UBS Financial Services just paid dearly for ignoring the admonition that those who cannot remember the past are condemned to repeat it. The Financial Crimes Enforcement Network (“FinCEN”) recently hit UBS with a “historic” $125 million broker-dealer penalty, which included fines paid in connection with parallel SEC and CFTC actions. The penalties for UBS’s “willful” violations of the Bank Secrecy Act (“BSA”) demonstrate what can happen when a financial institution’s monitoring systems repeatedly fail to identify and report suspicious activity. FinCEN called the fine the largest penalty the agency has ever imposed against a broker-dealer.
UBS’s $125 Million Fine Underscores the Cost of Compliance Failures
FinCEN is a bureau of the U.S. Department of the Treasury. FinCEN safeguards the financial system from illicit activity by pursuing those engaged in money laundering and the financing of terrorism. In order to facilitate FinCEN’s work, financial institutions are required to take specific and well-understood steps to flag and report certain financial transactions that may be indicative of criminal activity. These include requirements to conduct customer due diligence, continuously monitor customer transactions, and make reports to the government of suspicious activity.
UBS was well acquainted with these requirements. In 2018, FinCEN fined UBS $14 million for similarly failing to conduct adequate investigation and reporting of suspicious financial transactions. At the time UBS settled the 2018 charges, it promised to remedy its deficiencies and implement a robust monitoring program to ensure future compliance with the BSA. According to FinCEN, that did not happen.
In the most recent set of charges, FinCEN alleged that UBS failed to appropriately monitor more than 50,000 foreign-currency wires totaling more than $10 billion, failed to disclose the continuing problems to FinCEN, and was late to file hundreds of “suspicious activity reports” (“SARs”).
Under the BSA, broker-dealers like UBS must file SARs for any transaction of at least $5,000 that involves a possible criminal violation or that appears to lack any business or lawful purpose of the type a particular customer would normally conduct. SARs are at the heart of the BSA’s goal to detect money laundering and other criminal activity. Broker-dealers must file SARs within 30 days of learning of the suspicious activity. And broker-dealers must have a robust, systemic process designed to monitor and detect suspicious transactions.
FinCEN’s Whistleblower Program Highlights the Importance of Insider Information
In its press release announcing the UBS settlement, FinCEN expressly highlighted its new whistleblower program. That is a useful reminder: employees who understand where an institution’s controls have failed may hold information that regulators cannot see from transaction data alone. FinCEN’s decision to call out the whistleblower program highlights the importance of whistleblowers in the overall enforcement effort. Because the BSA is effectively an honor system, where financial institutions are expected to self-report suspicious activity, we need whistleblowers to keep them honest.
FinCEN’s whistleblower rewards program is similar to the SEC’s program. It covers violations of the Bank Secrecy Act; the International Emergency Economic Powers Act; the Trading With the Enemy Act; and the Foreign Narcotics Kingpin Designation Act. Whistleblowers are entitled to receive 10%-30% of any amounts that FinCEN recovers as a result of their information leading to a recovery under these laws.
For potential whistleblowers, the practical lesson of the UBS settlement is that a broken control can be as important as a suspicious transaction. Employees may see incomplete data feeds, alerts that never reach investigators, risk ratings that are not updated, overdue remediation, or repeated assurances to regulators that do not match conditions inside the institution. Those facts can help explain why reportable activity went undetected.
Whistleblowers who are aware of such activity may wish to consult with an attorney who specializes in this area. Whistleblower Partners is ready to provide their expertise and advice about such matters. Our clients help to ensure that companies do not forget the past in their effort to seize the future.
