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NEWSLETTERS & ALERTS
AML Red Flags Went Unnoticed
by Howard Haykin
Simmons First Investment Group agreed to pay a $200K fine to settle FINRA charges that it failed to establish and implement an anti-money laundering (AML) program that could reasonably be expected to detect and cause the reporting of suspicious transactions occurring in accounts connected to one of its customers.
The Firm is a wholly-owned subsidiary of Simmons Bank, which in turn is owned by the bank holding company Simmons First National Corp (NASDAQ: SFNC). As of December 2017, the Firm had 31 registered persons and 25 branch offices – all located in affiliated bank branches.
FINRA FINDINGS. In 1999, a long-standing customer of an affiliated bank opened 3 accounts (“John Doe accounts”) at Simmons First Investment Group (“SFIG”). While the accounts were opened to engage in securities transactions with the investment objective of income, the accounts engaged almost exclusively in banking activity during the Relevant Period (May 2013 through April 2016) - consisting of $90 million in deposits and $84 million in withdrawals. This banking activity involved hundreds of transactions, including transfers to and from potential politically exposed persons ("PEPs") and to and from the accounts of individuals and entities located in bank secrecy havens or countries identified as presenting money laundering risk.
Where SFIG’s AML policies and procedures went wrong: SFIG understood that the owners of the accounts engaged in a type of international business activity that presented an increased risk of transactions being tainted by corruption or bribery. However, …
- SFIG presumed the transactions had a legitimate business purpose, owing to the customer’s long-standing and personal relationship with the firm and its affiliated bank.
- SFIG generally did not seek to confirm the legitimacy of transfers to or from potential politically exposed persons, or to or from countries deemed to pose money-laundering risks.
- Potentially suspicious transactions that appeared on SFIG’s daily AML reports (i.e., red-flagged) were typically approved without further investigation.
- SFIG essentially relied on its clearing firm to review these accounts for suspicious activities. Absent questions from the clearing firm, the firm assumed that an SAR filing was unnecessary.
- SFIG similarly did not document the reasons for its conclusions regarding whether an SAR should be filed.
SFIG’s conduct was obviously in total contradiction to its AML written procedures – which were probably in good order, which is why FINRA did not order the firm to revise its AML written manual.
This case was reported in FINRA Disciplinary Actions for June 2018.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2016052628901.