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On July 31, 2023, the United States Securities and Exchange Commission (“SEC”) published an alert outlining deficiencies the Department of Examinations has observed in broker-dealers’ (“BD”) compliance with anti-money laundering (“AML”) and countering terrorism financing (“CTF”) requirements.  While the alert addresses overarching compliance requirements for BDs, it focuses on deficiencies the Department of Examinations has observed with regard to independent testing of BDs’ AML programs, personnel training and identification and verification of customers and their beneficial owners.

The alert makes two over-arching observations.  First, BDs “did not appear to devote sufficient resources, including staffing, to AML compliance given the volume and risks of their business.”  Second, the “effectiveness of policies, procedures, and internal controls was reduced when firms did not implement those measures consistently.”  Emphasizing the key elements of an adequate AML program BDs must implement, the Alert then shifts its focus to independent testing and training and customer identification and customer due diligence.…

Continue Reading  SEC Issues Alert Outlining Deficiencies in Broker-Dealers’ AML Compliance

Second Part in a Two-Part Series

The Tale of an AML BSA Exam Gone Wrong

As we have blogged, the Ninth Circuit Court of Appeals recently upheld the decision of the Board of Directors of the Federal Deposit Insurance Corporation (“FDIC”) to issue a cease and desist order against California Pacific Bank (the “Bank”) for the Bank’s alleged failure to comply with Bank Secrecy Act (“BSA”) regulations or have a sufficient plan and program in place to do so.

In our first post, we described how the Ninth Circuit rejected the Bank’s constitutional challenge to the relevant regulation, and accorded broad deference to the FDIC in its interpretations of its own regulations, expressed in the form of the Federal Financial Institutions Examination Council Manual (“FFIEC Manual”).  This post discusses the Court’s review of the Bank’s challenge under the Administrative Procedures Act to the FDIC’s factual findings of AML program failings.

The California Pacific opinion provides a significant piece of guidance for banks questioning the adequacy of its BSA compliance program: consult and abide the FFIEC Manual.  Furthermore, it demonstrates that no shortcuts are permitted when it comes to establishing and maintaining a BSA compliance program.  The BSA and the FDIC’s regulations contain firm guidelines and the FFIEC Manual puts banks of all sizes on notice of what compliance is expected of them.  The independence of both the AML compliance officer and of testing; adequate risk assessments of customer accounts; and the correction of prior regulator findings of AML deficiencies are key.
Continue Reading  Ninth Circuit Court of Appeals Outlines BSA Compliance Obligations and How One Small Bank Failed to Meet Them