The Commission has an on-going program monitoring whether broker-dealers timely file suspicious activity reports or SARS with the Financial Crimes Network or FinCEN. Its most recent case in this area focused on the failure of a firm to properly file continuous activity SARS. In the Matter of Wells Fargo Advisors, LLC, Adm. Proc. File No. 3-18279 (Nov. 13, 2017).
Respondent Wells Fargo is a registered broker-dealer and investment adviser. The Bank Secrecy Act requires broker-dealers to file SARs with FinCEN when, for example, there are transactions or patterns of transactions involving at least $5,000 or more which the firm knows, suspects or has reason to suspect involve money from illegal activity, or that were conducted to disguise such funds or evade the requirements of the Bank Secrecy Act, or which have no apparent lawful purpose. Where there is continuing activity FinCEN does not require a filing in each instance. Rather in such instances the firm after a ninety day review must file a SAR with an outside deadline of 120 days.
Initially, Wells Fargo’s AML policies and procedures mirrored the FinCEN requirements. Those policies and procedures also required that investigative case notes be maintained in the firm’s internal systems.
In March 2012 the firm began implementing changes to its systems regarding SARs. Under the modified procedures management was warned against filing too many SARs, employees were told that continuing activity SAR reviews were not a requirement and other steps were taken to further eliminate continuing activity reviews. Employees were told that filing a SAR required “proof” of illegal activity.
As a result number the number of SARs filed by the firm dropped significantly. Notes were not maintained about activity. The firm also failed to file or timely file continuing activity SARs. For example, after filing a continuing activity SAR in early August 2012 regarding significant unexplained wire activity that appeared to be an attempt to evade the requirements of the Bank Secrecy Act, the review of continuing activity was suspended and reassigned; the firm never filed a continuing activity SAR despite a continuation of the wire activity. In two other instances involving unexplained wire activity that also attempted to evade the requirements of the Bank Secrecy Act Wells Fargo failed to timely file a SAR within the 120-day window. Ultimately the firm failed to file or timely file at least 50 SARs during the period.
Following an employee complaint, an internal investigation was conducted by an outside law firm. Subsequently, Wells Fargo filed 24 additional continuing activity SARs and 5 initial SARs. The Order alleges violations of Exchange Act Section 17(a) and rule 17a-8.
To resolve the proceedings Respondent agreed to implement a series of undertakings which include conducting a review of its policies and procedures regarding the reporting of suspicious activity. Wells Fargo also consented to the entry of a cease and desist order based on the Section and Rule cited in the Order and to a censure. The firm will also pay a penalty of $3.5 million.
Program: The Fourth Annual Dorsey Federal Enforcement Forum will be held on December 6, 2017. There will be panel discussions and presentation on EPA enforcement, SEC enforcement, investment advisers, international sanctions, FinTec, and FBI international corruption investigations, followed by a holiday party. Attend in person, listen on the web or watch a live stream; CLE available. For a detailed program and free register click here.