FINRA Fines Financial Institutions, Suspends Executives for Inadequate AML Policies
On May 8, 2013, the Financial Industry Regulatory Authority (FINRA) announced that it had issued $900,000 in fines to three financial firms and four executives for failure to implement or even establish reasonable anti-money laundering (AML) procedures. One of the firms, Atlas One Financial Group, LLC, caught the attention of FINRA after a series of failures to flag several suspicious accounts. For example, Atlas failed to identify 18 of its own accounts that shared the same suspicious name (“HP”) and mailing address (Costa Rica) as six other Atlas accounts that had been frozen by the Department of Justice in connection with a criminal investigation into a scheme to launder millions of dollars to bribe members of the Italian judiciary. Further, Atlas failed to report clients who did little trading, and instead used their account primarily to send and receive wire transfers, including transfers that vastly exceeded the client’s reported net worth and annual income. FINRA fined the firm $350,000 and its AML compliance officer $25,000. Two other firms, Firstrade and World Trade Financial (WTF) were fined $300,000 and $250,000 respectively after failing to report suspicious account activity typically associated with money laundering schemes, including market manipulative trades and trades in unregistered, nonexempt securities. Two WTF executives were also fined ($40,000 and $5,000, respectively), and were suspended from serving in a principal capacity for several months.
FINRA’s crackdown comes pursuant to the Bank Secrecy Act’s AML program requirement, 31 U.S.C. § 5318(h), which instructs all financial institutions to create policies to combat money laundering. Section 5318(h) provides that all AML programs shall at a minimum establish internal policies, designate a compliance officer, implement ongoing employee training, and allow for independent auditing. The SEC, the Financial Crimes Enforcement Network (FinCEN), the Commodity Futures Trading Commission, and the Banking agencies have prepared guidance for compliance with the AML program requirements.
Regulators are increasingly focused on money laundering compliance and enforcement, and are raising the bar for AML compliance to the highest it has ever been. Last year, AML fines totaled $1.1 billion, increasing 131-fold from the previous year. And this year, regulators are on pace to doubling the number of AML fines as compared to last year. One regulator notes that many banks continue to lack even the most basic AML components, particularly small and midsize institutions like credit unions, which often lack the AML expertise of larger banks. All financial institutions should be aware of the regulatory risk for failing to establish adequate AML procedures.