SEC Director Discusses AML Compliance Programs

SEC National Associate Director of the Broker-Dealer Examination Program Kevin W. Goodman discussed components of an effective anti-money laundering program, factors to consider in evaluating a program's adequacy, and areas of focus for SEC examiners.

At a conference hosted by SIFMA, Mr. Goodman stressed that AML involves more than simply preventing traditional kinds of money laundering. It also encompasses the prevention of fraud, insider trading and even manipulative trading schemes. He explained that compliance officers' obligations are primarily proactive rather than administrative. He cautioned that AML compliance programs must be tailored to firms' specific risks, and suggested that firms routinely conduct analyses of the risks posed by businesses.

Mr. Goodman outlined the two primary requirements within AML programs: (i) customer identification programs ("CIPs") and (ii) suspicious activity reports ("SARs"). Mr. Goodman called CIPs a "fundamental obligation" of broker-dealers, noting that CIP information, including the customer's name, address, date of birth and identification number, must be obtained for any individual who qualifies as a customer. According to Mr. Goodman, SARs also assist regulators and law enforcement in identifying securities violations and bad actors. He stressed that SARs do not apply solely to securities laws, but also should be used if the activity is conducted in order to hide funds or assets derived from illegal activity as part of a plan to violate or evade any federal law or regulation.

Mr. Goodman went on to discuss AML examination initiatives and other areas of focus. According to Mr. Goodman, clearing firms comprise a particular area of focus for SEC examinations, since they "often have the 'birds-eye view' of the market, and are in the best position to identify patterns of activity engaged in by persons or entities that use more than one introducing broker." Mr. Goodman also identified other areas for examination, including:

• thinly traded or low-market value securities;
• direct market access;
• master/sub account relationships; and
• banking-oriented products and services.

Mr. Goodman stated that AML compliance programs are the "cornerstone" on which all other compliance programs are built. He encouraged firms to share best practices in order to "promote the development" of a strong AML infrastructure.

See: Mr. Goodman's Remarks.Related news: SEC Division of Enforcement Director Urges Greater Diligence to Improve AML Compliance (with Lofchie Comment) (February 25, 2015).