On May 18, 2016, the Financial Industry Regulatory Authority (“FINRA”) announced that two Raymond James affiliates agreed to pay $17 million in fines for alleged failures of the firms’ anti-money laundering (“AML”) programs, in violation of FINRA Rule 3310, which requires FINRA members to maintain effective AML programs. This case is especially noteworthy because affiliate Raymond James & Associates Inc.’s (“RJA”) AML Compliance Officer also agreed to a fine of $25,000 and a three-month suspension due to her alleged personal violations of FINRA Rule 3310. These violations were based on her failure to establish written procedures, investigate red flag activity, or ensure that periodic reviews were conducted. Aruna Viswanatha,
Raymond James to Pay $17 Million Fine for Anti-Money-Laundering Lapses, Wall St. J., May 18, 2016; News Release, Fin. Indus. Regulatory Auth.,
FINRA Fines Raymond James $17 Million for Systemic Anti-Money Laundering Compliance Failures (May 18, 2016).
In its settlement, FINRA focused on the insufficient resources that the two affiliates devoted to AML issues. FINRA emphasized, for example, that in June 2014, RJA and Raymond James Financial Services (“RJFS”) assigned only eight AML personnel to monitor approximately 4.2 million accounts. In addition, according to FINRA, employees at RJA and RJFS relied upon one another in conducting AML investigations in certain areas, rather than conduct their own separate diligence.
In Re Raymond James, No. 2014043592001 (FINRA Disciplinary Actions Online May 18, 2016). For instance, RJA, as a clearing firm, allegedly did not have any written procedures requiring it to monitor suspicious transactions in the RJFS accounts that were introduced to RJA. Instead, FINRA contended, RJA relied solely on RJFS to conduct AML surveillance on the RJFS accounts without verifying that RJFS’s procedures were adequate.
FINRA also found that the firms’ procedures were inadequate. According to FINRA, RJA employees were required to manually search for information to carry out their AML duties, including conducting searches across suspicious activity reports and relevant accounts’ histories and balances. The firms’ procedures were also not contained in a single manual, but were instead “scattered through various departments” and executed by employees that did not report directly to RJA’s AML Compliance Officer. FINRA identified multiple flaws in such decentralized procedures, including that the firms’ reports addressing potential structuring and suspicious wire transfers allegedly only operated in 90-day periods, which FINRA argued were “too short to detect patterns of activity.” FINRA also contended that neither firm used procedures that required review of, or provided monitoring for, certain “high-risk” activities.
According to FINRA, RJA’s AML Compliance Officer failed to establish any written procedures for monitoring whether suspicious activity continued in customers’ accounts after suspicious activity reports were filed, or to ensure that the suspicious activity flagged by RJA’s automated systems was investigated further. Specifically, of 140,000 suspicious exceptions generated by RJFS’s automated system, allegedly only 1,800 were escalated for further review, and AML analysts were never required to detail their rationales when closing out reports. FINRA further noted that RJA’s AML Compliance Officer had served in that role since 2002.
Finally, FINRA emphasized in its settlement papers that a key reason for the high penalty amount imposed upon RJA and RJFS was that RJFS was a recidivist—in 2012, the affiliate had pledged to undertake various corrective actions to fix similar alleged deficiencies. FINRA found, however, that the affiliate still “had significant systemic AML failures” over an “extended” period of time.
