Pursuant to FINRA Rule 3110, member firms are charged with the responsibility of implementing and enforcing a written Anti-Money Laundering Compliance Program (“AMLCP”) in efforts to combat money laundering and terrorist financing activities. Within the AMLCP, policies and procedures are to provide guidance to Associated Persons of the firm to monitor, detect, and identify red flags that propose a threat to the Firm’s business.
On August 10, 2020, the Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA”) entered into separate settlement agreements with a member firm for its negligence in complying with anti-money laundering laws and regulations as well as Section17(a) of the Exchange Act and Rule 17a-8, ultimately costing the member firm a total of $38 million dollars in penalties to settle charges.
Interactive Brokers, LLC (“IB” or “the Firm”)is an internet-based retail and clearing broker dealer, headquartered in Greenwich, Connecticut. IB predominantly services customers who engage in trading U.S. Microcap Securities. From July 1, 2016to June 30, 2017,IB failed to implement its AMLCP as the Firm did not respond to any red flags presented and failed to file more than 150 suspicious activity reports (“SAR”) relating to red flags concerning U.S Microcap Securities Transactions executed on behalf of its customers. During the one-year period, the following red flags were presented to the Firm in which it failed investigate and to adhere to anti-money laundering regulations as well as its AMLCP:
-The deposit, sale, and withdrawal of funds in a short period of time with certain U.S. Microcap Securities Transactions indicative of potentially unregistered offerings, pumps and dumps, or other manipulative activities.
-Customer accounts whose trading represented a substantial percent of the daily trading volume in a particular security.
-Trading in the securities of issuers subject to regulatory suspensions.
Further, FINRA’s action involved widespread failures in the Firm’s AMLCP which had gone unnoticed as far back as 2013. A Firm’s AMLCP should be tailored to the risks of the business in which the Firm engages in. Member firms are required to provide extensive training in identifying and monitoring for red flags to its Associated Persons as they are the Firm’s first line of defense in combating money laundering and terrorist financing activities. Although IB had implemented surveillance systems intended for monitoring incoming stock transfers, trading activity, and monetary transactions, the surveillance system was not designed to identify suspicious activities in U.S microcap securities, a significant part of IB’s business.
Asgard recommends to all clients to ensure the Firm’s AMLCP and policies and procedures are strictly enforced and updated frequently according to new rules and regulations. Anti-Money Laundering is not only the leading topic in disciplinary actions and fine categories, it also remains on the top of both the SEC’s and FINRA’s regulatory exam focus.