Dive Brief:

• The Financial Crimes Enforcement Network is ordering UBS Financial Services, a subsidiary of the Swiss banking giant, to pay a $125 million penalty “for willful violations” of the Bank Secrecy Act – the largest penalty the regulator has ever imposed against a broker-dealer connected to BSA violations, according to a Monday press release.
• Fines are also set to be paid to the Financial Industry Regulatory Authority, the Commodity Futures Trading Commission and the Securities and Exchange Commission over anti-money laundering violations, supervision failures related to foreign wire transfers and the firm’s failure to timely file suspicious activity reports, regulators said.
• A UBS spokesperson said Monday the announcement “brings closure to this legacy matter. UBS has cooperated fully with its regulators and has made significant investments to remediate and strengthen its AML program in line with leading industry practices.” 

Dive Insight:

FinCEN Director Andrea Gacki said in a news release that the agency’s action against the division of the Swiss bank “should send a clear message that recidivist financial institutions will face severe repercussions.”

“Financial institutions that continue to violate the BSA jeopardize the integrity of our financial system, especially those that … expose it to high-risk customers and activities without effective controls,” Gacki said in the release. 

The brokerage firm and investment adviser was hit with a FinCEN consent order in December 2018 over BSA violations, and ordered to pay $14.5 million at that time. FINRA also fined UBSFS $4.5 million at that time, for failing to monitor foreign currency wires, and the Securities and Exchange Commission fined UBSFS $5 million. 

The 2018 FinCEN consent order charged UBSFS with failing to adequately monitor foreign currency wires due to weaknesses in the company’s automated monitoring system, the Treasury Department bureau said. 

“Despite UBSFS assuring FinCEN that it would soon remediate the underlying issues, UBSFS did not do so,” the agency said. 

Rather than promptly remediating identified AML compliance failures, the firm neglected to monitor foreign currency transactions “well after” entering a settlement with FinCEN, FINRA and the SEC over the same deficiencies, FinCEN said. 

“Despite UBSFS’s assurances that it would remediate these deficiencies, it failed to meaningfully address those concerns for years, with significant aspects of such remediation not undertaken until FinCEN’s investigation was already underway,” the regulator said.

Between January 2019 and June 2023, the company failed to appropriately monitor about 60,000 foreign currency wires valued at about $10 billion, regulators said. 

That included wires involving “high-risk geographic locations, excessive transfers, unusually large dollar amounts, no apparent business purpose and instances where the member firm previously filed suspicious activity reports for similar activity by the same accounts,” FINRA said in its release.  

FinCEN said it only learned of the failures that occurred during that time period through a subsequent investigation it initiated following a regulatory examination.

UBSFS also neglected customer due diligence obligations, especially related to serving high-risk customers with ties to Russia and Latin America, FinCEN said. 

“FinCEN’s investigation identified instances of UBSFS failing to appropriately consider and mitigate money laundering and other illicit finance risks associated with these customers’ source of wealth as well as negative news reports that such customers had alleged ties to corruption, fraud, and money laundering — even when one of UBSFS’s own affiliates expressed concerns about such negative news,” FinCEN said. “As a result of these and other deficiencies, UBSFS failed to timely report hundreds of suspicious transactions, thereby depriving law enforcement of critical information.”

Lookback, independent review

UBSFS admitted to BSA violations, FinCEN said. Under the consent order, the firm must work with a third party to complete a lookback to identify and report to FinCEN suspicious transactions that went undetected. 

UBSFS also must undergo an independent review of its AML program “tailored to focus specifically on deficiencies that contributed to UBSFS’s violations and will deliver tangible outcomes by evaluating the effectiveness of UBSFS’s AML program in addressing priority illicit finance risks,” including related to Iran, Russia and Venezuela, as well as at the Southwest border of the U.S., where criminal cartels operate and possible narcotics trafficking occurs.

FinCEN said it will waive up to $15 million of the expenses UBSFS incurs for the independent review and implementation of recommendations, “in a demonstration of FinCEN’s commitment to financial institutions’ meaningful remediation of AML deficiencies and consequential investments to enhance their AML programs.”

FINRA faulted the company for again failing to implement an AML compliance program expected to detect suspicious transactions involving foreign currency wires. The agency also found UBSFS neglected to detect and report suspicious money movements by certain customers.  

“Member firms operating in global markets bear a responsibility to design and implement AML programs that are tailored to their business model and capable of reasonably monitoring transactions for potentially suspicious activity,” Bill St. Louis, FINRA’s head of enforcement, said in a news release. “This action underscores FINRA’s approach to progressive discipline, which includes escalating sanctions for recidivist misconduct.” 

The CFTC pointed to deficiencies in UBSFS’ configuration of surveillance tools and data governance practices between January 2019 and June 2023 as contributing to thousands of foreign currency wires sent or received through its retail customer commodity accounts not being sufficiently monitored for AML compliance. 

For some of that time, UBSFS used a manually generated report that didn’t capture all relevant foreign currency wires for monitoring and wasn’t designed to identify patterns of suspicious activity in such transactions, the CFTC said. 

UBSFS “was aware of these vulnerabilities because they were the subject of prior enforcement proceedings by other government agencies and a self-regulatory organization,” the CFTC said. In 2021, the firm switched to an automated system but “failed to properly configure the data flowing into the new system, causing issues that impacted the efficacy of its suspicious activity monitoring function,” the CFTC said.