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Financial Services Law Insights and Observations

FINRA fines firm for AML and due diligence violations

Securities FINRA Anti-Money Laundering Of Interest to Non-US Persons Customer Due Diligence


On December 4, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), fining a New York-based member firm $55,000 for allegedly failing to implement a reasonable anti-money laundering (AML) program for transactions involving low-priced securities. The firm also allegedly failed to establish a due diligence program for monitoring and reporting “known or suspected money laundering activity conducted through or involving correspondent accounts for foreign financial institutions.” According to FINRA, the firm failed to, among other things, (i) “include reasonable procedures for the surveillance of potentially suspicious trading in low-priced securities,” such as listing “some of the most relevant red flags”; (ii) ensure its surveillance reports and tools were “reasonably designed to detect and cause the reporting of potentially suspicious activity”; and (iii) reasonably respond to red flags received from a clearing firm related to potentially suspicious activity. FINRA also claimed that the firm failed to identify all of its foreign financial institution accounts (FFIs) due to a lack of systems or processes to do so. Specifically, the firm allegedly failed to review 33 correspondent accounts for FFIs, nor did it identify 15 of these 33 accounts as FFIs. As a result, the firm allegedly violated FINRA Rules 3310(b) and 2010. The firm neither admitted nor denied the findings set forth in the AWC agreement but agreed to pay the fine, address identified deficiencies in its programs to ensure compliance with its AML obligations, and provide a certification of compliance with FINRA Rule 3310.

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