FINRA Lawyer Blog
The U.S. Securities and Exchange Commission appears to be increasing its scrutiny of broker-dealers who fail to comply with the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) reporting requirements.
Traditionally this type of violations remained off the SEC’s radar, being usually pursued by the DOJ, FinCEN, the IRS, and other federal agencies. After SEC’s former enforcement director said in a statement that the SEC must “pursue stand-alone BSA violations to send a clear message about the need for compliance,” the Commission has, on more than one occasion, charged broker-dealers with failing to file Suspicious Activity Reports.
In line with this trend, the SEC has just filed suit against Salt Lake City broker-dealer Alpine Securities over its failure to report transactions it had flagged as suspicious.
According to regulators, Alpine failed to file Suspicious Activity Reports (SARs) for hundreds of suspect transactions and when it did file them, it omitted critical information about the customer’s track record of violations in the US and abroad.
U.S. Regs on SAR (Suspicious Activity Reports) Filing
SARs are required all over the world to report potentially suspicious activity. As per US regulations, financial institutions must file SARs with FinCEN over transactions:
- “Involving insider abuse regardless of the dollar amount;
- where there is an identifiable suspect and the transaction involves $5,000 or more; and
- where there is no identifiable suspect and the transaction involves $25,000 or more. A SAR filing also is required in the case of suspicious activity that is indicative of potential money laundering or BSA violations and the transaction involves $5,000 or more.”
According to the SEC’s allegations, Alpine Securities violated various sections of the Securities Exchange Act, the BSA, and FINRA Rule 3310. Despite a warning from FINRA, Alpine did not file SARs for transactions that may have been used to hide funds from illegal activities.
SEC Alpine Securities Complaint Allegations
Utah-based Alpine Securities incurred thousands of violations. According to the SEC complaint, the broker-dealer’s reporting failures included:
- “Systematically omitting from at least 1,950 SARs material, “red-flag” information of which it was aware and was required to report under its own BSA Compliance Program, such as a customer or issuer’s criminal or regulatory history, evidence of stock promotion, or whether a customer was a foreign financial institution, including at least 1,150 SARs which included only the customer name, date of deposit, dollar value of deposit, and the name of the security deposited;
- Filing SARs only on the deposit of stock in approximately 1,900 instances in which the stock was subsequently liquidated, but failing to file required SARs on subsequent related transactions such as the liquidation, or transfer of funds resulting from the liquidation, even though it had identified the deposit of the security as suspicious; and
- Failing to file at least 250 SARs within the required 30 days after the date the suspicious activity was detected.”
As Alpine prepares to respond to the SEC’s charges, broker-dealers all over the country need to thoroughly revise their BSA and AML compliance plans and processes. In fact, there is a new FinCEN-proposed rule that would require individual investment advisors to file SARs as well.
To reduce risk of SEC AML probes, broker-dealers may need to overhaul some of their FinCEN reporting activities. To learn more about how to ensure compliance, it is important to secure assistance from a seasoned securities attorney.
At Herskovits PLLC we help financial firms with compliance issues and we defend firms targeted for AML investigation and enforcement. Call or Email Us to learn your options.