The National Association of Securities Dealers today announced that it has fined Banc of America Investment Services Inc. US$3 million in connection with the firm’s failure to obtain customer information for certain high-risk accounts and for failing to have adequate communication with its parent bank to ensure that BAI’s independent suspicious activity report filing obligations were met.

The regulator said that it found that BAI failed to obtain required additional customer information for high risk accounts. The 34 accounts at issue involved trust and private investment corporations domiciled in the Isle of Man and apparently affiliated with one family. The offshore entities located in the Isle of Man collectively held from US$79 million to US$93 million in assets and engaged in multi-million-dollar wire transfers across international boundaries.

At the time the accounts were opened in August 2003, BAI had established anti-money laundering procedures designed to address certain customer account risks by requiring additional information from the accountholders, specifically, the names of the beneficial owners, before conducting substantial transactions in the accounts.

Nevertheless, from August 2003 to Oct. 22, 2004, BAI did not require the names of the beneficial owners and never restricted the activities in the accounts. BAI allowed the accounts to engage in large wire transactions, even though it did not have beneficial ownership information for them. In addition, throughout this time period, the firm continued to allow significant transactions to occur in the accounts despite the advice from a senior lawyer at BAI in March 2004 that BAI should obtain the names of the beneficial owners, and a determination by the BAI risk committee in May 2004 that the information must be obtained.

Further, despite repeated and ongoing requests by its clearing firm, BAI failed to obtain the names of the beneficial owners, and to provide them to its clearing firm.

In addition, NASD also found that BAI had an inadequate compliance program for reporting suspicious transactions.

In concluding this settlement, BAI neither admitted nor denied the findings, but consented to their entry.

“The anti-money laundering and terrorist financing laws are designed to ensure that customer and transaction risks are assessed and that firms take appropriate steps to address high risks,” said NASD executive vice president and head of enforcement James Shorris. “BAI fundamentally failed to meet its obligations with these high risk accounts by failing to adequately investigate and pursue red flags, especially in the face of repeated requests for additional information about the accountholders from its own clearing firm.”