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Financial Services Law Insights and Observations

Broker dealer assessed $38 million in penalties for AML violations

Securities FINRA SEC CFTC SARs Financial Crimes Bank Secrecy Act Anti-Money Laundering Enforcement

Securities

On August 10, the Financial Industry Regulatory Authority (FINRA), SEC, and the CFTC announced separate settlements with a broker-dealer following investigations into its anti-money laundering (AML) programs. The broker-dealer did not admit or deny any of the charges, and the agencies all considered remedial actions undertaken by the broker-dealer. FINRA fined the broker-dealer $15 million for allegedly failing to establish and implement AML processes reasonably designed to detect and report suspicious transactions as required by the Bank Secrecy Act, including foreign currency wire transfers to and from countries known to be at high risk for money laundering. Additionally, the broker-dealer “lacked sufficient personnel and a reasonably designed case management system.” The broker-dealer consented to the terms of the Letter of Acceptance, Waiver and Consent and agreed to retain a third-party consultant to take steps to remediate its AML program.

In a separate investigation conducted by the SEC, the broker-dealer reached a settlement to resolve allegations that it repeatedly failed to file suspicious activity reports (SARs) as required by the Exchange Act for U.S. microcap securities trades executed on behalf of its customers. According to the SEC, because the broker-dealer’s “AML policies and procedures were not reasonably tailored to the risks of [its] U.S. microcap securities business,” over a one-year period, it failed to (i) recognize red flags; (ii) properly investigate suspicious activity; and (iii) file more than 150 SARs in a timely fashion even after compliance personnel flagged the suspicious transactions. Under the terms of the order, the broker-dealer has agreed to be censured, will cease and desist from committing future violations, and will pay an $11.5 million civil penalty.

The CFTC also announced a settlement to resolve allegations that the broker-dealer failed to (i) diligently supervise the handling of several commodity trading accounts; (ii) sufficiently oversee its employees’ handling of these accounts, leading to its “failure to maintain an adequate [AML] program and to conduct appropriate customer monitoring”; and (iii) identify or conduct adequate investigations necessary to detect and report suspicious transactions. Under the order, the broker-dealer is required to pay an $11.5 million civil penalty and disgorge $706,214 it earned as the futures commission merchant for certain accounts that were the subject of a 2018 CFTC enforcement action.

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