On October 24, the U.S. Financial Industry Regulatory Authority (FINRA) announced that it fined two BNP Paribas subsidiaries — BNP Paribas Securities Corp. and BNP Paribas Prime Brokerage, Inc. (collectively BNP) — $15 million for a variety of anti-money laundering (AML) program and supervisory failures that involved penny stock deposits and resales, and wire transfers, over a four-year period.
FINRA stated the following findings with regard to BNP:
- Lack of Written AML Program and Surveillance: From February 2013 to March 2017, BNP, despite its penny stock activity, “did not develop and implement a written AML program that could reasonably be expected to detect and cause the reporting of potentially suspicious transactions.: In fact, according to FINRA, until 2016, “BNP’s AML program did not include any surveillance targeting potential suspicious transactions involving penny stocks, even though BNP accepted the deposit of nearly 31 billion shares of penny stocks, worth hundreds of millions of dollars, from its clients, including from so-called “toxic debt financiers.”
- Lack of Supervisory Systems and Written Procedures: BNP “did not implement any supervisory systems or written procedures to determine whether resales of securities, including the penny stocks deposited by its customers, complied with the registration requirements of Section 5 of the Securities Act of 1933. As a result, BNP facilitated the removal of restrictive legends from approximately $12.5 million worth of penny stocks without any review to evaluate the transactions for compliance with Section 5.”
- Lack of Wire Transfer Review: During the same four-year period, BNP “processed more than 70,000 wire transfers with a total value of over $230 billion, including more than $2.5 billion sent in foreign currencies. BNP’s AML program did not include any review of wire transfers conducted in foreign currencies, and did not review wires conducted in U.S. dollars to determine whether they involved high-risk entities or jurisdictions.”
- Inadequate Staffing of AML Program: BNP’s AML program “was understaffed. For example, although BNP effected more than 70,000 wire transfers during a two-year period, with a total value of $233 billion, during a majority of that period, only one investigator was tasked with reviewing alerts relating to wires originating from BNP’s brokerage accounts. Although BNP identified many of these deficiencies as early as January 2014, BNP did not fully revise its AML program until March 2017. As a result, BNP did not identify “red flags” indicative of—or review—potentially suspicious activity involving the deposit and sales of penny stocks or foreign wire transfers that may have required the filing of a suspicious activity report.”
The settlement of this case involved BNP’s consent to the findings and the fine, and to certify within 90 days that BNP’s procedures are reasonably designed to achieve compliance in the areas previously described.
N.B.: Compliance teams at broker-dealer firms should read the FINRA Letter of Agreement in this case with care, and compare it and Regulatory Notice 19-18, which FINRA issued this past May, against their current AML programs. Broker-dealers, and the larger financial institution community, have every reason to expect that both government regulators and self-regulatory organizations such as FINRA will be increasingly intolerant of long-term, sustained failures to address fundamental requirements for AML compliance.