The US Securities and Exchange Commission (SEC) on Thursday charged E*Trade Clearing LLC and E*Trade Securities LLC (collectively, E*Trade) over failures to comply with an anti-money laundering rule that requires broker-dealers to verify the identities of their customers and document their procedures for doing so.
The SEC's order found that E*Trade failed to accurately document certain Customer Identification Program (CIP) practices and verify the identities of more than 65,000 of its customers as required by the USA PATRIOT Act and SEC rules.
E*Trade agreed to settle the SEC's enforcement action without admitting or denying the allegations, and will pay USD1mn in financial penalties.
"E*Trade is one of the largest online brokerage firms in the world, and a compliance lapse of this type has the potential to undermine the nation's anti-terrorism and anti-money laundering efforts," explained Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, continuing:
"The penalty and undertakings imposed in today's enforcement action reflect the critical nature of anti-money laundering rules, and will provide greater assurance that future compliance will be seriously and continuously monitored."
Cheryl Scarboro, Associate Director in the SEC's Division of Enforcement, went on to state that:
"On several occasions, E*Trade personnel discovered and rediscovered its CIP deficiency. However, E*Trade did not initiate any corrective action until the problem resurfaced almost two years after the compliance deadline."
"E*Trade's 20-month period of noncompliance clearly resulted from a disjunctive organizational structure and inadequate management of its CIP responsibilities."
E*Trade consented to the issuance of an order instituting administrative and cease and desist proceedings for violations of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder.
In addition to the financial penalties, E*Trade agreed to a censure, and to retain a qualified independent compliance consultant to verify the adequacy of its CIP rule compliance program.
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