By Chad M. Kohler, Esq.
Wells Fargo Advisors, LLC, the second largest brokerage firm in the US, is under investigation for having inadequate policies and procedures relating to the detection and prevention of money laundering activity in customer accounts.
According to a recent regulatory filing, the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization that oversees brokerage firms, notified Wells Fargo that the regulator had made a "preliminary determination" to take action against the brokerage firm for failing to take actions to comply with the Bank Secrecy Act and to spot "suspicious activity."
This is not the first time Wells Fargo has encountered problems with its anti-money-laundering operations. In 2010, Wachovia Corporation – which Wells Fargo acquired in 2008 – agreed to pay $160 million to resolve a criminal investigation of how drug cartels used the bank to launder money through Mexican foreign exchange houses.
The failure to spot potential money laundering in customer accounts can have a devastating impact on individual investors. Oftentimes, Ponzi-schemers funnel customer monies in and out of brokerage accounts as part of their illegal activity. Substantial deposits and withdrawals and transfers of funds between brokerage accounts and outside third-party accounts are red flags that something illegal is afoot.
A firm's failure to properly monitor and inquire into potential money-laundering activity can result in substantial fines against the firm. In 2013, TD Bank paid $52.5 million in regulatory fines to settle claims relating to money laundering in accounts held by Florida Ponzi-schemer Scott Rothstein.