FINRA Fines Citigroup Global Markets Inc. $1.25 Million for Failing to Properly Screen Employees for Criminal Convictions
According to an Acceptance, Waiver & Consent submitted on July 29, 2019, Citigroup Global Markets Inc. agreed to a sanction by FINRA after accepting that they “failed to conduct timely or adequate background checks on approximately 10,400 of its non-registered associated persons.” In many cases, they only checked to ensure that prospective employees had never been convicted of financial crimes (per the provisions of Section 19 of the Federal Deposit Insurance Act), but did not check for other types of crime (per the more far-reaching provisions of the Exchange Act and FINRA bylaws). Prior to beginning their employment, 520 people were not fingerprinted at all.
This oversight represents a serious violation because “federal securities laws require that FINRA member firms fingerprint most associated persons prior to or upon association with the firm,” according to the AWC. Fingerprint is part of a wider background check that is conducted to check employees for “statutory disqualifications.”
Examples of statutory disqualifications include “certain misdemeanor and all felony criminal convictiosn for a period of ten years from the data of conviction,” “temporary and permanent injunctions (regardless of their age) … involving a broad range of unlawful investment activities,” and “bars (and current suspensions) ordered by the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) or other appropriate regulatory agency or authority.”
Due to Citigroup Global Markets Inc.’s failure to implement proper fingerprinting and background check procedures, they hired three convicted criminals, and those individuals worked with them for several years before they were ultimately terminated. Citigroup Global Markets Inc. was later unable to determine the disqualification status of 140 other individuals because by the time the firm reviewed these individuals, they had either gone on leave or had left the firm altogether.
As a result of these failures, Citigroup Global Markets Inc. consented to the following FINRA sanctions:
- A censure
- A fine for $1.25 million
- “An undertaking to review its systems and procedures regarding the identification, fingerprinting, and screening of non-registered associated persons to ensure that current systems and procedures are reasonably designed to achieve compliance with governing securities laws and regulations”
Honest employees are the key to running any successful business, whether in the financial services industry or elsewhere. These new procedures laid out by Citigroup should hopefully prevent this sort of oversight from ever happening again.