The Financial Industry Regulatory Authority is not known for its aggressive enforcement record. But that may be changing.
FINRA recently fined BNP Paribas for $15 million for anti-money laundering deficiencies in the broker-dealer unit’s operations that allowed billions of dollars’ worth of suspicious penny stock and foreign currency transactions.
BNP’s senior management failed to respond to repeated warnings from staff that the firm’s minimal AML compliance program was deficient. For two years, BNP assigned only one investigator to monitor tens of thousands of wire transfers. BNP’s minimal AML compliance effort made it an “outlier in the industry.”
BNP was cited for failing to maintain a basic AML compliance program tailored to BNP’s business model and types of customers transactions. BNP failed to maintain an AML compliance program that monitor wire transactions conducted by various customers.
FINRA’s penalty was relatively large in light of FINRA’s history. BNP’s conduct, however, was egregious considering that it failed to monitor a large number of penny stock transactions and foreign currency transfers involving high-risk customers.
Over a four-year period, BNP accepted the deposit of over 30 billion shares of micro-cap and penny stocks and processed over 70,000 wires with a total value of $233 billion dollars, involving 834 high-risk accounts associated with high-risk jurisidictions.
In particular, BNP allowed 31 billion penny stock shares to be dumped without any surveillance, and cleared 3,500 foreign currency wires without scrutinizing the transactions. BNP also failed to flag suspicious customers, including 14 accounts that executed zero buy transactions while offloading roughly 1 billion shares of microcap securities.
BNP failed to maintain AML policies and procedures tailored to AML risks involving penny stock and wire transfers of foreign currencies. Until 2016, BNP’s AML program did not monitor any of the high-risk transactions involving penny stock transactions or foreign exchange wire transfers, despite the high risk nature of the accounts, customers and transactions.
In 2014, BNP personnel and its internal auditor warned management about weaknesses in its AML program. BNP failed to respond to the warnings over a three-year period.
BNP failed to conduct any meaningful surveillance of penny stock transactions, and did not monitor wire transfers involving foreign exchange transactions involving high-risk accounts.
BNP’s AML program suffered from a chronic shortage of personnel backlog of red flag alerts that were not reviews. A subsequent review revealed that over 100 transactions should have triggered the filing of suspicious activity reports (SARS).
Despite all of the warnings and repeated deficiencies identified by staff and internal auditors, BNP did not address these issues until 2017 by allocating additional staff, conducting additional reviews, increasing training, improving technology and enhancing its AML program.
