Bank of America’s brokerage unit agreed to a settlement with the Securities and Exchange Commission over charges that the firm was deficient in filing Suspicious Activity Reports,(SARs), according to InvestmentNews.
The SEC announced the settled charges against registered broker-dealer Merrill Lynch, Pierce, Fenner & Smith Incorporated for failing to file numerous SARs from April 2020 through September 2024 in violation of reporting and recordkeeping requirements. Merrill agreed to pay a $7.5 million civil penalty to settle the charges.
The SEC learned that Merrill relied on Bank of America Corporation’s enterprise-wide Bank Secrecy Act/Anti-Money Laundering program to help fulfill Merrill’s independent SAR-filing responsibilities.
“The order finds that Bank of America used a transaction monitoring software system to aggregate potentially suspicious events into “event groups” and assign the groups risk scores,” the SEC stated. “According to the order, only those groups with risk scores above a certain threshold were investigated for potential SAR filings, notwithstanding that internal analyses showed, at least as early as April 2020, that certain groups with risk scores below the threshold, if investigated, would result in SAR filings.”
Merrill failed to file numerous SARs due to its failure to investigate such event groups with risk scores below the threshold, the investigation found. Under federal regulations, registered broker-dealers are required to comply with Bank Secrecy Act reporting requirements, including filing suspicious activity reports (SARs) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The SEC learned that the suspicious transactions that were missed involved hundreds of millions of dollars in transactions conducted by, at, or through Merrill, including transfers with no apparent lawful business purpose, large round-dollar wire transfers, cash transactions that appeared structured to avoid reporting thresholds, transfers connected to high-risk geographic locations, transactions linked to criminal activity, and activity in accounts that had previously been the subject of SAR reviews.
Merrill was found to have violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder. The firm did not admit the findings, but agreed to the civil penalty along with the entry of a cease-and-desist order and a censure.
The SEC noted that Merrill cooperated with investigators and took remedial steps. After lowering the Event Processor threshold in December 2023, Merrill and Bank of America conducted a retrospective review of previously uninvestigated Event Groups and filed numerous SARs.
Bank of America also retained an outside compliance consultant to assess its enterprise-wide BSA/AML program.
Merrill has previously settled two similar matters with the SEC involving SAR failures, in 2017 and 2023.
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