SEC Charges Merrill Lynch and BACNAH for Failing to File Suspicious Activity Reports

The Securities and Exchange Commission (SEC) has announced charges against investment firm Merrill Lynch, Pierce, Fenner & Smith and its parent company BAC North America Holding Co.

The charges, stemming from 2009 to 2019, are due to hundreds of Suspicious Activity Reports (SARs) not being filed, the SEC said in a Tuesday (July 11) press release. Merrill Lynch has agreed to pay $6 million in penalties and a separate $6 million fine to the Financial Industry Regulatory Authority (FINRA).

“Broker-dealers have a critical obligation to report suspicious activity in their accounts,” Katharine E. Zoladz, co-acting regional director of the Los Angeles Regional Office, said in the release. “Merrill Lynch and BACNAH did not file hundreds of Merrill Lynch SARs because they failed to comply with one of the most basic requirements for a SAR program.”

Reached by PYMNTS for comment, a Merrill Lynch spokesperson said in an email: “Following an internal review, we reported this matter to regulators and have enhanced our process and training regarding these findings.”

BACNAH was responsible for creating and implementing Merrill Lynch’s SAR policies and filing out the required SARs, the SEC release said. According to the SEC’s order, however, they used an improper threshold of $25,000 — rather than the required $5,000 — for reporting suspicious transactions and attempts to use Merrill Lynch for criminal acts of which the suspect couldn’t be identified.

The SEC’s order finds that Merrill Lynch violated the books and records provisions of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder, per the release. Without admitting or denying these findings, Merrill Lynch and BACNAH have agreed to cease and desist from committing or causing violations of those provisions, as well as accept a censure and the penalties.

This action comes about 14 months after Wells Fargo Advisors agreed to pay $7 million to settle SEC charges that the firm failed to report at least 34 suspicious transactions that could have triggered anti-money laundering (AML) investigations. Those violations occurred between April 2017 and October 2021.

In that case, the firm’s AML transaction monitoring and alert system failed to reconcile different country codes used to monitor foreign wire transfers, leading to its failure to timely file at least 25 SARs, the SEC said at the time.