WASHINGTON—Today, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) assessed an $80,000,000 civil money penalty against Canaccord Genuity LLC (Canaccord) for willful violations of the Bank Secrecy Act (BSA), the primary U.S. anti-money laundering and countering the financing of terrorism law that safeguards the financial system from illicit use. This is the largest penalty ever imposed against a broker-dealer for violating the BSA.
“Today’s action should be a wake-up call to broker-dealers that willfully fail to comply with their obligations to safeguard the financial system from illicit actors,” said FinCEN Director Andrea Gacki. “Consistent with Treasury’s broader efforts to combat fraud and its harmful effects on our financial markets, FinCEN is committed to holding accountable financial institutions of all types—including institutions accessing our world-class capital markets—that willfully ignore their role in preventing and reporting illicit actors who seek to take advantage of hardworking Americans.”
FinCEN is committed to using all its tools to prevent fraud, which harms innocent Americans and undermines confidence in the U.S. economy. Canaccord’s widespread compliance failures included violations of the requirement to implement and maintain an anti-money laundering (AML) program that met the requirements of the BSA, including failures to conduct appropriate risk-based customer due diligence (CDD) and to establish and implement internal controls to monitor transactions for suspicious activity.
These failures resulted in Canaccord failing to timely detect and report numerous securities fraud schemes that caused significant economic harm to innocent investors, as well as Canaccord’s onboarding of high-risk customers with reported ties to illicit actors. Canaccord failed to file at least 160 suspicious activity reports (SARs) relating to dozens of different over-the-counter securities, the trading of which involved a high volume of underlying suspicious transactions that FinCEN estimates to be in the thousands. This deprived law enforcement of timely and critical financial information pertaining to suspicious activity.
As part of its resolution with FinCEN, Canaccord admits that it willfully violated the BSA, including failing to: (i) develop, implement, and maintain an effective AML Program; (ii) conduct required due diligence on correspondent accounts for foreign financial institutions; and (iii) file SARs.
FinCEN appreciates the effective cooperation on this matter with the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority.
Compliance Considerations
Effective AML programs can prevent financial institutions from being used to facilitate money laundering and the financing of terrorism. Such programs should be risk-based and commensurate with the risks posed by the nature and volume of the financial products and services provided by the institution, including fraud-related risks that can arise in the securities markets.
Broker-dealers acting in a market making capacity are reminded of their obligations under the BSA, including implementing and maintaining policies, procedures, and internal controls reasonably designed to achieve compliance with the BSA and FinCEN’s regulations, including the obligation to identify and report suspicious activity, such as scams involving “penny stocks” and other types of securities fraud. As a market maker, Canaccord was well-positioned to detect and investigate red flags of suspicious activity in the securities for which it provided trading services, but its significantly under-resourced AML program was not proportional to the risks of its business model, which inhibited Canaccord from identifying and reporting suspicious transactions that it processed. This was particularly apparent in Canaccord’s transaction monitoring policies, procedures, and internal controls, which relied on an insufficient number of inexperienced staff who were poorly trained and overwhelmed by the number of transactions Canaccord tasked them with reviewing through unreasonably designed surveillance reports.
Covered financial institutions subject to FinCEN’s 2016 CDD Rule, including broker-dealers with institutional customers, are reminded of the importance of conducting meaningful risk-based CDD, both at onboarding and throughout the life of the customer relationship by maintaining and updating customer information on a risk basis. In this matter, Canaccord’s CDD failures led to high-risk customers with reported ties to illicit actors accessing the U.S. financial system without appropriate controls or oversight. Such customers included (1) a customer who was subsequently fined and barred from the penny stock industry by the SEC for his role in several microcap fraud schemes that occurred during the time his account was open at Canaccord; (2) a customer who reportedly helped Russian oligarchs move money out of Russia; and (3) a customer who public reporting identified as being implicated in investigations involving a Venezuelan individual designated by Treasury’s Office of Foreign Assets Control.
Finally, this action demonstrates the importance of financial institutions taking prompt, appropriate action in response to deficiencies noted in regulatory examinations. In this matter, Canaccord’s regulator repeatedly found weaknesses in Canaccord’s AML program, including in its monitoring of suspicious transactions. Despite Canaccord committing in writing to remediate these weaknesses, it failed to meaningfully address those concerns for years, with significant aspects of such remediation not undertaken until FinCEN’s investigation was underway. Financial institutions are also encouraged to promptly remediate reporting issues when they are identified to ensure timely and accurate reporting of SARs.
For additional information regarding the facts and circumstances associated with this enforcement action, including the specific BSA violations and their underlying causes, please see the Consent Order between FinCEN and Canaccord.
FinCEN Whistleblower Incentive Program
FinCEN maintains a whistleblower incentive program for violations of the BSA and certain national security laws such as the International Emergency Economic Powers Act (IEEPA). Individuals located in the United States or abroad who provide information may be eligible for awards if the information they provide leads to a successful enforcement action that results in monetary penalties exceeding $1,000,000 and the statutory requirements in 31 U.S.C. 5323 are otherwise met. FinCEN is currently accepting whistleblower tips. More information about the whistleblower program can be found here.
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