According to FINRA, CICC US Securities Inc. was censured and fined $300,000 on October 17, 2024, for failing to establish and implement an anti-money laundering (AML) compliance program that could reasonably be expected to detect and cause the reporting of suspicious transactions.
The firm's procedures did not describe the factors to consider when performing surveillance for potential market manipulation, including a description of potential types of market manipulation or information about how such surveillance should be documented. The firm's compliance program was not tailored to account for its business model and the types of customers and activities it served. The firm maintains omnibus affiliate account relationships in foreign jurisdictions, generates commissions from agency trading for institutional customers trading in both U.S. and foreign securities, and engages in transactions involving foreign customers opening omnibus accounts. Despite this, the firm did not have a reasonable means of detecting suspicious activity in trades executed on non-U.S. stock exchanges.
The firm failed to reasonably review trades in low-priced securities by firm customers, and the firm's written procedures for monitoring low-priced securities were not tailored towards its business activity. The firm later suspended low-priced securities trading and adopted revised procedures.
Additionally, the firm failed to establish and implement an AML program and supervisory system reasonably designed to detect and cause the reporting of potentially suspicious trading in its stock buyback business. A corporate entity participated in the firm's stock buyback program and repurchased shares through an omnibus account at the firm's foreign affiliate. The trades occurred two days before an announcement that increased the corporate entity's share prices. The volume and timing of the trades should have raised red flags, but the firm did not take reasonable steps to investigate the activity.
The firm also did not have a supervisory system or procedures reasonably designed to ensure trades were accurately marked as "solicited" or "unsolicited." Over 22,000 trades were automatically marked "unsolicited" due to a system default setting, even though many were likely solicited.
Furthermore, the firm permitted three non-registered individuals to serve as authorized signatories for three firm bank accounts, giving them control over cash and clearing accounts comprising most of the firm's net capital assets.
This case illustrates multiple layers of AML compliance failures. A firm engaged in international trading with foreign affiliates and omnibus accounts faces heightened AML risks and needs robust surveillance systems. The failure to monitor trades on foreign exchanges created a significant blind spot for detecting market manipulation. The stock buyback program violations are particularly egregious—trading immediately before a major announcement is a classic red flag for insider trading, yet the firm failed to investigate. Investors should understand that AML programs are not just about preventing terrorism financing—they also help detect market manipulation, insider trading, and other schemes that can harm retail investors. When choosing a broker, investors should look for firms with strong compliance cultures and avoid firms with histories of AML violations.
