SEC and FINRA Put Industry on Notice with Recent AML Enforcement Actions

SEC and FINRA Put Industry on Notice with Recent AML Enforcement Actions

Dear Friends and Clients,

Both the U.S. Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) continue to remind member firms that they take anti-money laundering (“AML”) violations very seriously. Both regulators cite AML as a focus in their examination priorities. In addition, both have recently announced regulatory actions against firms for alleged violations of AML requirements.

On June 1, the SEC charged a Wall Street-based brokerage firm with allegedly failing to sufficiently evaluate or monitor customers’ trading for suspicious activity, as required under the federal securities laws. The SEC claimed that the brokerage firm failed to file suspicious activity reports (“SARs”) with bank regulators for more than five years, despite red flags triggered by the firm’s customers’ high-volume liquidations of low-priced securities. The SEC also alleged that the firm failed to file any SARs even after receiving grand jury subpoenas related to certain customers. The firm agreed to pay a $300,000 penalty to settle the charges.

“Brokerage firms must take their anti-money laundering responsibilities seriously so they can serve as a line of defense against misconduct and market risks,” emphasized Andrew Ceresney, Director of the SEC’s Division of Enforcement, when announcing the case.

More significantly, on May 18, FINRA fined a broker-dealer $17 million for numerous alleged failures related to AML procedures at two of the firm’s divisions. FINRA claimed that the firm’s alleged failure to establish and implement adequate AML procedures resulted in the failure to properly prevent or detect, investigate, and report suspicious activity for several years. The firm’s former AML compliance officer (“AMLCO”) also received a $25,000 fine and a three-month suspension.

During its investigation, FINRA alleged that the firm failed to conduct required due diligence and periodic risk reviews for foreign financial institutions, and that the AMLCO had failed to ensure the firm conducted those reviews. FINRA also claimed that the firm failed to establish and maintain an adequate customer identification program (“CIP”).

These recent actions should serve as a strong reminder that both the SEC and FINRA expect firms to adopt a robust AML program, and to allocate the necessary resources and staff to carry out the firm’s AML policies. FINRA recommends that firms review their AML programs, and reminds them of the following:

Where certain AML rules may be inapplicable due to the limited nature of your firm’s business, FINRA expects your firm to have internal controls in place to identify when circumstances change in such a way as to trigger previously inapplicable AML requirements and to amend your AML policies and procedures to accurately reflect all AML requirements that are applicable to your business.1

When reviewing the adequacy of their AML programs, firms should ensure they maintain comprehensive procedures concerning the following:

  • Customer Due Diligence
  • CIP
  • Customer Risk Ratings
  • Office of Foreign Assets Control Compliance
  • Wire Activity Monitoring
  • “Red Flags” Analysis
  • Suspicious Activity Review and Reporting
  • Senior Foreign Political Figures/Politically Exposed Persons
  • Currency and Monetary Transaction Reporting
  • Low-Priced Security Monitoring
  • Foreign Bank Account and Correspondent Account Due Diligence
  • Compliance with Section 311 of the USA PATRIOT Act
  • Private Banking Account Due Diligence
  • FinCEN Requests for Information (314a)
  • Employee AML Training
  • Annual Independent Testing of the Firm’s AML Program

This list should be regarded as a starting point for conducting a base-level analysis regarding your firm’s current AML program, and not as a complete list.



  • New York

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