According to Reuters, The Charles Schwab Corporation (SCHW) and Merrill Lynch brokerage, a unit of Bank of America Corp (NYSE:BAC) is under the U.S. regulators’ investigation over the violation of anti-money laundering laws. The regulators are scrutinizing whether the brokerage houses properly conducted identification of their clients as money laundering issues are on an upswing.

Previously, around 2 years ago, the U.S. Treasury Undersecretary for Terrorism and Financial Intelligence – David Cohen requested U.S. regulators to scrutinize financial institutions’ diligence in identifying their proper beneficial owners of accounts. Cohen’s concerns stemmed from increased secret transfer of funds by drug cartel members and terrorists.

The latest move by the U.S. Securities and Exchange Commission (SEC) follows the investigations over the brokerage industry under which brokerage houses are being scrutinized to ascertain whether they are abiding by anti-money laundering rules. However, if found guilty, fines or penalties to be charged has not been disclosed by the SEC.

Based on inaccurate customer information, there is a possibility that brokerage houses might feed money into the financial system from drug trafficking and other crimes. Therefore, the SEC examined Schwab and Bank Of America Corp (NYSE:BAC)’s Merrill Lynch to check if these are involved in such illegal moves by giving warning signals a miss.

According to the source, the SEC investigation revealed that Schwab and Bank Of America Corp (BAC)’s Merrill Lynch without proper inquiry, accepted shell companies and individuals with forged addresses as clients. Moreover, some of the account holders are expected to be related to drug cartels.

With its internal investigation underway, Schwab declined to comment, but confirms its attention to customers’ details. However, spokesmen for the SEC and Bank Of America Corp (NYSE:BAC)’s Merrill Lynch declined to comment.

Under the Bank Secrecy Act, broker-dealers are intimated for proper documentation of customers’ identification. Notably, in 2008, E*TRADE Financial Corporation (ETFC), a major U.S. brokerage firm was penalized $1 million by the SEC for the failure to recognize more than 65,000 secondary account holders’ identities in joint accounts.

It must be mentioned that negligence relating to such critical rules is unacceptable since these issues can give rise to dire consequences.

Recently, it was disclosed by persons familiar with the case that Paris-based BNP Paribas SA (BNPQY) will likely pay nearly $5 billion to the U.S. regulators to resolve investigations into the money laundering issues raised against it.

BNP Paribas’ dealings with sanctioned countries including Sudan, Iran and Cuba are under probe. The agencies involved in the investigations are the Federal Bureau of Investigation, offices of Manhattan U.S. Attorney and Manhattan District Attorney, the Justice Department’s criminal division in Washington, and New York’s Department of Financial Services.


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