The broker-dealer subsidiary of Wells Fargo & Co. has paid a $3.5 million penalty and has agreed to other conditions to settle allegations of Suspicious Activity Report (SAR) mismanagement.
A registered broker-dealer/wholly-owned subsidiary of Wells Fargo & Company has settled with the SEC over allegations that it fell behind on its anti-money laundering (AML) responsibilities by failing to properly file 50 Suspicious Activity Reports (SARs) between March 2012 and June 2013, according to the regulator.
The settlement requires Wells Fargo Advisors, LLC, based in St. Louis, Mo., to consent to a cease-and-desist order, a censure, and a civil penalty of $3,500,000, according to the SEC’s administrative order.
The firm has agreed to the conditions without admitting or denying the SEC’s findings, and with the proviso that it voluntarily “review and update its policies and procedures and develop and conduct additional training,” adds the regulator.
“Wells Fargo Advisors has been registered with Commission as a broker-dealer since 1987 and as an investment adviser since 1990,” according to the order. “Wells Fargo Advisors provides securities brokerage, investment advisory and other financial services to its customers and advisory clients, the majority of whom are individuals. Wells Fargo Advisors has more than 15,000 registered representatives and advisory personnel and administers more than $1.5 trillion in customer assets.”
The SEC notes that the Bank Secrecy Act (BSA) “requires broker-dealers to file SARs to report suspicious transactions that occur through their firms,” and that the BSA and the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) stipulate that SARs be filed “within 30 days after a broker-dealer determines the activity is suspicious.”
Despite the SAR requirements, “Wells Fargo Advisors failed to file or timely file at least 50 SARs, a majority of which related to continuing suspicious activity occurring in accounts held at Wells Fargo Advisors’ U.S. branch offices that focused on international customers,” according to the SEC’s administrative order.
The crux of the problem can be traced to management changes in “starting in approximately March 2012” … that led to “changes to the management over its AML program, including the management over the Surveillance and Investigations group.”
According to the SEC, the new AML management effort caused “confusion by communicating to the Surveillance and Investigations group that:
- they were filing too many SARs;
- continuing activity SAR reviews were not a regulatory requirement;
- they were to take steps to eliminate further continuing activity reviews; and
- filing a SAR required ‘proof’ of illegal activity.”
The result of this management shift was that “between approximately July 2012 and June 2013, the total number of SARs filed by Wells Fargo Advisors dropped by approximately 60% from an average of 57 SARs filed per month to an average of 22 SARs filed per month,” according to SEC officials. “Ultimately, these activities led to missed and late SAR filings, in particular continuing activity SARs.”
The situation apparently continued until the firm reacted to “an employee complaint in 2013” and the firm launched “an internal investigation with assistance from an outside law firm,” according to the SEC order.
In addition, the brokerage “retained a third-party AML compliance firm in the summer of 2014 to review no-SAR cases from January 2012 through August 2013. As a result of this review, Wells Fargo Advisors filed 24 additional continuing activity SARs and 5 initial SARs. These SARs … were filed over one year after some of the reportable activity occurred and the initial 120-day filing deadlines expired,” according to the order.
After the firm realized the scope of its SAR reporting problem, it reached out to the SEC and informed officials of the its “voluntary remedial acts,” SEC officials say.
“When confusion over our SAR reporting policies first arose internally, we took immediate steps to conduct an independent review that resulted in process improvements,” according to a prepared statement from Wells Fargo. “We cooperated fully with the SEC’s investigation, and we remain committed to further self-reviews and enhancements that help ensure suspicious activity is disclosed in a timely manner. … We take these critical responsibilities seriously.”
The text of the full order is here.