In separate CFTC, SEC and FINRA actions, a dually registered futures commission merchant ("FCM") and broker-dealer settled charges of repeated AML compliance and suspicious activity report ("SARs") filing failures.
In its Order, the CFTC stated that the firm did not diligently supervise its employees' handling of commodity trading accounts that had themselves been subject to recent CFTC disciplinary action and investigations. As a result, the firm failed to identify suspicious activity that should have resulted in the filing of SARs. The CFTC found that the firm failed to file SARs relating to three account holders who defrauded investors of millions of dollars. The CFTC determined that the FCM violated CFTC Rules 42.2 ("Compliance with Bank Secrecy Act") and 166.3 ("Supervision"). To settle the CFTC's charges, the FCM agreed to (i) cease and desist from future violations, (ii) an $11,500,000 civil money penalty and (iii) comply with the conditions and undertakings outlined in the Order, including a disgorgement of $706,215. According to an agency press release, this is the first enforcement action by the CFTC charging a violation of Bank Secrecy Act compliance Rule 42.2.
In its Order, the SEC stated that the firm failed to recognize suspicious activity, including (i) the deposit and sale of a "large block of U.S. microcap securities," followed by the quick withdrawal of proceeds of the sale, and (ii) at least 14 deposits of U.S. microcap securities in which the security was subject to an SEC trading suspension. The SEC determined that in the few instances in which the firm's employees were aware of suspicious activity, they failed to file a SAR when one was required. The SEC found that these failures were a result of the firm not implementing a reasonable surveillance program despite its significant presence in the U.S. microcap securities business. The SEC found that the broker-dealer violated Section 17(a) of the Securities Exchange Act and SEA Rule 17a-8 ("Financial Recordkeeping and Reporting of Currency and Foreign Transactions"). To settle the SEC's charges, the FCM agreed to (i) cease and desist from future violations, (ii) a censure and (iii) an $11,500,000 civil money penalty.
In a Letter of Acceptance, Waiver and Consent, FINRA considered the firm's dramatic growth as a business with foreign financial institutions in high-risk jurisdictions and charged the firm for failing to implement an AML program reasonably designed to match that growth. FINRA concluded that the firm failed to (i) surveil hundreds of millions of dollars in incoming wire transfers that were treated as first-party transfers despite not containing the names of the remitting persons, (ii) review thousands of third-party transfers to "high-risk" jurisdictions, including China, Hong Kong and Macau, (iii) reasonably investigate potentially suspicious activity and (iv) file SARs. FINRA determined that the firm violated FINRA Rules 3310 ("Anti-Money Laundering Compliance Program") and 2010 ("Standards of Commercial Honor and Principles of Trade"). To settle FINRA's charges, the firm agreed to (i) a censure, (ii) a $15 million fine and (iii) comply with various undertakings, including retaining a third-party AML consultant.
Commentary - Christian Larson
US regulators have secured fines exceeding $1 billion from individual banks with AML violations. Fines exceeding $38 million for a dual registrant's alleged AML failures may appear small by comparison, but in the broker-dealer space, an AML fine of this magnitude is large. Notably, this is the first enforcement action the CFTC has brought for a violation of Regulation 42.2, which requires compliance with the Bank Secrecy Act. Broker-dealers, FCMs and introducing brokers should review and test the adequacy of their AML policies, procedures and controls: FINRA and the SEC regularly identify AML as an examination priority and this AML enforcement action from the CFTC is unlikely to be its last.
Primary Sources
- CFTC Order: Interactive Brokers LLC
- SEC Order: Interactive Brokers LLC
- FINRA AWC: Interactive Brokers LLC
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