First Case to Charge Violations of CFTC’s Bank Secrecy Act Compliance Regulations
Washington, DC (STL.News) The Commodity Futures Trading Commission today filed and simultaneously settled charges against Interactive Brokers LLC, a registered futures commission merchant (FCM), for failing to diligently supervise its officers’, employees’, and agents’ handling of several commodity trading accounts and failing to adequately implement procedures to detect and report suspicious transactions as required under federal anti-money laundering (AML) laws and regulations. Brought in connection with the Division of Enforcement’s Bank Secrecy Act Task Force, this case marks the first CFTC enforcement action charging a violation of Regulation 42.2, which requires registrants to comply with the Bank Secrecy Act.
The order requires Interactive Brokers to pay a civil monetary penalty of $11.5 million and disgorge $706,214 earned in part from its role as the FCM carrying the accounts of Haena Park and her companies, which were the subject of a 2018 CFTC enforcement action. [See CFTC Press Release No. 7858-18] In that case, a federal court ordered Park and her companies to pay more than $23 million in penalties and restitution for committing fraud and misappropriating investor funds. As Park’s FCM, Interactive Brokers failed to properly monitor her account activity. The order also requires Interactive Brokers to comply with certain undertakings, including the hiring of a third party compliance consultant to review and report on the AML and supervisory issues raised in the order.
“Our regulatory regime requires certain intermediaries to monitor and report suspicious activity. These suspicious activity reports—or SARs—serve as key tools that we, together with our regulatory partners, use to identify fraud, manipulation, and other wrongdoing in our markets—often at the earliest stages,” said CFTC Director of Enforcement James McDonald. “This case marks the first time the CFTC has charged a violation of Regulation 42.2 and shows our commitment to ensuring these requirements are met.”
According to the order, from June 2014 through November 2018, Interactive Brokers failed to ensure that its employees followed established policies and procedures with respect to supervision of customer accounts. Interactive Brokers also lacked a reasonably designed process for conducting investigations of account activity and making SAR determinations. These failings contributed to its inability to maintain an adequate AML program. As a result, Interactive Brokers employees failed to adequately investigate and identify certain signs of suspicious activity in accounts that, according to its own compliance procedures, should have prompted the filing of SARs with appropriate authorities.
While Interactive Brokers maintained basic written policies, it failed to commit adequate resources to ensure that its AML program was reasonably equipped to monitor, detect, escalate, and report suspicious activity in practice. Interactive Brokers also had no mechanism to combine information generated by various reports to identify patterns and trends over time. Given the size and nature of Interactive Brokers’ business, the lack of these procedures limited the ability of its analysts to recognize the full scope of an individual customer’s activity. This resulted in the company overlooking red flags that indicated potentially suspicious activity. Additionally, Interactive Brokers did not put any procedures in place that required compliance personnel to document steps taken and decisions made during the investigative and SAR consideration process. As a result of all of these deficiencies, Interactive Brokers failed in its duty to detect and report instances of suspicious activity.
The order states that Interactive Brokers represented in its settlement offer that it has since engaged in substantial remedial measures, including the engagement of outside consultants to conduct various assessments, independent testing of its AML program, and the development and ongoing implementation of a new case management system. Interactive Brokers has also continued to retain an independent consultant to report on the status of its implementation of previously-made recommendations and to make any additional proposals for improvements in internal controls, policies, procedures, systems, and training.