reuters.com | 7/30/08 | John Poirier
WASHINGTON (Reuters) - E*Trade Financial Corp agreed to pay $1 million to settle allegations that two of its brokerage firms failed to follow U.S. rules designed to thwart money laundering, securities regulators said on Wednesday.
E*Trade Clearing LLC and E*Trade Securities LLC, without admitting or denying wrongdoing, agreed to settle an administrative proceeding brought by the Securities and Exchange Commission, the agency said.
The SEC alleged that from October 2003 to June 2005 the firms failed to properly document and verify the identities of more than 65,000 customers as required by several rules, including the U.S. Bank Secrecy Act.
According to the SEC order, the firms failed to identify the secondary holders in joint accounts as required by those regulations. E*Trade is among many financial institutions such as banks, credit unions and casinos required to establish effective anti-money laundering programs under the BSA that call for regulatory reports if certain amounts of money are transacted.
Those rules are enforced by a host of U.S. agencies, including the Treasury Department's Financial Crimes Enforcement Network (FinCEN).
"A compliance lapse of this type has the potential to undermine the nation's anti-terrorism and anti-money laundering efforts," Linda Thomsen, director of the SEC's division of enforcement, said in a statement.
SEC officials said the company did not take corrective steps until two years after a key compliance deadline.
"E*Trade fully supports the SEC in its efforts to curb the exploitation of the financial services industry by those who would seek to do harm to others," company spokeswoman Pam Erickson said.
The company, which has been assisting the SEC, other regulators and law enforcement officials, discovered the lapse in 2005 and conducted an internal audit. The results were also voluntarily reported to the SEC and other regulators in 2005.
The failure was systemic, and a lack of a cohesive organizational structure, adequate management oversight and communications among personnel in business groups contributed to the lapse, the markets watchdog said.
The company has agreed to a censure and will hire an independent consultant to verify its compliance program, the SEC said.
