SEC Fines Wells Fargo Advisors $7M for AML Violations

The Securities and Exchange Commission (SEC) has charged Wells Fargo Advisors, the broker-dealer arm of Wells Fargo & Company, for failing to file at least 34 suspicious activity reports (SARs) in a timely manner between April 2017 and October 2021. A minimum of 25 of these late filings involved wire transfers to or from jurisdictions that pose a moderate to high risk for illegal money movements, including money laundering and terrorist financing. 

According to the SEC, the violation occurred in part due to a faulty rollout of a new version of the broker dealer’s transaction monitoring system that was deployed in 2019. The SEC noted that the firm failed to undertake country code cross-referencing checks, and did not conduct post-implementation assessments of the new system. Between January 2019 and August 2019, the updated system failed to generate alerts for around 1,708 wire transfers from 18 moderate-risk and 20 high-risk countries. 

The broker-dealer has agreed to pay $7 million to settle the case, in addition to a censure and a cease and desist order without admitting or denying the findings of the investigation.

Wells Fargo enforcement actions

This is the second Bank Secrecy Act (BSA) penalty the SEC has issued Wells Fargo Advisors for SAR filing deficiencies in the last five years. In November 2017, the SEC issued a settled order for its failure to file 50 SARs in an acceptable time frame. The firm’s wider anti-money laundering (AML) program has also faced penalties from US authorities. This has included a $500 million penalty from the Office of the Comptroller of the Currency (OCC) in April 2018 for failing to implement and maintain a satisfactory compliance risk management program, and a $3 billion fine issued by the US government in February 2020 over falsified bank records. In September 2021, the banking giant was hit with a further fine of $250 million after the OCC accused the firm of failing to effectively oversee home mortgages. The consent order issued at that time required Wells Fargo employees to improve their decision-making when evaluating whether borrowers qualify for relief on loan payments. The most recent fine from the SEC comes during a recent leadership transition in the firm’s $2 trillion wealth and investment management division. Sol Gindi was appointed as head of Wells Fargo Advisors less than two weeks before the SEC announced its enforcement action. In March, USAA Federal Savings Bank was also fined for BSA failings in its AML program, including similar issues related to its transaction monitoring systems.  

SAR analysis and guidance 

In 2021 ComplyAdvantage surveyed compliance leaders globally to build an assessment of the state of financial crime in the year ahead. The survey showed that while SAR filings are going up, many firms are struggling to address both the quality and quantity of their SARs simultaneously. In addition to enforcement through fines, our survey found that regulators are showing a renewed focus on providing firms with guidance on how to submit SARs – and why doing so is important. In January this year, FinCEN launched a pilot to enable firms to share SAR intelligence, highlighting the ongoing work to reform and modernize SAR filing by regulators in many jurisdictions globally. “We urge stakeholders to provide input to assist us in developing a program that will help combat illicit finance risks and promote enterprise-wide risk management while ensuring adequate safeguards are in place to protect SAR confidentiality,” said FinCEN Acting Director Himamauli Das.

Takeaways for compliance staff

Broker-dealer compliance teams should ensure new transaction monitoring systems are fully tested and calibrated before launch, using a sandbox approach where necessary, with protocols in place to continually refine rules once live and in alignment with the firm’s wider risk-based approach. Compliance staff should also ensure they complete their due diligence and review the latest guidance provided by regulators on how they would like SARs to be filed in their jurisdiction. The Financial Action Task Force (FATF) has also issued guidance for broker-dealers to help them understand the nuances of a risk-based AML program for this sector.