly misleading company press releases. Also, the SEC maintains that a quick Google search would have raised other red flags including prior enforcement actions and articles alleging pump and dump activity. The SEC accuses the CCO/AML Officer for aiding and abetting and causing his firm’s violations of Rule 17a-8, which requires a broker-dealer to comply with the SAR requirements of the Bank Secrecy Act.
OUR TAKE: The regulators have been keen to impose personal liability on CCOs for violations of the Anti-Money Laundering rules including failures to file SARs. In fact, FinCEN can impose a $25,000 fine on an AML Officer for each failure to file an SAR (See e.g. U.S. Dept of Treasury v. Haider).