wnj.com

The Blue Ribbon of Stupid

At least for the recent past, this award has to go to the broker-dealer and its AML Compliance Officer (“AMLCO”) out East, who were both sanctioned by FINRA for easily avoidable AML violations. The combined fine was $200,000 with a three-month suspension for the AMLCO. Among the patterns of noncompliance with AML rules and the firm’s own written AML procedures, they ignored “red flags” of trading activity in customer accounts that were specified in their own policies and procedures. Specifically, these were customers with multiple accounts, customers with securities-related disciplinary histories who were in the process of receiving SEC sanctions, customers transacting in numerous penny stocks, and customers doing obviously questionable third-party wires related to the penny stock liquidations.

FINRA found that they turned a blind eye to the liquidations and the wiring activity, including ignoring their clearing firm’s exception reports and warning notices of unsavory clients, all of which they received throughout the period and would have easily helped them address the situation had they not ignored them. Instead, the AMLCO only looked at daily trade reports, which, barring a photographic memory, are useless to detect any long-term patterns of suspicious activity.

Additionally, even though the firm had written AML procedures to respond to FinCEN 314(a) requests, they ignored them entirely.

The firm had numerous flagrantly suspicious clients and transactions, all of which they ignored. As an example (and you can’t make this stuff up!) – an account for a citizen of India, who resided in the Philippines, whose registered agent was located in Samoa; the person with trading authority had a listed address in Panama and conducted business in Canada! From June 2008 through October 2009, the account did significant trading and wire activity related to 50 different penny stocks, deposited over 46 million shares of penny stocks, liquidated over 31 million shares, and wired out $12.5 million through 19 wires to a bank account located in Barbados, a jurisdiction where this client had no known personal connections.

Fortunately, as of now – and in spite of the fines – the firm filed the Form-BDW to withdraw from registration as a BD and go out of business.

So, what’s the takeaway from this rather obvious enforcement case? Follow your written AML compliance program policies and procedures. If you have red flag polices (and you should) make sure you follow them, and never turn a blind-eye to following up on suspicious customers and transactions until they’re resolved or shut down. File Suspicious Activity Reports whenever necessary and document your investigations along the way.

We’ll take a look at other interesting and informative enforcement actions in subsequent postings.