AML Podcasts Released by FINRA – Unscripted

During April and May 2019, FINRA introduced a new AML podcast. FINRA’s unscripted podcast explained the importance of a solid AML program, its importance to the overall industry, and best practices. Blake Snyder and Jason Foye of FINRA’s AML investigative unit were the guest speakers.

What Is Unique About (AML) Money Laundering In The Securities Industry?

Let’s start with the basics. The series started with defining money laundering as “the movement of funds tended for or derived from criminal activity.” There are generally 3 stages:

  1. Placement – Defined as the introduction of funds into the financial system. Broker-dealers generally don’t see people walking in with trunks of cash, but it could happen.
  2. Layering – A process of transactions to disguise origin or destination. There are some unique activities specific to the brokerage industry, which may include market manipulation, insider trading or other securities fraud, used to generate illicit proceeds within the account.
  3. Integration – This is where the funds are put into the legitimate economy. Many brokerage firms offer banking type services where funds can be wired out for luxury assets (i.e. real estate, expensive cars).

Why Should I Care about an AML program?

Having a solid (AML) money laundering program accomplishes two main goals: a solid know your customer program and a suspicious activity reporting program. This benefits the public, the firm’s reputation, and the financial markets.

Why Is AML Always A FINRA Priority?

AML is a large, complex, and ever-evolving landscape. Cybersecurity and senior exploitation are two hot topic areas that weave into money laundering schemes. These were used by the presenters as examples that continue to place AML at the forefront of the securities landscape. As law enforcement priorities shift and criminal schemes evolve, so must securities firms.

How To Operate With “One Arm Behind Your Back”

You might be missing key components when you have blotters that may exclude key information (i.e. country of origin or counterparty for money movement surveillance were used as examples). Performing a reasonable risk assessment was emphasized. You must look at your business, products, risks, facts, and circumstances. Each of these should be related to your program to ensure you have a system geared towards your business model. Firms run into issues where there might be a process to identify concerns, but the escalation and follow-through of red flags is often a broken system.

Learning From The Past: Money Laundering Typologies

The podcast recommends looking at the stories from the past through case studies to learn about established money laundering schemes. It also discusses how money laundering risks might manifest themselves. These may include terrorist financing, currency exchange, banking only activities, and penny stock schemes.

“I Just Don’t Have The Resources”

The size of your system doesn’t matter; the reasonableness of what you do have in place does. Copying and pasting responses to alerts on exception reports don’t count as reasonable. Another concern may be an overwhelmed compliance department. FINRA notes an overwhelmed compliance department can be a root cause of underlying issues in the firm. Having these difficult conversations is key. It is critical to understand how the data is flowing through the firm.  All departments need to work together to connect the pieces when building a solid AML surveillance program. From your IT department to operations to compliance, do these departments work together in your Firm to create a reasonable system to monitor for AML?

Conclusion

Money laundering schemes don’t look to be slowing down, in fact, the schemes are becoming more complex and sophisticated. Also, the podcast urges all Firms to be vigilant and assess your Firm’s controls in this area.

Click here to listen to Part I of the podcast and here for Part II.

For more information on AML compliance programs, please see our other blog posts on the topic.

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