A Wells Fargo unit was fined $7 million for failing to monitor AML transactions

The Securities and Exchange Commission (SEC) has charged a Wells Fargo subsidiary with failing to file suspicious activity reports (SARs) on time for the second time in five years due to flaws in the system it used to flag transactions.

According to the SEC, Wells Fargo Advisors, a brokerage firm owned by Wells Fargo, failed to file 34 SARs on time between 2017 and 2018. Wells Fargo agreed to pay a $7 million fine, be censured, and refrain from future violations without admitting or denying the charges.

The SEC's order stated that the firm's internal anti-money laundering (AML) transaction monitoring system caused delays in the filing of SARs.

The system "ffailed to adequately monitor, detect, and report certain transactions in its customers’ brokerage accounts involving wire transfers to or from certain foreign countries determined to be at a high risk or moderate risk for money laundering, terrorist financing, or other illegal monetary movements," according to the agency.

Wells Fargo Advisors paid a $3.5 million fine to the Securities and Exchange Commission in 2017 after failing to file at least 50 SARs on time.

The first issue with late-filed SARs was allegedly related to codes assigned by the firm to countries considered high or moderate risk for potential illegal activity, such as money laundering and terrorist financing. The firm's enterprise-wide AML and Bank Secrecy Act (BSA) compliance program used country codes based on a standard established by the International Organization for Standardization, while the AML transaction monitoring system used country codes based on the National Geospatial Intelligence Agency's standards (ISO). When monitoring wire transfers to foreign countries, the AML system compared the codes.

According to the SEC, Wells Fargo Advisors implemented a new anti-money laundering monitoring system in January 2019. The firm's AML monitoring system failed to cross-reference the ISO codes, resulting in the failure to generate alerts for more than 1,708 transactions to countries considered high or moderate risk for money laundering/terrorist financing activity, according to a FINRA investigation conducted in September 2019. Costa Rica, Turkey, Honduras, the British Virgin Islands, Antigua and the Cayman Islands, Ukraine, and Guernsey were among the countries involved.

SARs must be filed with the Treasury Department's Financial Crimes Enforcement Network within 30 days, according to the BSA. According to the SEC, SARs on transactions flagged by the FINRA examination were filed 157 days late on average, and in seven cases, more than 200 days late.

Wells Fargo Advisors reported another unrelated failure in the AML system to the SEC in December 2021. From 2017 to 2019, wire transfer data was not processed correctly on dates when there was no corresponding brokerage holiday. During this time, the firm failed to generate 658 alerts on 11 days, resulting in the filing of nine SARs that were 536 to 1,209 days late.

According to the SEC, Wells Fargo responded by taking corrective actions such as reviewing and correcting the problems and "coordinating responsibility between compliance and technology personnel in the implementation of future AML system upgrades." An outside consultant was hired to review the company's AML and BSA transaction monitoring system and procedures and make recommendations for improvements in "architecture, testing, and governance for AML and BSA transaction monitoring." The SEC received the consultant's report, as well as the results of its internal investigations and other important documents, from the firm.

According to a spokeswoman for Wells Fargo Advisors, the issue "“refers to legacy issues that impacted a transaction monitoring system and the issues were resolved promptly upon discovery."

By fLEXI tEAM