Two US regulators have collectively fined Merrill Lynch a total of $12m over allegations that the firm failed for more than a decade to file the required Suspicious Activity Reports (SARs) flagging transactions that it knew or suspected were being used to support criminal activity.
The US Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) each announced $6m settlements on the same day (11 July).
In FINRA's statement it said Merrill Lynch had failed to apply the correct threshold to report suspicious activities for more than 10 years and, as a result, failed to file nearly 1,500 Suspicious Activity Reports (SARs).
It said broker-dealers and national banks are required to file SARs in connection with suspected criminal activity that meets or exceeds certain dollar thresholds, among other suspicious activity.
They were also required to file a SAR for suspected criminal activity that involves aggregate funds or other assets of $5,000 or more.
By contrast, national banks are required to file a SAR for suspected criminal activity totaling $25,000 or more where such activity does not involve insider abuse and where there is no substantial basis to identify a responsible suspect.
Following the 2009 merger between Merrill Lynch and Bank of America, N.A., Merrill Lynch incorrectly applied the $25,000 monetary threshold applicable to national banks, rather than the $5,000 threshold applicable to broker-dealers, when determining whether to file a SAR.
As a result, Merrill Lynch failed to file approximately 1,500 SARs from January 2009 to November 2019, when the firm discovered and corrected its mistake. The suspicious activities that went unreported included alleged unauthorized debit card withdrawals, forged or altered checks, account intrusions, identity theft, and internet scams.
"Law enforcement and regulators depend on FINRA member firms to properly report potential fraud and other suspicious activities," said Christopher J. Kelly, senior vice president and acting head of FINRA's Department of Enforcement. "It is therefore essential that member firms comply with their SAR filing obligations. Merrill Lynch failed in this basic responsibility."
FINRA issued Regulatory Notice 19-18 to provide guidance to member firms regarding suspicious activity monitoring and reporting obligations under FINRA Rule 3310 (Anti-Money Laundering Compliance Program). Firms can also review FINRA's 2023 Exam Findings Report to understand FINRA's areas of concern related to AML, as well as guidance and compliance training offered to firms about their AML compliance obligations.
In settling this matter, Merrill Lynch consented to the entry of FINRA's findings, without admitting or denying the charges.
The Securities and Exchange Commission announced on the same day (11 July) that Merrill Lynch agreed to pay a $6m penalty in a separate action concerning the same misconduct.
"Broker-dealers have a critical obligation to report suspicious activity in their accounts," said Katharine E. Zoladz, Co-Acting Regional Director of the Los Angeles Regional Office. "Merrill Lynch and BACNAH did not file hundreds of Merrill Lynch SARs because they failed to comply with one of the most basic requirements for a SAR program."
The SEC's order found that Merrill Lynch violated the books and records provisions of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder and that BACNAH caused those violations.
Without admitting or denying the SEC's findings, Merrill Lynch and BACNAH agreed to cease and desist from committing or causing violations of those provisions, and Merrill Lynch also agreed to a censure and the aforementioned $6 million civil penalty.
