Last week, FinCEN announced a historic $80 million penalty against Canaccord, LLC, a broker-dealer, for violations of the Bank Secrecy Act. The penalty is the largest ever imposed against a broker-dealer for BSA violations. This news is a ringing reminder to broker-dealers that despite the Bank Secrecy Act having “Bank” in its name, it applies to broker-dealers and other types of financial institutions as well. All of these financial actors have a role to play in protecting the market from money-laundering and other types of financial fraud.
Two of Canaccord’s business lines were front-and-center in the FinCEN settlement: its wholesale market making business, which traded in over-the-counter (OTC) securities and other products, and its trade execution business for institutional customers. Canaccord is a big player in the world of cheap OTC securities – ranking among the top five market makers worldwide from 2018 to 2022.
Notably, the settlement includes admissions of wrongdoing from Canaccord – a sign of strong enforcement by FinCEN and the reason this blog post isn’t peppered with the word “allegedly.” Canaccord admitted that from 2018 to 2024, it had under-resourced and insufficient compliance staffing that could not meet the challenge of monitoring its high-risk business.
On paper, Canaccord had a BSA compliance officer and ran a lot of trade surveillance reports designed to flag suspicious activity. But the compliance officer did not have the training or experience to do an adequate job, and many of the reports Canaccord generated sat unread for months or even years because compliance staffers didn’t have the time or know-how to review them.
Entities subject to the BSA have an obligation to file Suspicious Activity Reports (“SARs”) on transactions that raise red flags. FinCEN estimates that Canaccord missed filing at least 160 SARs that it should have.
There were multiple ways that Canaccord’s compliance deficiencies created real harm. On the market making side, Canaccord’s deficiencies hurt investors because it allowed multiple pump and dump schemes to go on undetected. Canaccord failed to perform appropriate customer due diligence – both when it initially onboarded customers and in an ongoing way. Canaccord customers included someone who was implicated in the investigation of an OFAC-designated individual in Venezuela and another person who was widely reported to be helping Russian oligarchs move and protect their assets.
Canaccord also operated correspondent accounts for foreign financial institutions, giving them an entrance point into the U.S. financial system, without doing due diligence on their customer profiles.
At multiple points along the way, Canaccord ignored warning signs that it needed to beef up its compliance. In 2013, FINRA pointed out Canaccord’s failings, and Canaccord promised to do a better job at automatically monitoring trades for signs of illicit activity. A similar exchange with FINRA, ending in promises to do better, happened again in 2016. And then, perhaps most egregious, in 2020 compliance employees falsified records provided to a regulator to make it look like they were reviewing trade surveillance reports when they were not.
Refreshingly, FinCEN’s press release on this major action reminds readers at the end that FinCEN has a whistleblower program and invites their tips. It’s gratifying to see an acknowledgment of the vital role whistleblowers have to play in helping FinCEN root out fraud and keep our financial markets safe. News of a settlement of such headline-grabbing proportions sends a clear signal to broker-dealers that their BSA obligations are serious and FinCEN is watching.
