In this latest ACFCS Enforcement Roundup, we highlight recent federal investigative and regulatory efforts to crack down on money laundering and corruption in the international gold trade, along with a US securities watchdog more aggressively penalizing individuals, including anti-money laundering compliance officers, and more.

The actions serve as a reminder that US law enforcement is seeking to close off all entry points of illicit value from foreign narco groups, and that AML rules and related penalty exposure apply to more than just banks.

They also demonstrate an increased focus on individual accountability in financial crime compliance for the securities sector, creating an environment where mistakes can be both financially costly and disastrous for a professional’s reputation.

Texas gold refinery to pay $15 million fine for lax AML program, $3.6 billion laundering scheme

In a move that may prod banks to rethink their precious metals and gold refinery customers, a Texas gold refinery has agreed to be forfeit $15 million after three former employees plead guilty with a judge later handing down stiff sentences in a $3.6 billion money-laundering case involving South American gold.

Earlier this month, Dallas-based Elemetal LLC pleaded guilty in a Miami federal court to one count of failure to maintain an adequate anti-money-laundering (AML) program as part of a plea agreement. A judge must still approve the accord and hand down a sentence.

As part of the agreement, Elemetal must also develop and maintain an effective compliance and ethics program, and be subject to a five-year probation term, during which it will be prohibited from purchasing precious metals from outside the United States.

Samer Barrage, Renato Rodriguez and Juan Granda pleaded guilty last year to importing illegally mined gold from Peru and several other South American countries – also a massive issue due to organized criminal and narco groups using illicit gold to fund operations – into the United States.

Supported by court documents, and later their guilty pleas, prosecutors detailed how the men smuggled tainted gold to this country between January 2013 and March 2017 for an Elemetal subsidiary, NTR Metals, in Miami. In their respective cases, a judge handed down sentences ranging from six years to seven and a half years in prison.

Authorities say the men circumvented Elemetal’s AML compliance program – certain dealers in precious metals are subject to the same AML programs as banks and other entities considered financial institutions, by buying gold from a drug trafficker – by bribing Peruvian officials and falsifying paperwork.

The action also included an instructive roadmap for AML compliance professionals in the precious metals sector on what not to do, by detailing Elemetals failures, including:

  • Accepting gold without proper or adequate identification or due diligence, risk scoring.
  • Accepting gold from foreign gold suppliers calling themselves vague “gold collectors.”
  • Accepting gold from countries not known for major gold stores, anonymous front firms.
  • Accepting gold from customers, suppliers with open source, negative news black marks.
  • Failing to request, obtain or review source of gold, funds uncovering known illicit ties.
  • Failing to request, obtain or preserve communications through encrypted, peer chats.

To read more, click here.

SEC charges Canadian gold firm nearly $1 million to settle civil FCPA charges tied to lax controls, oversight of merged subsidiaries

This week, the U.S. Securities Exchange Commission (SEC) issued a nearly $1 million penalty to settle alleged civil violations of the U.S. Foreign Corrupt Practices Act against a Canadian precious metals firms due to its multiple and ongoing failures to ensure two high-profile and high-priced subsidiaries captured in a merger had adequate controls to counter bribery.

The SEC, the country’s chief securities regulator, stated it issued a cease-and-desist order and monetary penalty of $950,000 against Kinross Gold Corporation for failing to craft, implement and ensure effective internal controls to counter corruption for three years at two African subsidiaries acquired in 2010 in a $7.1 billion deal.

All this “despite multiple internal audits flagging widespread deficiencies” at the newly purchased subsidiaries, already known to be operating in a region known to be enmeshed in endemic corruption.

But even after implementing the controls, “Kinross Gold failed to maintain them,” according to the SEC order.

This is borne out, according to the regulator, in the poor decision-making the company engaged in while professing an improve compliance program.

For example, Kinross awarded a “lucrative logistics contract to a company preferred by Mauritanian government officials, despite concerns that the company was a high-cost provider with poor technical capabilities,” going against the company’s own stated bidding and tendering procedures.

The company also rubbed elbows with the riskiest of all entities in a graft-gilt locale: high-ranking politically exposed persons (PEPs).

Kinross contracted with a PEP-related consultant to “facilitate contacts with high-level Mauritanian government officials without conducting required, heightened due diligence,” along with paying vendors and consultants “without ensuring the payments were consistent with policies prohibiting improper payments.”

The SEC has also given the company a short turnaround time to improve and remediate the compliance program: one year. The order is also unique as it is not charging the company with violating criminal corruption laws, but violating books and records and internal accounting controls provisions of the federal securities laws.

To read more, click here.

SEC, Finra levy more than $1 million in penalties to New York brokerage for AML, penny stock failures, fine hits AML officer

On the individual liability front, both the SEC and the Financial Industry Regulatory Authority (Finra), the trading sector’s chief self-regulatory body, hit a New York-based brokerage firm with $1.3 million in penalties and two additional individual penalties against the firm’s chief executive and former compliance officer totaling $60,000, for broad and longstanding AML program failures in a known risky arena: penny stocks.

In the actions, the regulators stated that Aegis Capital Corp. had a lax AML program that missed detecting the classic red flags of penny stock pump and dump schemes and that, in fact, Chief Executive Robert Eide and AML officer Kevin McKenna, “aided and abetted” the firm’s compliance violations by failing to file required suspicious activity reports (SARs).

McKenna also agreed to a prohibition from serving in a compliance or AML capacity in the securities industry with a right to reapply, along with his $20,000 penalty.

In a litigated order, the SEC’s Enforcement Division alleges that another former Aegis AML compliance officer, Eugene Terracciano, failed to file SARs on behalf of Aegis as well.

Aegis agreed to pay a $750,000 penalty to the SEC and retain a compliance expert to improve the program and remediate past activity and file any missed SARs. Finra leveled a penalty of $550,00 for similar AML program failings.

Finra in its order noted key deficiencies related to the supervisory system in place for trading in delivery versus payment (DVP) accounts that was “not reasonably designed to satisfy its obligation to monitor and investigate trading in DVP accounts, particularly in low-priced securities transactions.”

In a DVP account, customers buy and sell securities that are not held at the brokerage firm executing the trades, and the purchases and sales of those shares are then effected through the brokerage firm.

During its investigation, Finra found that Aegis failed to properly investigate the trading in seven DVP customer accounts that “liquidated billions of shares of low-priced securities, generating millions of dollars in proceeds for its customers.”

Several of these customers were foreign financial institutions engaging in transactions on “behalf of their underlying customers, all of whom were unknown to Aegis,” according to Finra.

The firm “did not identify these trades as suspicious even after its clearing firm alerted Aegis to AML red flags and specific suspicious low-priced securities transactions. These violations were accompanied by a failure to implement an adequate AML program tailored to detect red flags associated with these sales.”

To read the Finra order, click here. To read the SEC order, click here.