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Financial Services Law Insights and Observations

FINRA fines firm for failing to follow its own AML policies

Financial Crimes FINRA Settlement Anti-Money Laundering Compliance Of Interest to Non-US Persons

Financial Crimes

On April 16, the Financial Industry Regulatory Authority (FINRA) entered into a Letter of Acceptance, Waiver, and Consent (AWC), which resulted in a $250,000 fine against a New York-based trading firm for allegedly failing to establish an anti-money laundering (AML) compliance program and a tailored Customer Identification Program (CIP) over a four-year period, which permitted potentially suspicious trading out of accounts based in China and other foreign countries. As a result, the firm allegedly failed to detect red flags concerning potentially suspicious activity and failed to investigate or report the activity in a timely manner. According to FINRA, the firm’s failure to set up a “reasonable” AML program and a tailored CIP between September 2016 and September 2020 resulted in the failure to “detect, investigate, and respond” to red flags in four related accounts, including suspicious activity related to: (i) possible trading of low-priced securities and other activity connected to the foreign accounts; (ii) transactions that lacked business sense or apparent investment strategy; (iii) a customer account that had “unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity”; and (iv) a customer account, which showed an unexplained high level of account activity with very low levels of securities transactions. FINRA stated that although the “firm’s written procedures required the use and review of exception reports to assist with the identification of red flags for suspicious trading and suspicious money movements, they did not identify any exception reports that the firm would use and did not describe how supervisors should use them.” The firm neither admitted nor denied the findings set forth in the AWC letter.

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