FINRA Faults Firms and CCOs for AML Violations
FINRA fined three firms a total of $900,000 and suspended and fined two chief compliance officers for failures to implement adequate anti-money laundering procedures to detect suspicious activity. As alleged by FINRA, one of the firms failed to investigate AML red flags including several accounts using the same mailing address and moving millions of dollars through the accounts with minimal securities transactions. Another firm failed to investigate pre-arranged trades in Chinese securities in related accounts. The third firm allowed manipulative trading in penny stocks. Two of the firms’ Chief Compliance Officers were fined and suspended from the industry.
OUR TAKE: Firms may not be able to prevent manipulative trading and money laundering, but they must implement procedures to investigate red flags. If a problem arises later, the firm can at least offer the process as a defense. Also, even if the procedures waste resources investigating false positives (red flags that are not regulatory issues), the consequences of false negatives (failing to investigate real problems) include significant regulatory actions.