Federal prosecutors in New York have gone back to a 1970 anti-money laundering rule to charge a small broker-dealer, marking the first time the rule has ever been used against a U.S. broker, according to news reports.
Prairie Village, Kan.-based Central States Capital Markets, which has 25 employees, allegedly failed to submit a suspicious activity report on one of its customers, Scott Tucker, despite the company’s CEO himself learning in detail from Tucker himself about a scheme he was running, Bloomberg writes.
Tucker is currently serving out a 16-year sentence for using Native American tribal entities to hide a payday-lending scheme that peddled unsecured loans with up to 700% interest rates, prosecutors said, according to the news service.
It was about the use of tribal entities that Tucker had told CSCM’s CEO in 2012, according to prosecutors, Bloomberg writes.
To charge CSCM, prosecutors are relying on the 1970 Bank Secrecy Act, which requires financial firms to help authorities track down money laundering through various obligations, such as reporting cash transactions of more than $10,000, according to the news service.
In 1992 the rule received an amendment that stipulated the submission of suspicious activity reports, Bloomberg writes. Prosecutors say CSCM failed to file these when opening investment accounts for Native American tribal entities used by Tucker to hide his scheme, according to the news service.
CSCM has agreed to forfeit $400,000 and boost its compliance program, prosecutors say, according to Bloomberg.
Under this agreement, the case against the company will be deferred for two years and will then be dismissed, the news service writes.
CSCM tells Bloomberg in a statement that it’s pleased to have resolved the case, that it “accepts full responsibility for the past deficiencies” in its AML program and that it will hire a chief compliance officer full time as well as bring on outside consultants for annual reviews.