Merrill Lynch Fined $26 Mln for Money-Laundering Lapses
Merrill Lynch failed to identify suspicious money-transfer activities in customer accounts for years, in part because it subordinated its principal anti-money-laundering monitoring tool to a Bank of America system, regulators said Thursday as they announced $26 million in fines against the broker-dealer.
Before October 2010, Merrill used a system called Mantas that isolated signals such as rapid movement of funds and internal journal-entry transfers between unrelated accounts as its primary automated monitoring tool to detect potential money laundering activity, the Financial Industry Regulatory Authority wrote in a consent letter signed by Merrill.
The firm subsequently connected its system to its parent bank’s enterprise-wide AML system, a decision that changed the triggers for investigations.
Merrill compounded the error by overhauling its subordinate system in 2011 because it was generating too many “false positives” among the retail accounts, according to the consent order. As a result, for over four months of that year it did not open any investigations of events triggered by the subordinate system. All told, Merrill failed to investigate 1,015 events that would have triggered probes under its earlier procedures, Finra said.
Reporting potential money-laundering violations has long been a high priority of U.S. investigators seeking to halt illegal drug trafficking and financing of terrorism. Finra fined Raymond James Financial $17 million in 2016 for anti-money-laundering lapses.
Earlier on Thursday, Finra announced a $2 million fine against Raymond James for e-mail monitoring lapses caused partly by the firm’s attempts to reduce the number of false positives it was investigating.
“We continuously work to enhance and strengthen our controls,” Merrill spokesman Bill Halldin wrote in an e-mailed statement on the AML sanctions. “These matters are from several years ago and all the concerns raised have been fully addressed.”
Merrill’s underlying anti-money laundering system and its parent bank’s system also failed to recognize suspicious activities of high-risk counterparties in part because of failure to link accounts under common ownership, Finra said.
From 2006 through early 2015, Merrill also excluded certain retirement, managed accounts (including Consults and Personal Investment Advisory accounts) and accounts involving securities-based loans from its AML monitoring because “it believed the accounts were at lower risk for money laundering activity,” Finra said. The accounts experienced “significant” activity, including more than $22 billion moving in and out of retirement accounts in 2.5 million transactions in 2013 alone, it said.
Finra also specifically noted suspicious wire transfer activities involving Russia, Zambia, Mexico, China, Venezuela, the Philippines, Syria and other countries at various Merrill branches, including those in McAllen, Texas, San Diego, and Merrill’s New York City office servicing nonresident aliens. The latter housed a broker servicing India nationals who oversaw accounts moving about $8 million from 2002 and 2011 that were never investigated.
Finra fined Merrill $13 million and censured it.
The Securities and Exchange Commission assessed its $13 million fine against Merrill for failing to file Suspicious Activity Reports required under the Bank Secrecy Act and under U.S. Treasury regulations, or for filing them late, according to a cease-and-desist order the agency filed.
Merrill accepted the Finra and SEC sanctions without admitting or denying the findings.