Last week the Financial Industry Regulatory Authority ("FINRA") levied an $8 million fine — its largest ever for anti-money laundering ("AML") compliance failures — on Brown Brothers Harriman & Co. ("BBH") and an additional $25,000 fine on BBH's former Global AML Compliance Officer, Harold Crawford.
FINRA found substantial AML compliance failures from January 1, 2009, through June 30, 2013. Such deficiencies included the absence of an adequate AML program to monitor and detect suspicious penny stock transactions. In fact, BBH often lacked such basic information as the identity of the stock's beneficial owner, the circumstances under which the stock was obtained, and the seller's relationship to the issuer. Although BBH was aware that customers were depositing and selling large blocks of penny stocks, FINRA found BBH failed to sufficiently investigate transactions that "should have raised numerous red flags" and did not fulfill its Suspicious Activity Report filing requirements. In addition, BBH did not have an adequate supervisory system to prevent the distribution of unregistered securities. BBH and Crawford neither admitted nor denied the charges, but each has consented to the entry of FINRA's findings.
Although fines are not typically levied on individuals, according to Brad Bennett, FINRA Executive Vice President, Enforcement, "The sanction in this case reflects the gravity of Brown Brothers Harriman's compliance failures... This case is a reminder to firms of what can happen if they choose to engage in the penny stock liquidation business when they lack the ability to manage the risks involved." In other words, the serious and systemic flaws in BBH's compliance system likely contributed to FINRA's decision to fine Crawford.
In focusing on BBH's AML compliance officer, FINRA's action highlights the increasing focus of financial industry regulators on individuals. For example, Representative Maxine Waters introduced last October a potential amendment to the Bank Secrecy Act that would: (1) increase civil penalties for willful violations of AML laws; (2) increase the civil penalty for negligent violations of AML laws and impose a penalty on partners, directors, officers, or employees of a financial institution for violations; and (3) impose a 20-year maximum prison term for individuals who facilitate evasion of an anti-money laundering program or control.
Similarly, the Treasury Department last month emphasized individual responsibility, specifically referencing the role a financial institution's executive management, owners, operators, and other leadership play in creating an attitude of compliance among others within an organization.