The SEC is investigating whether Merrill Lynch (MER) and Charles Schwab Corp. (SCHW) did not recognize signs that that some of their customers might have been laundering money because they didn’t do enough to find out who these clients were. Some of the purported money laundering has been linked to drug cartels in Mexico.
Bank of America Corp. (BAC) now owns Merrill Lynch. The SEC says that the two broker-dealers accepted as clients individuals who gave out fake addresses and shell companies. For example, one Charles Schwab client, a Texas rancher, had been moving funds to a holding company that was actually a shell company. Also, some account holders with Schwab were linked to drug money in Mexico. Certain accounts contained millions of dollars.
Broker-dealers must set up, document, and keep up steps so that it can identify its customers and confirm their identifies. Failure to do any of these can result in stiff penalties, such as the $1 million E*Trade Financial Corp. was ordered to pay in 2008. The firm did not check to confirm the identities of over 65,000 secondary account holders. Because of this failure false reporting occurred.
Last year, HSBC Holdings Plc (HSBA) reached a $1.9 billion deal with the U.S. over charges that it made it possible for drug cartels in Latin America to launder billions of dollars. The agreement was a deferred-prosecution deal.
The firm is accused of not monitoring over $670 billion in wire transfers and over $9 billion in purchase of U.S. money from HSBC Mexico, which made it possible for the money laundering to happen. HSBC also allegedly violated U.S. economic sanctions against Sudan, Libya, Iran, Cuba, and Burma.
SEC probes Schwab, Merrill, for anti-money laundering violations, sources say, Chicago Tribune/Reuters, May 22, 2014
HSBC Judge Approves $1.9B Drug-Money Laundering Accord, Bloomberg, July 3, 2013
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