FINRA Fines BNP Paribas Securities Corp. and BNP Paribas Prime Brokerage, Inc. $15 Million for AML Program and Supervisory Failures
WASHINGTON – FINRA announced today that it has fined BNP Paribas Securities Corp. and BNP Paribas Prime Brokerage, Inc. (collectively, BNP) $15 million for anti-money laundering (AML) program and supervisory failures involving penny stock deposits and resales, and wire transfers, that spanned four years. As part of the settlement, FINRA also required BNP to certify within 90 days that BNP’s procedures are reasonably designed to achieve compliance in these areas.
FINRA found that from February 2013 to March 2017, despite its penny stock activity, BNP did not develop and implement a written AML program that could reasonably be expected to detect and cause the reporting of potentially suspicious transactions. 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.” BNP also 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.
During the same 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.
BNP’s AML program also 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.
Jessica Hopper, FINRA Senior Vice President and Acting Head of Enforcement, said, “In order to be effective, a firm’s AML program must be tailored to the firm’s business model and types of customer transactions. When customers engage in high-risk transactions involving low-priced securities and foreign currencies, the firm must devote sufficient resources to its AML program, including transaction and wire movement monitoring, to ensure that the system is tailored to the business’s unique money laundering risks.”
This matter arose out of firm examinations conducted by FINRA’s Department of Member Supervision and referred to Enforcement. In determining the sanctions imposed, Enforcement considered the period of time over which the misconduct occurred, BNP’s failure to timely address red flags and the volume of the potentially suspicious activity not monitored or reported.
In settling this matter, BNP neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
In May 2019, FINRA issued Regulatory Notice 19-18 to provide guidance to member firms regarding suspicious activity monitoring and reporting obligations under FINRA Rule 3310 (Anti-Money Laundering Compliance Program). FINRA also hosts educational opportunities designed for AML compliance professionals such as AML Half-Day Seminars. The next AML Half-Day Seminar is on November 14, 2019, in Boca Raton, FL.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.