LEGAL
On November 13, the Securities and Exchange Commission announced that it had reached a settlement with Wells Fargo Advisors, LLC over charges that the broker-dealer failed to file and timely file a number of Suspicious Activity Reports (SARs).i
As part of the settlement, Wells Fargo Advisors has agreed to pay a civil penalty of $3.5 million, in addition to a censure and cease-and-desist order.
Unfortunately, the alleged conduct at issue was entirely avoidable and simply the result of poor training on anti-money laundering rules and regulations.
New management creates confusion
Beginning in March 2012, Wells Fargo Advisors began making changes to the management of its anti-money laundering (AML) program, including over its Surveillance and Investigations group, which is responsible for investigating cases to determine whether to recommend filing a SAR, according to the SEC’s administrative order.ii
The first of these changes was in March, when the company hired a new senior manager within the compliance department. Next, in July 2012, Wells Fargo Advisors hired a new manager to directly supervise the Surveillance and Investigations group.
Shortly after their arrival, the new management began giving the Surveillance and Investigations group “conflicting and confusing directions on when and whether to file certain SARs.”
According to the SEC, these directions included:
Given that members of the Surveillance and Investigations group were recognized for the quality and increased number of SARs filed prior to March 2012, it’s understandable why any of these directions would be confusing – given that they are all either patently false or firmly against best practice.
What’s more, the new management also directed investigators to not document in the company’s internal case management system any dispute with management’s decisions to not file SARs. Instead, investigators were only to record “facts and management’s final decision,” according to the SEC.
Number of SARs filed plummets
The SEC says that the new management’s direction created an environment in which the Surveillance and Investigations group found it difficult to even recommend and file SARs.
As a result, the total number of SARs filed per month by Wells Fargo Advisors dropped 60 percent between July 2012 and July 2013.
In 2013, an employee filed an internal complaint, which triggered an internal investigation with assistance from an outside law firm.
Thereafter, Wells Fargo Advisors retained a third-party AML compliance firm in the summer of 2014 to assess the no-SAR cases from January 2012 until August 2013.
The review determined that the company missed at least 50 SAR filings in just the roughly one-year period that the new management held the reins.
Entirely avoidable errors
It is not only in hindsight that Wells Fargo Advisors’ mistakes are so easily recognized.
Rather, the missteps of the new management were seemingly identified by the investigators of the Surveillance and Investigations group at the time they were made.
In fact, nearly anyone familiar with AML and Bank Secrecy Act rules and regulations could immediately identify the “directions” issued by the management as unconditionally erroneous.
The means of avoiding such mistakes are quite simple: Ensure that your employees are fully trained in the laws, rules, and regulations relating to their jobs.
Clearly, the new management was not familiar enough with AML regulations to understand just how incorrect their directions were, and had they been properly prepared for their roles through compliance training, it’s highly unlikely that Wells Fargo Advisors would have to pony up $3.5 million.
Many organizations already have robust compliance training regimes in place.
At the same time, one would presume that an organization like Wells Fargo Advisors would also have such regimes in place that would have prevented this. Something clearly fell through the cracks.
Thus, this case should certainly be viewed as a cautionary tale of keeping your employees trained as regularly as possible, and definitely before they take on any positions of control over regulated functions with the company.
i https://www.sec.gov/litigation/admin/2017/34-82054-s.pdf
ii https://www.sec.gov/litigation/admin/2017/34-82054.pdf
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