Patriot Act put into play for first time by SEC

LOS ANGELES – Los Angeles broker-dealer Crowell, Weedon became the target of the first-ever enforcement action under the USA Patriot Act by the US Securities and Exchange Commission (SEC) in late May. No fine was imposed.

According to regulators, from October 2003 to at least late April 2004, Crowell, Weedon failed to document its actual customer identity verification procedures in its written customer identification program (CIP). During this period, it opened approximately 2,900 new accounts for customers. In verifying the identities of those customers, Crowell, Weedon simply relied on its registered representatives' attestations that they had personal knowledge of the customers opening the new accounts. This practice was not documented in the firm's written CIP.

Rather, Crowell, Weedon's written CIP specified that it would verify the identity of each new customer using certain non-documentary and documentary procedures, such as a public database search and reviewing a government issued identification. The firm did not use these procedures; instead, it used procedures that were materially different from, and weaker than, those in its written CIP. By failing accurately to document its CIP, the firm violated the record-keeping and record retention requirements.

The SEC's action may herald the beginning of a crack-down on US broker-dealers by the regulator on AML matters, say industry experts. This new focus on broker-dealers has been expected for some time, as industry studies and surveys have consistently shown that broker-dealers are less prepared, in general, to fulfill anti-money laundering regulatory obligations than banks which have invested significantly in technology and resources.