Finra Fines Raymond James $17 Mln, Cites “Dirty Money” Failures
Raymond James Financial, one of the brokerage industry’s most aggressive recruiters in the past year, was hit with a $17 million fine on Wednesday for “widespread” and “systemic” failures in its anti-money laundering programs from 2011 to 2014.
In imposing the monetary fine and censure, the Financial Industry Regulatory Authority strongly implied that RayJay’s rapid expansion was responsible for oversight lapses. It levied $8 million of the fine against the firm’s employee channel, Raymond James & Associates, and $9 million against Raymond James Financial Services, its independent channel.
“RJA and RJFS’ significant growth between 2006 and 2014 was not matched by commensurate growth in their AML [Anti Money Laundering] compliance systems and processes,” Finra said in that said it failed to tailor its oversight to differences in the businesses of its two channels. “The end result was that certain ‘red flags’ of potentially suspicious activity went undetected or inadequately investigated.”
Raymond James, which is based in St. Petersburg, Florida, and was sanctioned in 2012 for similar AML violations, agreed to the penalties without admitting or denying the allegations.
Finra also fined Linda Busby, RayJay’s former AML compliance officer, $25,000 and suspended her for three months from working in the brokerage industry. It also is requiring the bank company to commission a written report detailing its AML program and recommendations for improvement.
The settlement addresses issues from several years ago, Raymond James said in a prepared statement. It said it has already bulked up its AML training and staff, replaced Busby with a new chief AML officer and upgraded its surveillance technology.
Like many large brokerage firms, it also is shrinking its business with clients outside the U.S.
“We have also begun the process of exiting our U.S. third-party foreign correspondent business, excluding operations in Europe and Canada,” a company spokesman said in the prepared statement. ”We will continue to refine our program to address evolving regulatory expectations and ensure we are doing our part to reduce criminality in the financial system.”
The fine of $17 million comes close to the $20 million sanction imposed with great fanfare on Oppenheimer & Co. last year by the Securities and Exchange Commission and the U.S. Treasury Department’s Financial Crimes Enforcement Network over AML failures that facilitated the alleged sale of unregistered penny stocks to the public. The Opco fine was commensurate with the egregiousness of the firm’s violations, the SEC’s director of enforcement said at the time.
Finra enforcement head Brad Bennett said Wednesday that Raymond James’s systemic monitoring failure was “made even more egregious by the fact the firm was previously sanctioned in this area.” In 2012, Finra fined the firm $400,000 for failing to detect suspicious transactions that allowed a customer to operate a Ponzi scheme through his brokerage accounts.
Raymond James expanded from around 7,100 registered reps in 2,500 branches in 2006 to 10,200 in 2,900 branches by the end of 2014, numbers that include bankers and traders in its capital markets and asset management businesses. In its “private client group, its largest source of revenue, broker headcount soared to a record 6,687 as of March 30, up by a net 351 over the past five quarters.
Wednesday’s 19-page settlement points to at least 513 incidents in which money was transferred out of client accounts, despite clear red flags signaling high-risk activities. In one case, over a two month period, a customer with RJFS had 14 incoming and outgoing wire transfers totaling $2.4 million unrelated to any securities trading.
“The account activity was neither identified nor investigated,” Finra said.