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SEC investigates Merrill, Charles Schwab for anti-money laundering breaches

BBR Staff Writer Published 22 May 2014

The US Securities and Exchange Commission (SEC) is investigating Bank of America's (BofA) brokerage Merrill Lynch and Charles Schwab for breach of anti-money laundering rules.

Unnamed sources were quoted by Reuters as saying that the probe focuses on whether the brokerages have sufficient measures in place to learn about their customers' identities.

Additionally, it was also involve to identify whether they missed red flags that could indicate attempted illegal money transfer or feed proceeds from drug trafficking and other crimes into the financial system.

The investigation has so far found that the companies had accepted shell companies and individuals with fake addresses as clients, who were linked to drug cartels, the sources added.

In Charles Schwab case, majority of the suspect account holders were located near the Mexican border and contained millions in their accounts, and some of them were also linked to Mexican drug cartels, according to the sources.

Meanwhile, California-based Charles Schwab is believed to be conducting an internal investigation.

The probe is a part of the commission's sweep of the brokerage industry to ensure the anti-money laundering laws are properly followed by the brokerages, and the nature of penalties sought and whether SEC intends to charge individuals or any financial institutions for any violations remains unclear.

Both SEC Merrill Lynch spokesmen declined to comment, while Schwab spokeswoman said the company does not comment on regulatory agency investigations.