SEC Files its First Anti-Money Laundering Case
Yesterday, the SEC instituted settled administrative proceedings against Los Angeles-based broker-dealer Crowell Weedon & Co. This case is the SEC’s first anti-money laundering (AML) enforcement action based on violations of the Patriot Act. [1] According to the SEC, the broker-dealer failed to document properly its actual procedures employed in its written customer identification program (CIP). In verifying the identities of approximately 2,900 customers, Crowell, Weedon simply relied on its registered representatives' attestations that they had personal knowledge of the new customers, a practice not documented in the firm's written CIP. The SEC alleged that in contrast, the firm’s CIP specified that it would verify the identity of each new customer using certain non-documentary and documentary procedures, such as a public database search and reviewing government-issued identification.
[1] See press release available at http://www.sec.gov/news/press/2006/2006-78.htm.
The only surprising thing about this case is that it took the SEC so long to make its presence known on the AML scene. Ever since the Patriot Act was enacted in 2002, the NASD aggressively has filed dozens of enforcement actions against broker-dealers nationwide. Many of the NASD actions, all of which involved substantial fines, were based on seemingly trivial procedural or implementation deficiencies similar to those in the SEC case. However, instead of filing the case in U.S. District Court, where it could have sought civil penalties from the firm, the SEC proceeded administratively, thereby precluding it from seeking such penalties. Notwithstanding the publicity generated by SEC’s press release, the agency’s choice of forum suggests that it views AML violations as being less serious in nature than antifraud violations. However, the case demonstrates that the SEC wants to be viewed as an AML “cop on the beat.” The message to broker-dealers is clear: the regulators expect 100% AML compliance.
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