Interactive Brokers to Pay $38 Million for Money-Laundering Breaches
Interactive Brokers LLC, the retail and institutional discount firm that clears for more foreign financial institutions than any other broker-dealer in the United States, will pay $38 million to settle charges of far-reaching failures in its anti-money-laundering [AML] surveillance and reporting programs, three regulators said on Monday.
The Connecticut-based firm founded by former options floor trader Thomas Peterffy failed to dedicate the resources necessary to meet its AML obligations to flag, follow and report unusual transactions for more than five years, the Financial Industry Regulatory Authority said. It fined Interactive $15 million for what it called widespread procedural, developmental and supervisory failures that failed to expose trades suggesting insider trading, manipulative microcap securities trading and wire transfer irregularities.
Finra’s unusually detailed “acceptance, waiver and consent letter” noted that Interactive Brokers failed to design AML programs to match its rapid expansion into trading and performing back-office work for foreign financial institutions [FFIs] and individuals.
“By December 2018, Interactive Brokers cleared transactions for 373 FFIs, far more than any other broker-dealer in the United States” and almost double the number it serviced in July 2015,” the letter said. “Indeed, during the Relevant Period, approximately 55% of its 640,000 customers were domiciled outside the United States, many in countries such as Russia, Pakistan, Panama, China, and Cyprus, despite the risks inherent in those jurisdictions.”
The regulators modified their sanctions to reflect “remedial” and sometimes “proactive” steps that Interactive took during the investigations, including hiring outside consultants and hiring “many dozens” of anti-money-laundering staffers, they wrote. As part of its agreement with Finra, Interactive agreed to retain the outside consultant to conclude its review of the adequacy of AML policies, procedures, and internal controls.
“We cooperated fully with our regulators in these inquiries, and the significant steps that we have taken to expand and enhance our program were taken into account in today’s settlements,” an Interactive spokeswoman said in an email.”
Finra highlighted AML issues as an area of concern in its 2020 Risk Monitoring and Examination Priorities Letter.
Last month, the regulator fined Dallas-based Hilltop Securities $375,000 and required it to take remedial measures to improve its AML policies, systems and procedures after it failed to identify $221 million of penny-stock trades that may have warranted suspicious activity reports. (Hilltop also agreed to pay $100,000 for Municipal Securities Rulemaking Board disclosure violations on deals it helped place.)
Morgan Stanley in 2018 agreed to pay Finra $10 million for AML compliance failures.