The stakes involved with anti-money laundering compliance keep getting higher with ever-increasing fines and even individual liability for CCOs. Witness the record-setting case last year against Brown Brothers Harriman for ignoring red flags associated with unregistered penny stocks. While the basic framework of an AML program is clear the guidance from regulators is often not. Recent advice from FinCEN said that AML programs should be “effective” and supported by “adequate” people and technology. Of course, there’s no formal requirement that IAs maintain an AML program though many experts say they would be foolish not to. How do you stay ahead of the regulators? What are some best practices?

Test your system, even when it appears to be humming along.
“A red flag does not have to be a positive indicator of suspicious activity. It could be the opposite: across thousands of accounts you are not getting any red flags,” says Tom Potter, a partner with Burr & Forman in Nashville who represents broker-dealers and is a FINRA arbitrator and panel chair. “You should wonder, ’Gee, is this thing working?’ That can itself be a red flag, and with the enforcement mindset the way it is now they will jump on that with both feet.” He notes that FINRA recently hit Wells Fargo with a $1.5 million fine for inadequate testing of its electronic CIP program that allowed a design flaw to persist from 2003 to 2012.

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