Reported by Kenneth Corbin

Government and industry regulators have fined Merrill Lynch $12 million over allegations that the firm failed for more than a decade to file the required Suspicious Activity Reports (SARs) flagging transactions that it knew or suspected were being used to support criminal activity.

The Securities and Exchange Commission and brokerage industry self-regulator Finra each announced $6 million settlements with the wealth manager, alleging that Merrill’s anti-money-laundering policies and procedures improperly relied on a $25,000 threshold for formally reporting a suspicious transaction.

In cases where there is no reasonable basis for identifying a suspect, federal AML regulations set $25,000 as the threshold triggering a SAR requirement for national banks, like Merrill Lynch’s parent, Bank of America . But when operating as a broker-dealer, as regulators contend Merrill was doing the relevant period, the reporting threshold drops to $5,000.

“Broker-dealers have a critical obligation to report suspicious activity in their accounts,” says Katharine Zoladz, co-acting regional director of the Securities and Exchange Commission’s Los Angeles regional office, saying Merrill and its parent company “failed to comply with one of the most basic requirements for a SAR program.”

Regulators noted that Merrill Lynch had cooperated with their investigation after stepping forward to self-report the alleged misconduct. Merrill settled the matter and accepted the fines and a censure without admitting or denying the allegations, and says it has since modified its policies to improve compliance.