Over four years after the Patriot Act was passed, and following over a dozen anti-money laundering audits by the SEC, the regulator this week took its first enforcement action against a broker/dealer for violation of the law.
The SEC sanctioned Los Angeles-based broker/dealer Crowell, Weedon & Co. for failing to document customer identity verification procedures between October 2003 and at least April 2004 when it opened approximately 2,900 news accounts for customers. Although the firm had created procedures for account verification, it wasn’t following them, assuming that registered representatives knowledge of the customers opening the new accounts was sufficient. There was no indication of actual money laundering in Crowell, Weedon accounts, however, and the firm was not fined, but rather required to cease committing violations.
“What this signals is that we take violations of broker anti-money laundering obligations very seriously and that in the right case enforcement action will be taken,” says Randall R. Lee, regional director for the SEC’s Pacific Regional office. “But we have found that the vast majority of broker/dealers take their obligation very seriously.”
Still, the paucity of enforcement actions taken by the SEC on this front is partly a function of the number of broker/dealer audits it does. The NASD, for example, has issued 100 AML actions since October, 2001, when the Patriot Act took effect, in part because it does the majority of firm examinations.
The SEC uncovered the violations at Crowell, Weedon in an AML-specific audit, but not because of any suspicion about the particular firm, said Lee. Checking for Patriot Act violations has also become a part of the regulator’s more general routine audit process. “We do a variety of types of audits. Some are more general than others. In this case it was an AML focused audit, and we did it because it’s a new rule.”