A broker/dealer specializing in institutional and high-net-worth retail clients faces a $15 million fine levied by FINRA for its failure to oversee satisfactory anti-money laundering (AML) programs that would find and mitigate suspicious transactions of penny stocks, the regulatory agency announced Tuesday.
According to the action filed by FINRA, BNP Paribas Securities and BNP Paribas Prime Brokerage (the two companies merged in 2018) failed to create procedures and programs that could detect suspicious transactions involving penny stocks, despite being warned by internal staff as early as January 2014 that the company was “an outlier in the industry” in its lax surveillance of microcap securities. While BNP had two surveillance systems in place to detect suspicious transactions, it was “not designed to detect wire transfers that involved high-risk entities or jurisdictions, to detect smaller wire transfers originating for the same account(s), or to identify wire transfers (or a pattern of wire transfers) conducted in amounts that would avoid attention or review,” according to the action.
Additionally, BNP tracked only transfers in U.S. dollars, meaning 3,448 foreign currency–dominated wires totaling about $2.5 billion in value were never reviewed, according to FINRA’s action (from Feb. 2013 through March 2017, BNP oversaw more than 70,000 wire transfers with a total value of $233 billion). Jessica Hopper, FINRA’s acting head of enforcement, said firms like BNP need to tailor their oversight procedures to the kinds of transactions it handled.
“When customers engage in high-risk transactions involving low-priced securities and foreign currencies, the firm must devote sufficient resources to its AML program, including transaction and wire movement monitoring, to ensure that the system is tailored to the business’s unique money laundering risks,” she said.
Despite the aforementioned warnings from staff, BNP didn’t instigate any surveillance trying to target suspicious penny stock transactions until 2016, leading them to miss numerous potentially flagrant anti-money laundering violations, according to FINRA. The firm allegedly failed to detect 14 customer accounts that sold about 1 billion low-priced securities shares for a $3.5 million profit, while not making any purchases themselves. Additionally, FINRA found that BNP failed to find and address “toxic debt financiers” who sold penny stocks of securities undergoing negative press or suspicious promotional campaigns at 20% to 80% of the trading volume on the given share date. Finally, the AML program at the firm was woefully understaffed, with the firm employing only one investigator to review alerts.
In addition to the fine, BNP has 90 days to draft a letter to FINRA indicating its current policies and procedures are “reasonably designed to achieve compliance” with the regulatory agency.
