SEC probing Charles Schwab, Merrill Lynch for AML lapses
Friday, May 23, 2014 at 5:28AM
Julie DiMauro in Bank Secrecy Act, Bank of America, Charles Schwab, David Cohen, Merrill Lynch, MoneyGram International, SEC, U.S. Treasury, money laundering

U.S. regulators are investigating Charles Schwab and Bank of America's Merrill Lynch brokerage over whether they are doing enough to verify their clients' identities as part of their anti-money laundering programs. 

The SEC wants to know whether the brokerages missed red flags of clients' attempts to move money illicitly, Reuters reported Wednesday.

A source told Reuters that proceeds from drug trafficking and other crimes can enter the financial system when brokerages fail to know their customers well enough.

Schwab is conducting an internal investigation, one source said.

The SEC's investigations are part of its sweep of the brokerage industry to make sure anti-money laundering rules are being followed, two former government officials told Reuters.

The SEC's investigation isn't complete and no charges have been brought.

The Bank Secrecy Act requires financial institutions to maintain procedures for identifying customers and verifying their identities, among other obligations.

David Cohen, U.S. Treasury Undersecretary for Terrorism and Financial Intelligence, has urged regulators to make sure financial institutions identify the true owners of their accounts so drug-cartel members and terrorists cannot secretly transfer tainted funds.

Last month, the Treasury Department notified a former employee at MoneyGram International Inc. that he could face a fine of up to $5 million over anti-money laundering lapses at the company when he served as its chief compliance officer.

The SEC's investigation into Charles Schwab and Merrill Lynch so far has found that these firms accepted shell companies and individuals with fake addresses as clients, two sources told Reuters.

In both cases, some of the accounts were eventually linked to Mexican drug cartels, they said.


Julie DiMauro is the executive editor of the FCPA Blog and can be reached here.

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