US regulators impose $38m in penalties on Interactive Brokers for AML and reporting failures

The Securities and Exchange Commission (SEC) today announced that Interactive Brokers LLC will pay an $11.5 million penalty to settle charges it repeatedly failed to file Suspicious Activity Reports (SARs) for U.S. microcap securities trades it executed on behalf of its customers. In parallel actions, the Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC) today announced settlements with Interactive Brokers related to anti-money laundering failures in which the registered broker-dealer agreed to pay penalties of $15 million and $11.5 million, respectively, for a total of $38 million in penalties paid to the three agencies.

According to the CFTC, Interactive Brokers LLC has failed to diligently supervise its officers’, employees’, and agents’ handling of several commodity trading accounts and has failed to adequately implement procedures to detect and report suspicious transactions as required under federal anti-money laundering (AML) laws and regulations. Brought in connection with the Division of Enforcement’s Bank Secrecy Act Task Force, this case marks the first CFTC enforcement action charging a violation of Regulation 42.2, which requires registrants to comply with the Bank Secrecy Act.

The order requires Interactive Brokers to pay a civil monetary penalty of $11.5 million and disgorge $706,214 earned in part from its role as the FCM carrying the accounts of Haena Park and her companies, which were the subject of a 2018 CFTC enforcement action. In that case, a federal court ordered Park and her companies to pay more than $23 million in penalties and restitution for committing fraud and misappropriating investor funds. As Park’s FCM, Interactive Brokers failed to properly monitor her account activity. The order also requires Interactive Brokers to comply with certain undertakings, including the hiring of a third party compliance consultant to review and report on the AML and supervisory issues raised in the order.

According to the order, from June 2014 through November 2018, Interactive Brokers failed to ensure that its employees followed established policies and procedures with respect to supervision of customer accounts. Interactive Brokers also lacked a reasonably designed process for conducting investigations of account activity and making SAR determinations. These failings contributed to its inability to maintain an adequate AML program. As a result, Interactive Brokers employees failed to adequately investigate and identify certain signs of suspicious activity in accounts that, according to its own compliance procedures, should have prompted the filing of SARs with appropriate authorities.

While Interactive Brokers maintained basic written policies, it failed to commit adequate resources to ensure that its AML program was reasonably equipped to monitor, detect, escalate, and report suspicious activity in practice. Interactive Brokers also had no mechanism to combine information generated by various reports to identify patterns and trends over time.

The order states that Interactive Brokers represented in its settlement offer that it has since engaged in substantial remedial measures, including the engagement of outside consultants to conduct various assessments, independent testing of its AML program, and the development and ongoing implementation of a new case management system. Interactive Brokers has also continued to retain an independent consultant to report on the status of its implementation of previously-made recommendations and to make any additional proposals for improvements in internal controls, policies, procedures, systems, and training.