The NASD fined Banc of America Investment Services, Inc. (BAI) $3 million in connection with the firm's failure to obtain customer information for certain high-risk accounts. In addition, the NASD found that BAI had inadequate communication with its parent bank to ensure that BAI's independent suspicious activity report filing obligations were met.
According to the NASD, BAI failed to obtain required additional customer information for high-risk accounts. The 34 accounts at issue involved trust and private investment corporations domiciled in the Isle of Man and apparently affiliated with one family. The offshore entities located in the Isle of Man collectively held from $79 million to $93 million in assets and engaged in multi-million-dollar wire transfers across international boundaries. At the time the accounts were opened in August 2003, BAI had established anti-money laundering procedures designed to address certain customer account risks by requiring additional information from the accountholders, specifically, the names of the beneficial owners, before conducting substantial transactions in the accounts.
The NASD also found that from August 2003 to October 22, 2004, BAI did not require the names of the beneficial owners and never restricted the activities in the accounts. BAI allowed the accounts to engage in large wire transactions, even though BAI did not have beneficial ownership information for them. In addition, throughout this time period, BAI continued to allow significant transactions to occur in the accounts despite the advice from a senior lawyer at BAI in March 2004 that BAI should obtain the names of the beneficial owners, and a determination by the BAI risk committee in May 2004 that the information must be obtained.
Despite repeated and ongoing requests by its clearing firm, BAI failed to obtain the names of the beneficial owners, and to provide them to its clearing firm. Over a 10-month period, BAI received from its clearing firm numerous requests for ownership information and notices pointing out circumstances that could signal money-laundering activity. Some at BAI expressed concerns that insisting upon the beneficial ownership information might cause the account holders to move the accounts to another institution. But without the names of the beneficial owners, BAI could not reasonably evaluate whether activity in the accounts, which had been brought to BAI's attention by its clearing firm, was suspicious and reportable.
Finally, the NASD found that BAI had an inadequate compliance program for reporting suspicious transactions. BAI relied on its parent, a bank with its own independent reporting obligations, to determine whether a suspicious activity report should be filed.