Recent FINRA Anti-Money Laundering Actions against Member Firms

Simon Riveles Anti-Money Laundering, FINRA

Recent penalties imposed by the Financial Industry Regulatory Authority (FINRA) against three companies that failed to implement adequate procedures to detect money laundering demonstrate the agency’s continued attention on anti-money laundering (AML) compliance programs. FINRA levied a total of $900,000 in sanctions and suspensions against Atlas One Financial Group (“Atlas”), Firstrade Securities (“Firstrade”), and World Trade Financial Corporation (WFTC) in addition to four executives associated with those firms.
Central to each action was a finding by FINRA that these firms failed to identify red flags of money laundering activities and ultimately failed to investigate suspicious activity and/or file a suspicious activity report. In Atlas’ case, for example, the company’s systems failed to flag numerous instances of suspicious account activity including failing to identify and close any of the 18 accounts held under the name of an individual who was indicted by the Department of Justice in connection with a multi-million dollar money laundering scheme, despite the fact the DOJ had previously ordered the company to freeze 6 accounts held by the same individual listing the same address as the accounts the company failed to identify. FINRA also cited Atlas for lack of established procedures or to detect accounts operating outside of the owner’s stated purpose or the accountholder’s stated means. In several instances, Atlas maintained accounts that had a stated purpose of securities trading but none was taking place. Instead, the only transactions conducted during the period in question were 125 wire transfers totaling $10.6 million. In other instances the executed transactions in multiple accounts vastly exceeded the annual income and net worth stated by its account holders. Finally, FINRA found that all three firms failed to detect numerous indications of manipulative trading conduct. An example of this was Firstrade not flagging instances in which an account traded shares in a Chinese company whose mailing address matched that of the trading account and in which such trading coincided with significant increases in that company’s stock price.
Although the suspicious nature of the conduct disciplined by FINRA in the above examples was fairly obvious, the takeaway for other financial institutions moving forward is that each of these firms failed to adequately implement an AML compliance program and/or failed to establish a system reasonably designed to monitor for suspicious activity. Under the Bank Secrecy Act and FINRA Rule 3310, financial institutions are required to develop and implement a written AML compliance program. Rule 3310 sets forth the minimum standards for compliance programs and requires that firms, at a minimum:
• implement a written program that is approved by a member of senior management
• establish policies and procedures that can be reasonably expected to detect and facilitate the reporting of suspicious transactions
• provide for annual independent testing for compliance to be conducted by member personnel or by a qualified outside party. If the firm doesn’t execute transactions with customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts (e.g. engages solely in propriety trading or conducts business only with other broker-dealers), the independent testing is required every two years
• designate and identify to FINRA any individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program.

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