New York-based broker-dealer OTC Link LLC has agreed to pay $1.19m to settle charges for failing to file numerous reports of suspicious financial transactions.

According to the SEC, from March 2020 through May 2023, OTC Link failed to implement proper anti-money-laundering (AML) policies and procedures to surveil transactions for possible suspicious activity on its three alternative trading system (ATS) platforms.

“When firms like OTC Link fail to file SARs, they deprive regulators and law enforcement of important information about suspicious activity.” 

Tejal D Shah, Associate Regional Director, SEC New York Regional Office

The three ATSs – OTC Link ATS, OTC Link ECN, and OTC Link NQB – are used by broker-dealers daily, with tens of thousands of transactions executed in over-the-counter securities. Yet, by failing to implement any procedures, OTC did not file a single Suspicious Activity Report (SAR) during this period.

“Broker-dealers are critical gatekeepers to the securities markets and must diligently monitor for suspicious transactions,” said Tejal D Shah, Associate Regional Director of the SEC’s New York Regional Office. “When firms like OTC Link fail to file SARs, they deprive regulators and law enforcement of important information about suspicious activity.” 

OTC Link violated section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder. Without admitting or denying the findings, OTC Link agreed to the $1.19m penalty, and to a censure and a cease-and-desist order.

The company will also continue to have a compliance consultant to review and recommend changes to its AML policies and procedures.

Failing at Merrill Lynch

In a similar action in July 2023, broker-dealer Merrill Lynch and its parent company, BAC North America Holding Co (BACNAH), were fined a combined $12m by the SEC and FINRA for failing to file nearly 1,500 SARs over the course of a decade.

As a registered broker, Merrill Lynch was required to file SARs on transactions conducted or attempted by, at, or through it involving or aggregating to at least $5,000 that it knew, suspected, or had reason to suspect, among other things, involved the use of Merrill Lynch to facilitate criminal activity.

BACNAH assumed responsibility for creating and implementing the SAR policies and procedures and filing the broker-dealers’ SARs. However, BACNAH’s Fraud Investigations Group used a $25,000 threshold. Something which later affected Merrill Lynch customers who were victims of unauthorized debit card withdrawals, forged or altered checks, account intrusions, identity theft, and/or phone or internet scams.