Joseph Gunnar & Co.
Joseph Gunnar & Co. was fined $55,000 for failing to establish and implement an AML program reasonably designed to detect and cause the reporting of potentially suspicious activity relating to transactions involving low-priced securities.
The findings stated that the firm’s AML procedures failed to include reasonable procedures for the surveillance of potentially suspicious trading in low-priced securities, failed to address the process for assessing potential red flags associated with transactions in low-priced securities, and did not provide reasonable guidance about how to utilize the reports and tools the firm had at its disposal to monitor for potentially suspicious trading in low-priced securities.
In addition, the surveillance reports and tools the firm actually used were not reasonably designed to detect and cause the reporting of potentially suspicious activity relating to transaction involving low-priced securities. In particular, the firm relied on its branch managers and compliance personnel to conduct a manual review of daily and five-day trade blotters for potentially suspicious activity. These blotters, however, did not include sufficient information to reasonably identify potentially suspicious activity, either on a transaction-by-transaction basis or over time.
The firm also used automated exception reports to detect and cause the reporting of potentially suspicious activity; however, the reports were not reasonably designed and failed to flag purchases of low-priced securities that should have triggered one or more of the reports’ parameters. Furthermore, the exception reports did not flag deposits or sales of low-priced securities, or other red flags for potentially suspicious activity. The findings also stated that although the firm received alerts from its clearing firm relating to potentially suspicious activity in low-priced securities, it did not reasonably respond to these red flags. The firm failed to create any written analyses or compile other records indicating that it investigated this potentially suspicious activity and did not take steps to determine why its own AML program had failed to detect the potentially suspicious transactions that the clearing firm flagged.
The findings also included that the firm failed to establish a due diligence program including policies, procedures and controls reasonably designed to detect and report, on an ongoing basis, any known or suspected money laundering activity conducted through or involving correspondent accounts or foreign financial institutions (FFIs). The firm failed to identify all of its FFI accounts because it had no system or processes in place to do so. Moreover, the firm had no system or procedure for performing risk-based reviews of FFIs and, as a result, did not review those customers’ trading activity against any defined risk assessment or to determine if the trading was consistent with the customers’ expected account activity. Although the firm’s policies and procedures required it to conduct annual reviews of foreign accounts, it did not conduct any annual periodic reviews of correspondent accounts for FFIs.
