Tue, Dec 17, 2013

http://www.chicagotribune.com/business/sns-rt-us-finra-moneylaundering-20131216,0,485367.story

An Omaha-based securities clearing firm must pay a $1 million civil fine for not complying with securities industry requirements to prevent money laundering and other "extensive" failures, Wall Street's industry-funded watchdog said on Monday.

COR Clearing LLC, formerly Legent Clearing LLC, did not have an adequate program in place for monitoring potential money laundering by clients of the brokerage firms for which it clears securities and provides other functions, according to the Financial Industry Regulatory Authority (FINRA).

The FINRA settlement lets COR move forward with its plans for growth and improvement, said the firm's president, Carlos Salas, in a statement. FINRA's findings are, in many cases, "years old," Salas said. The company has made "transformative investments in our operations, compliance and (anti-money laundering) personnel, systems and controls," Salas said.

COR, as part of the settlement, must also retain an independent consultant to conduct a comprehensive review of its policies, systems and employee training, according to FINRA.

Clearing firms act as middlemen between securities brokerages and exchanges. They typically handle back-office tasks for brokerages, including order processing, settling trades, and record keeping. FINRA rules require clearing firms and brokerages to have policies and procedures in place to comply with a federal law aimed at detecting and curbing money laundering.

The anti-money laundering program at COR was lacking, especially given the clearing firm's business model, FINRA said. Many of the 86 securities brokerages that cleared through COR buy and sell thinly-traded, low-priced securities, FINRA said.

Low-priced securities are often subject to efforts to falsely inflate trading volume and share prices, a securities fraud violation that is a precursor to money-laundering, say anti-money laundering compliance professionals.

What's more, many of the brokerages had been already disciplined by FINRA for their own violations of anti-money laundering rules, FINRA said.

FINRA identified the multiple violations between 2009 to 2013, it said. COR's anti-money laundering surveillance program suffered a "near-complete collapse" for several months in 2012, during which is failed to conduct any reviews to identify and investigate suspicious activity, FINRA said.

The hefty $1 million fine underscores the responsibility that clearing firms have to monitor cash flow of their brokerage firm clients, said Amy Lynch, president of Frontline Compliance in Leesburg, Virginia. "I think FINRA is trying to send a message," Lynch said.

Other violations during the four-year period included ongoing financial reporting errors, failing to have procedures in place for supervising outsourced work, and compliance with a short-selling regulation.