This week, the Financial Industry Regulatory Authority announced that it is fining Scottrade $600,000 for failing to put into place and work with an adequate anti-money laundering program that would have allowed it to identify and report suspect transactions. FINRA says that by failing to meet this requirement, Scottrade violated the Bank Secrecy Act and FINRA rules.
According to FINRA, each broker-dealer must have its own anti-money laundering procedures, policies, and controls that are customized to its business model. FINRA says that between April 2003 and April 2008, Scottrade neglected to implement an AML program that did this. Scottrade’s business model is primarily online.
Scottrade was handling about 49,000 trades daily in 2003. By 2007, the brokerage firm was handling some 150,000 trades a day.
FINRA says that the brokerage firm’s online business model and growing trade volume increased the chances of hacking, identity theft, money laundering, and securities law violations. Yet, according to FINRA Enforcement chief and executive vice president Susan Merrill, Scottrade did not even have an automatic or systematic surveillance system in place until January 2005-and she says the new system proved inadequate. Before then, Scottrade used a manual system for monitoring accounts and relied on cashiering, branch, and margin employees to identify and report possibly suspect activity.
FINRA also says that the brokerage firm’s AML procedures did not provide adequate written guidelines for employees on how to identify when a transaction was suspicious. Its AML analysts also allegedly did not receive sufficient written guidelines on detecting and probing possibly suspect trade activity.
Scottrade is not agreeing to or denying the allegations. However, the brokerage firm has agreed to an entry of FINRA’s findings. A Scottrade spokesperson says enhancements to the broker-dealer’s anti-money laundering program have now been made.
Related Web Resources:
Scottrade Fined $600,000 for Inadequate Anti-Money Laundering Program, FINRA, October 26, 2009
Anti-Money Laundering (AML) Source Tool for Broker-Dealers, SEC
The Bank Secrecy Act, IRS.gov Continue reading