By Kenneth Corbin
Merrill Lynch has agreed to pay $7.5 million to resolve allegations that it failed to produce multiple suspicious activity reports because of an internal system that didn't flag transactions the brokerage firm should have submitted to federal anti-money-laundering authorities.
The wealth management unit of Bank of America settled the allegations with the Securities and Exchange Commission without admitting wrongdoing.
"We maintain rigorous anti-money-laundering practices," a spokeswoman says. "As we have said previously, we have been engaged with regulators on this matter, and we continually review and enhance our AML systems to address evolving risks and report and detect suspicious activity."
The SEC alleged that from April 2020 through September 2024, a software system called "event processor" assigned risk scores to various transactions, only flagging those with a score of 20 or higher for investigation. The commission says that certain activities that didn't reach that score would have resulted in a suspicious activity report, had they been investigated.
Under the Bank Secrecy Act, broker-dealers and other financial institutions are required to submit SARs to the Financial Crimes Enforcement Network, or FinCEN, the unit of the Treasury Department that handles anti-money-laundering cases. The SEC reached two earlier settlements with Merrill Lynch in 2017 and 2023 related to its AML reporting. The commission has also warned the brokerage industry writ large to devote more resources to AML programs.
In the most recent settlement, announced on Monday, the SEC says that Merrill relied on Bank of America's enterprisewide AML program when it as a broker-dealer "retained all responsibility for complying with the BSA and FinCEN requirements."
The SEC alleges that Merrill and Bank of America routinely evaluated transactions that didn't meet the threshold score of 20 required to trigger an investigation and found that many of those did in fact warrant a closer look. Despite those reviews, the SEC says that Bank of America and Merrill didn't change the threshold score until December 2023.
The commission didn't say how many transactions should have been flagged but weren't, but noted in its settlement order that the activity involved "hundreds of millions of dollars in transactions by, at, or through Merrill."
In assessing the penalty, the SEC says it considered the steps Bank of America and Merrill took on their own to address the issue, including lowering the threshold score and conducting a retrospective review of transactions that didn't meet the minimum score, which resulted in the belated filing of "numerous" SARs.
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