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Regulatory Sanctions

Risky Bond Trading by Large Foreign Affiliate Overwhelmed a Broker-Dealer's AML Controls

August 9, 2017

by Howard Haykin


Mariva Capital Markets agreed to pay a $100K fine to settle FINRA charges that it failed to tailor its AML compliance procedures (AMLCP) to a customer that represented a significant portion of the firm’s revenue and engaged in high-risk activity.


BACKGROUND.    Miami, FL-based Mariva Capital Markets (“MCM”), a FINRA member since May 2013, has about 9 registered reps and is approved to conduct business in corporate debt, corporate equities, U.S. government securities, mutual funds, trading via floor broker and proprietary trading. The firm has no prior disciplinary history.


FINRA FINDINGS.    Shortly after its effective start date in 2013, and for 1-1/2 year period thereafter (through March 2015), MCM failed to establish and implement an adequate AML program and AML compliance procedures reasonably tailored to the account activity of one of the firm's customers that represented the vast majority of MCM's revenues. During that period, the customer - a bank affiliate of the firm and a foreign financial institution (“FFI") - engaged primarily in trading Argentinian debt in an amount in excess of $1 billion dollars.


Failure to Establish and Implement Adequate AML Program Reasonably Tailored to MCM's Business.    MCM’s existing AMLCP contained only generally applicable provisions and set forth general AML red flags for monitoring purposes. In no way shape or form was MCM's AML program tailored to the risks associated with the affiliate's account activity – which, again, represented a significant portion of the firm's revenue and profits. Nor was it designed to detect potentially suspicious activity in the affiliate's account that engaged in high risk activity.


From September 2013 to March 2015, MCM failed to detect several AML red flags that the affiliated customer and its trading triggered – that included, but was not limited to:


  • the affiliated customer had inflows of funds or other assets well beyond MCM's known income or resources;
  • the affiliated customer had common ownership with an affiliate that had negative news associated with it in connection with the liquidation of foreign bonds - similar to activity in which the customer engaged.
  • the $1 billion worth of trades in the affiliated customer’s account far exceeded MCM’s net assets during the relevant time period.


Failure to Establish Adequate AMLCP and to Conduct Due Diligence and Enhanced Due Diligence (“EDD”).    MCM failed to establish and implement procedures that were reasonably designed to achieve compliance with the implementing regulations requiring due diligence for FFI correspondent accounts. Specifically, …


  • MCM failed to conduct adequate due diligence on the affiliate's account.
  • MCM did not adequately assess and document, at account opening or thereafter, the money laundering risks posed by the account in accordance with 31 CFR § 1010.610(a) and failed to perform and document periodic reviews of activity to determine consistency with information obtained about the type, purpose, and anticipated activity of the account.
  • MCM relied primarily on verbal representations from the affiliate about the intended purposes and trading in the account without independently verifying the representations.


MCM did not adequately conduct and document due diligence to:

  • assess whether the account was trading only the affiliate's proprietary assets or for the benefit of undisclosed underlying customers;
  • understand the type of anticipated bond activity (including the source of the bonds - e.g., whether the bonds were obtained through a regulated government program or by other means); or,
  • learn the purpose of the anticipated bond activity (such as for currency conversion).


Moreover, MCM did not perform periodic reviews to determine whether the affiliate's account activity was consistent with its expected activity. Further, MCM also failed to conduct EDD on the affiliate as required under 31 CFR § 1010.610(b).


This case was reported in FINRA Disciplinary Actions for July 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015043415301.