On August 10, 2020, Interactive Brokers LLC, an internet-based brokerage firm headquartered in Greenwich, Connecticut, settled charges of anti-money laundering deficiencies, including failure to file Suspicious Activity Reports, with the US Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the US Commodity Futures Trading Commission. The three regulatory bodies brought parallel actions against the company.
SEC Investigation
The SEC determined that over the course of one year, Interactive Brokers — one of the largest electronic broker-dealers in the US — failed to file at least 150 SARs to signal potential microcap securities manipulations in customer accounts; did not properly investigate suspicious activity, and; did not file SARs in a timely fashion even after suspicious transactions had been flagged by the company’s compliance department.
FINRA Investigation
FINRA found that during the period between 2013 and 2018, Interactive Brokers cleared transactions for more foreign financial institutions than any other broker-dealer in the US, but did not dedicate the necessary resources to monitor hundreds of millions of dollars of customer wire transfers, including high risk transfers, for money laundering concerns; did not reasonably investigate suspicious activity because it had insufficient personnel to conduct investigations, and; failed to establish and implement policies, procedures and internal controls reasonably designed to cause the organization to file the SARs required by the Bank Secrecy Act.
CFTC Investigation
In the first action ever brought against a company by the CFTC for violations of its Bank Secrecy Act compliance regulations, the CFTC charged Interactive Brokers, as a registered futures commission merchant, for failing adequately to supervise the handling of commodity trading accounts by the company’s officers, employees, and agents between 2014 and 2018, and for failing to implement procedures designed to detect and report suspicious transactions. The CFTC noted that despite the existence of written compliance policies, Interactive Brokers failed to commit adequate resources toward implementation of the program.
Settlements
SEC – In determining the terms of its settlement with Interactive Brokers, the SEC considered the remedial actions taken by the company, including the engagement of outside consultants to review its AML program, and the institution of a remediation plan to address the weaknesses identified by the consultants. The SEC settlement formally censures Interactive Brokers, and requires it to cease and desist from future violations of Section 17(a) of the Securities Exchange act of 1934 and Rule 17-a-8 thereunder, and to pay civil penalties of $11.5 million.
FINRA – In reaching the appropriate sanctions, FINRA took into account proactive measures taken by Interactive Brokers to assess and enhance its AML compliance program, including the engagement of a third-party outside consultant to conduct a non-privileged review of the company’s AML program. In addition to the payment of a $15 million fine, Interactive Brokers has accepted FINRA’s censure, and has undertaken to continue to retain and to cooperate with the third-party AML compliance consultant, who in turn will report to FINRA on its activities.
CFTC – The terms of Interactive Brokers’ settlement with the CFTC require the payment of a civil monetary penalty of $11.5 million, disgorgement of $706,214, and the hiring of a third-party compliance consultant to review and report on the AML and supervisory issues identified by the CFTC.
FINRA press release | FINRA letter of acceptance and consent