U.S. Attorney’s Office for the Southern District of New York Announces First-Ever Criminal Bank Secrecy Act Charges Against a U.S.-Based Broker-Dealer


Posted on December 20, 2018, by Peter Baldwin in Criminal Liability, Deferred Prosecution Agreements, Enforcement. Comments Off on U.S. Attorney’s Office for the Southern District of New York Announces First-Ever Criminal Bank Secrecy Act Charges Against a U.S.-Based Broker-Dealer

On December 19, 2018, the United States Attorney for the Southern District of New York announced criminal charges against Central States Capital Markets, LLC (“CSCM”), a Prairie Village, Kansas-based broker-dealer. CSCM was charged with a violation of the Bank Secrecy Act (“BSA”) based on its willful failure to file a suspicious activity report (“SAR”) in connection with the illegal activities of one of its customers. The charge against CSCM represents the first criminal BSA charge ever brought against a United States-based broker-dealer.

The U.S. Attorney’s Office also announced that CSCM had entered into a deferred prosecution agreement under which it agreed to accept responsibility for its conduct, forfeit $400,000, and enhance its BSA / Anti-Money Laundering(“AML”) compliance program. If CSCM complies with the terms of the agreement,the U.S. Attorney’s Office agreed to defer prosecution for a period of two years, after which time the government will seek to dismiss the charge.

According to documents filed by the U.S. Attorney’s office, one of CSCM’s clients (the “Client”) was convicted of racketeering, wire fraud, and money laundering for his role in perpetrating a multibillion dollar payday lending scheme. In furtherance of his criminal scheme, the Client opened investment accounts at CSCM for multiple companies that he controlled and used in connection with the scheme. In connection with opening the accounts, CSCM failed to follow its written customer identification procedures. CSCM also failed to verify various statements by the Client regarding his businesses and his reasons for opening accounts at CSCM. Moreover, after opening accounts for the Client, CSCM became aware of other red flags, including the Client’s prior criminal record and an action brought against the Client by the Federal Trade Commission. Nevertheless, CSCM failed to act on these red flags and instead relied on explanations proffered by the Client. Finally, CSCM failed to appropriately monitor transactions involving the Client’s accounts. Specifically, whileCSCM’s AML monitoring tool generated alerts involving the Client’s accounts,CSCM never checked the alerts. In addition, numerous suspicious transactions went undetected and unreported by CSCM.

The announcement of criminal charges against CSCM should serve as a reminder that there can be significant consequences if broker-dealers are not mindful of their BSA / AML obligations. As U.S. Attorney Geoffrey Berman stated: “Today’s charge makes clear that all actors governed by the Bank Secrecy Act – not only banks – must uphold their obligations to protect our economy from exploitation by fraudsters and thieves.”

In addition, CSCM reached a separate settlement with the U.S. Securities & Exchange Commission, which included, among other things, a censure and a requirement to hire a compliance consultant.





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