The Financial Industry Regulatory Authority (FINRA) recently took formal disciplinary action against a New York-based broker-dealer that is affiliated with a Mexican broker-dealer and a Mexican bank for inadequate anti-money laundering (AML) systems and procedures. FINRA also found that the firm failed to register 200 to 400 foreign finders who functioned as the firm's primary points of contact with its Mexican clientele. FINRA also named the firm's former AML officer and Chief Compliance Officer (CCO) for these violations.
FINRA rules require all member firms to develop and implement a written AML program reasonably designed to achieve and monitor the members' compliance with the requirements of the Bank Secrecy Act (BSA) and implementing its regulations. In its January 28 settlement order, FINRA found that, between 2008 and 2013, the firm failed to develop such a program. Specifically, the firm failed to: (a) adopt AML procedures adequately tailored to its business; (b) fully enforce its AML program as written; and (c) investigate certain suspicious activities. FINRA specifically took issue with the firm's reliance on off-the-shelf procedures not customized to identify the risks unique to opening accounts, transferring funds and effecting securities transactions for customers located in Mexico, a high-risk jurisdiction for money laundering, or the risks arising from the firm's reliance on foreign finders.
FINRA fined the firm $475,000 and required it to certify that it has established systems and procedures reasonably designed to achieve compliance with all of its AML and registration obligations, and not simply that it remediated the deficiencies identified. FINRA also suspended the former CCO for 30 days in a principal capacity, because he was responsible for the firm's AML procedures and for monitoring for suspicious activities, and because he failed to fully enforce the firm's AML program.
FAILURE TO TAILOR THE AML PROGRAM TO THE FIRM'S BUSINESS MODEL
FINRA's rules require broker-dealers to tailor their AML programs to their businesses, including considerations of size, location, business activities, types of accounts and transactions and technological environment. Firms must recognize that there is no "one-size-fits-all" approach.
According to its order, FINRA expected the firm to have a robust AML program in place, given the following considerations:
1) 95% of the firm's business consisted of servicing high net worth Mexican nationals with banking andbrokerage relationships with the firm's...