As a result of the use of an improper reporting threshold, Merrill Lynch has agreed to pay a cumulative $12 million fine to settle charges of failing to report hundreds of Suspicious Activity Reports from 2009 to late 2019.
The Securities and Exchange Commission on July 11 announced settlement of the charges against Merrill Lynch, Pierce, Fenner & Smith Incorporated and its parent company BAC North America Holding Co. (BACNAH).
Merrill agreed to pay a $6 million penalty to settle the SEC charges and, in a parallel action, agreed to pay a separate $6 million fine to settle charges brought by the Financial Industry Regulatory Authority (FINRA).
According to the SEC’s order, BACNAH assumed responsibility for creating and implementing Merrill Lynch’s SAR policies and procedures and for filing Merrill Lynch’s SARs.
Over the course of a decade, however, BACNAH’s Fraud Investigations Group improperly used a $25,000 threshold instead of the required $5,000 threshold for reporting suspicious transactions or attempted transactions where a suspect may have been seeking to use Merrill Lynch to facilitate criminal activity and could not be identified. Usage of the “no-suspect criminal activity” level of $25,000 concerned Merrill customers who were victims of unauthorized debit card withdrawals, forged or altered checks, account intrusions, identity theft, and/or phone or internet scams. As a result, BACNAH caused Merrill Lynch’s failure to file hundreds of required SARs on such activity.
“Broker-dealers have a critical obligation to report suspicious activity in their accounts,” said Katharine E. Zoladz, Co-Acting Regional Director of the Los Angeles Regional Office. “Merrill Lynch and BACNAH did not file hundreds of Merrill Lynch SARs because they failed to comply with one of the most basic requirements for a SAR program.”
The SEC’s order finds that Merrill Lynch violated the books and records provisions of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder and that BACNAH caused those violations.
Exchange Act 17(a) and Rule 17a-8 requires registered broker-dealers (BDs) to “comply with the reporting, recordkeeping, and record retention requirements” of certain FinCEN rules. Those rules require broker-dealers to file SARs with FinCEN to report a transaction—or a pattern of transactions of which the transaction is a part—conducted or attempted by or through the BD involving or aggregating to at least $5,000 that the BD knows or has reason to suspect involves use of the BD to facilitate criminal activity.
Without admitting or denying the SEC’s findings, Merrill Lynch and BACNAH agreed to cease and desist from committing or causing violations of those provisions, and Merrill Lynch also agreed to a censure and the aforementioned $6 million civil penalty.
