United States: How Many SARs Does It Take To Find Yourself In Regulators' Crosshairs? Answer: None

Securities and Exchange Commission ("SEC") Enforcement Division Director Andrew Ceresney, recently drew attention when he announced that the SEC intends to include among its enforcement priorities compliance with the Bank Secrecy Act (the "BSA"). Ceresney's comments, made during SIFMA's 2015 Anti-Money Laundering and Financial Crimes Conference, focused on broker-dealers and the SEC's concern that broker-dealers have not implemented adequate anti-money laundering ("AML") programs to comply with the BSA's reporting and recordkeeping requirements. BSA enforcement actions against financial institutions – and the significant penalties and forfeitures associated with those actions – have garnered significant press in the past few years. Broker-dealers have historically avoided much of this scrutiny, as the SEC has generally viewed AML lapses as attendant to other violations. Those days, however, appear to be numbered. This issue has received recent attention by Financial Industry Regulatory Authority ("FINRA") enforcement, as well as by the SEC's Office of Compliance Inspections and Examinations.

The BSA requires financial institutions, which include broker-dealers, to establish and implement policies to detect and prevent money laundering, effectively imposing upon financial institutions the role of gatekeeper to the U.S. banking system. One of the BSA's requirements is that broker-dealers file Suspicious Activity Reports ("SARs") for suspicious transactions relevant to a possible violation of law, i.e., transactions that the institution knows or suspects involves money laundering, implicates an attempt to avoid BSA reporting requirements, or has no apparent business or lawful purpose and is not the kind of transaction in which the customer would normally engage.

In his recent speech, Ceresney noted that – based on a quantitative analysis of SAR filings – it appears that broker-dealers are not filing SARs in the numbers that would be expected and, in many cases where SARs were filed, word counts in the narratives suggest that the broker-dealers are not reporting all of the relevant information. The SEC Enforcement Division's recently created Broker-Dealer Task Force will be looking at firms that do not appear to be meeting their books and records obligations under both Exchange Act Rule 17a-8 and the BSA. Firms that have filed few SARs without good reason should expect questions from the SEC and possible enforcement action. Indeed, the SEC, in conjunction with the Financial Crimes Enforcement Network ("FinCEN," the agency charged with enforcing the BSA), recently imposed a record penalty upon a broker-dealer. This enforcement action, which, according to Ceresney, was the first in which the SEC and FinCEN worked together, is likely a harbinger of things to come.

Indeed, the SEC also recently settled a major enforcement action against another broker-dealer, along with two of its employees, for violations that included willfully violating Section 17(a) of the Exchange Act and Rule 17a-8 thereunder, because of failures to detect and file reports of suspicious trading activity in connection with its market access business. Critically, weakness in its AML controls had been brought to the broker's attention in an earlier SEC examination. The action found that the employees were aware of potentially manipulative transactions yet did not file SARs, and the broker's policies and procedures did not cause the employee to detect the suspicious activity and file such reports. The firm was sanctioned, made certain admissions, paid a penalty, and agreed to hire a consultant to address its procedures relating to suspicious activity reporting.

Ceresney's comments are also consistent with FINRA's recent efforts to scrutinize broker-dealers' AML programs and charge its member firms for related violations. FINRA Rule 3310 requires all member firms to establish and implement policies and procedures that can be "reasonably expected" to detect and cause the reporting of transactions in accordance with the requirements of the BSA and its implementing regulations. FINRA Notice to Members 02-47 advised broker-dealers of their duty to file a SAR to report transactions that fall into any one of several categories of suspicious activity, including market manipulation, pre-arranged or other non-competitive trading, securities fraud, and wash or other fictitious trading. The SAR instructs broker-dealers to report a transaction if it involves at least $5,000 and the broker-dealer knows, suspects, or has reason to suspect that the transaction or a pattern of transactions falls within one of the categories of itemized suspicious activity, including that the transaction "has no business or apparent lawful purpose."

In 2014, FINRA sanctioned numerous member firms for failing to establish and implement adequate AML policies and procedures reasonably designed to achieve compliance with the BSA and related implementing regulations. The deficiencies noted in these FINRA enforcement actions included, among others, the firms' failure to (1) implement automated systems to monitor trading activity, making the detection of potential market manipulation "difficult, if not impossible," (2) adopt procedures for investigating exception report items such that the firm could determine whether to file a SAR, (3) document any AML review or investigations, (4) detect and report suspicious trading activity associated with high volumes of stock liquidations in penny stocks, (5) address "red flags" indicating potentially suspicious activity related to correspondent accounts the firm maintained for foreign financial institutions, (6) monitor, investigate and report suspicious trading activities of customers who were previously disciplined by foreign securities regulators, and (7) adequately investigate and report spoofing or layering activity by which a trader created the false appearance of market activity by entering multiple non-bona-fide orders. Perhaps the most notable of these enforcement actions reviewed approximately 4-1/2 years of activity and concluded with one firm agreeing to pay a fine of $8 million for its failure to, among other things, adequately monitor, detect, and investigate suspicious penny stock transactions, and to establish and maintain a robust AML program that included independent testing and regular training of personnel.

Continuing that trend, FINRA, in its 2015 Regulatory and Examination Priorities Letter, identified the following AML-related issues as areas of focus in 2015: (1) the adequacy of firms' surveillance systems and processes to identify potentially suspicious transfers to and from Cash Management Accounts, which are brokerage accounts used for activity typically associated with bank accounts, and to verify the business purpose of the activity in those accounts; (2) the increase in microcap trading activity and foreign currency conversion activity in Delivery versus Payment/Receipt versus Payment accounts that may be based in foreign jurisdictions with relatively weak regulatory regimes; (3) the adequacy of firms' surveillance of customer trading, including an admonition that firms tailor their trading surveillance around AML-related risks inherent in their business lines, products and customer bases; and (4) the sufficiency of firm systems' ability to monitor indicia of suspicious customer activity that is reportable on a SAR, including market manipulation, insider trading and microcap fraud. FINRA also notes that its emphasis on microcap fraud and insider trading is made evident by its more than 700 referrals to the SEC and other state or federal law enforcement agencies in 2014 relating to fraudulent conduct through insider trading, private investment in public equity transactions, microcap fraud and market manipulation.

Certainly, all financial institutions should be taking this speech and enforcement actions as signals. They should take the opportunity to review their BSA/AML policies and procedures, and pay attention to how many SARs they file, and how much they say in those SARs. We know now that the SEC and FINRA are certainly paying attention.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions