FinCEN Fines UBS Record $125 Million for Bank Secrecy Act Violations
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network assessed a $125 million civil penalty against UBS Financial Services Inc. for willful violations of the Bank Secrecy Act, the largest penalty ever imposed on a broker-dealer for BSA violations. The action is part of a coordinated resolution that also included separate settlements with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Commodity Futures Trading Commission.
UBS paid $20 million each to the SEC and FINRA and $8 million to the CFTC – payments FinCEN credited against its own $125 million assessment. After that credit, and pending up to $15 million, FinCEN has agreed to waive contingent on the firm’s completion of required remediation, UBS owes $62 million directly to Treasury.
The SEC found UBS violated Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8, which require broker-dealers to comply with the Bank Secrecy Act’s reporting and recordkeeping requirements, including the 30-day deadline for filing a suspicious activity report, or SAR, after detecting facts that may warrant one. UBS neither admitted nor denied the SEC’s and FINRA’s findings, though it admitted to willfully violating the Bank Secrecy Act – including failing to implement and maintain an anti-money-laundering program and file SARs – under its consent order with FinCEN.
The failures stemmed from two consecutive breakdowns in UBS’s anti-money-laundering transaction monitoring, according to the SEC’s order. From January 2019 through January 2021, flaws in the firm’s legacy monitoring system meant certain FX wire transactions were booked outside a customer’s brokerage account and excluded from surveillance, resulting in a failure to adequately monitor roughly 52,000 transactions with a combined notional value of about $7.6 billion. After UBS transitioned to a new automated monitoring system in February 2021 – more than 18 months later than the firm’s own mid-2019 target – data-transmission and formatting problems, along with the absence of an exception queue for unprocessed transactions, caused the firm to fail to monitor or adequately monitor more than 8,000 of roughly 190,000 FX wire transactions through June 2023. Those transactions represented 4% of the period’s transaction count but 20% of its dollar volume, with a combined notional value of more than $2.7 billion. In total, the regulatory groups found that between January 2019 and June 2023, UBS failed to adequately monitor more than 60,000 FX wire transactions totaling approximately $10 billion.
UBS engaged an outside consulting firm in August 2022 to remediate the data issues and conduct a lookback review, and began filing the resulting SARs in October 2023 – filings the SEC found were untimely.
The SEC’s order also found UBS failed to maintain updated customer risk profiles reflecting ties to high-risk jurisdictions, particularly customers with connections to Russia and Latin America, in some cases omitting information a financial adviser or the firm itself had reason to know, including a customer whose Russia ties later became relevant to a U.S. sanctions indictment. FinCEN said the firm failed to adequately consider or mitigate money-laundering risk even in at least one case where a UBS affiliate had itself flagged negative news about a customer.
A second example involved a customer who opened UBS brokerage accounts in 2008 while working at a U.S. university, then relocated to Russia in 2014 to work at a Russian university with indirect ties to a sanctioned individual. Despite receiving roughly $2.3 million in wire transfers from Russia-based accounts and providing a Russian phone number, the customer’s UBS profile continued to list a U.S. source of wealth, and the firm did not file a SAR until July 2022, covering activity dating back to August 2014.
A third example concerned a custodial brokerage account UBS opened in 2020 for a client referred by a third-party registered investment adviser. UBS determined at onboarding that the client, apparently a regional bank, was no longer in operation, but failed to escalate that finding or halt trading, and the adviser went on to execute 47 trades worth more than $1.4 million in the account before UBS identified the issue in an April 2022 review and filed a SAR that June.
The action follows two separate 2018 settlements over similar monitoring weaknesses: FinCEN assessed a $14.5 million penalty against UBS that December, and FINRA separately fined the firm $4.5 million the same month. Both regulators said UBS failed to remediate the underlying issues; FinCEN said it learned of the continued failures only through a subsequent investigation rather than disclosure by UBS.
Under the new consent order, UBS must work with a third party to complete the lookback review and undergo an independent review of its anti-money-laundering program, with the review tailored to the firm’s handling of illicit-finance risk tied to the U.S. southwest border and narcotics trafficking, Iran, Russia, and Venezuela. FinCEN said it will waive up to $15 million of UBS’s penalty contingent on satisfactory completion of that review and the firm’s implementation of the resulting recommendations.
“Today’s historic action against UBSFS should send a clear message that recidivist financial institutions will face severe repercussions,” said Andrea Gacki, director of FinCEN. “Repeat violators of the Bank Secrecy Act jeopardize the integrity of our financial system, especially those that expose it to high-risk customers and activities without effective controls.”
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