Large BD/Custodian Fined $8 Million and AML CCO Fined and Suspended over AML Compliance Issues
FINRA fined a large broker-dealer/custodian $8 Million and fined and suspended its AML Compliance Officer for several anti-money laundering compliance failures related to penny stock transactions. FINRA alleges that the firm allowed foreign banks in tax havens to establish undisclosed omnibus account through which questionable underlying customers could manipulate penny stocks. FINRA criticizes the firm and the AML CCO for an AML compliance program that failed to uncover or report suspicious trading even though the firm had an AML compliance staff and used several technology and testing tools. FINRA cites internal compliance memos indicating that the AML compliance staff knew of the risks and recommend the firm stop the trading, which the firm ultimately did in 2013.
OUR TAKE: This action is about as frightening as it gets for CCOs. According to FINRA, the AML CCO knew about the risky trading, advised management to stop, and implemented compliance procedures to test for suspicious activities. FINRA’s fundamental charge is that the compliance program could not have been adequate because it missed the illegal trading. The net result is that the AML CCO is strictly liable for AML failures. This type of case suggests that CCOs must become the hall monitors or firm police officers rather than regulatory advisers responsible for implementing policies and procedures.