The Securities and Exchange Commission today announced that a Miami-based brokerage firm agreed to pay a $1 million penalty to settle charges that it violated anti-money laundering rules by allowing foreign entities to buy and sell securities without verifying the identities of the non-U.S. citizens who beneficially owned them.
During SEC examinations of E.S. Financial Services, which is now named Brickell Global Markets, the firm twice failed to provide required books and records identifying certain foreign customers whom they were soliciting directly and providing investment advice. Federal law requires all financial institutions to maintain an adequate customer identification program (CIP) to ensure financial institutions know their customers and do not become a conduit for money laundering or terrorist financing. An ensuing SEC investigation found that E.S. Financial’s CIP failed to obtain and maintain documentation to verify the identities of certain non-U.S. customers who traded through a brokerage account opened by a Central American bank affiliated with the firm.
As part of the settlement, E.S. Financial agreed to retain an independent monitor to directly review its anti-money laundering/CIP policies, procedures, and practices for the next two years.
“While no fraud occurred in this instance, our investigation found there were significant holes in the framework of E.S. Financial’s CIP that left the firm susceptible to illegal activity by customers who were not fully known,” said Eric Bustillo, Director of the SEC’s Miami Regional Office. “Firms must stick to the CIP rules that require a broker-dealer to establish, document, and maintain procedures for identifying all customers and verifying their identities.”
According to the SEC’s order instituting a settled administrative proceeding:
- During approximately a decade, E.S. Financial maintained a brokerage account for a Central American bank that was purportedly trading for its sole benefit.
- E.S. Financial allowed 13 non-U.S. corporate entities and, in turn, 23 non-U.S. citizens who were their beneficial owners, to execute more than $23 million in securities transactions through the Central American bank’s brokerage account.
- E.S. Financial worked directly with these non-U.S. citizens as if they were E.S. Financial customers, but did not collect, verify, or document any information regarding their identities as required under anti-money laundering/CIP regulations.
The SEC’s order finds that E.S. Financial willfully violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8, which require a broker-dealer to comply with the reporting, recordkeeping, and record retention requirements in regulations implemented under the Bank Secrecy Act, including the requirements in the CIP rule applicable to broker-dealers. The order also finds that E.S. Financial willfully violated Exchange Act Rules 17a-3 and 17a-4 which require broker-dealers to create and maintain customer account records and furnish them to SEC representatives upon request. Without admitting or denying the findings, E.S. Financial consented to the order and agreed to cease and desist from committing or causing any future violations.
The SEC’s continuing investigation has been conducted by Scott A. Lowry, under the supervision of Thierry Olivier Desmet. The examination that led to the investigation was conducted by Ileana Rodriguez and Debra Williamson, and supervised by Nicholas A. Monaco and John C. Mattimore of the Miami Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
SEC Press Release
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