AML Red Flags Investment Bankers Should Never Keep to Themselves

Investment bankers are often the people who know a client best. They speak directly with management, learn the ownership structure, discuss the source and use of funds, interact with investors, and hear explanations for unusual aspects of a transaction long before those facts ever make their way into formal diligence materials. That makes registered representatives a a critical part of a broker-dealer’s anti-money laundering program.

A September 2026 SEC enforcement action offers a timely reminder of what can happen when red flags are identified but are not adequately investigated, escalated, monitored, or reported.

What Happened at Haywood Securities?

On September 11, 2026, the SEC announced a settled enforcement action against Haywood Securities (USA) Inc., a Canada-based SEC-registered and FINRA-member broker-dealer.

According to the SEC’s order, between May 2021 and January 2026, Haywood failed to adequately implement its own AML policies for identifying, investigating, monitoring, and reporting suspicious activity. The SEC also found that the firm failed to adequately train its registered representatives regarding Suspicious Activity Report, or SAR, requirements.

The firm was censured and agreed to pay a $750,000 civil penalty. The settlement was entered without Haywood admitting or denying the SEC’s findings. The underlying examples are particularly instructive.

A Customer Connected to a Convicted Criminal

In one example, Haywood opened an account for an LLC despite information connecting the company to a publicly known convicted criminal.

According to the SEC, Haywood knew during onboarding that:

• The customer had difficulty opening an account at another U.S. broker-dealer.

• The convicted individual had originally been a member of the LLC.

• A trust that beneficially owned the LLC had been created and funded by that individual.

• Compliance personnel had identified adverse news concerning a trustee and a law-enforcement subpoena.

• Public information raised concerns that the LLC and trust could be used to route or conceal the individual’s assets.

The intended transaction itself added another layer of risk: the account was being opened to deposit several hundred million dollars of one issuer’s stock and immediately liquidate it.

Within a month, shares were deposited and sold, and tens of millions of dollars were wired to a recently opened trust bank account. More than a year later, Haywood received a criminal subpoena concerning the customer and related parties.

An Offshore Structure Created During a Fraud Investigation

Another customer was a British Virgin Islands company beneficially owned through a trust established for the minor children of a foreign national. According to the SEC, Haywood knew that the individual had resigned as head of a bank and that his accounts had been frozen in connection with an ongoing fraud investigation.

The company and trust had also been created within nine days amid a series of transfers involving the individual and a relative.

Haywood classified the account as high risk but, according to the SEC, failed to perform the heightened monitoring required by its own procedures.

Haywood Rejected Some Customers — and That Wasn’t Necessarily the End of the Analysis

Perhaps the most important lesson for investment bankers is that suspicious activity does not necessarily become irrelevant just because the firm decides not to proceed.

The SEC identified situations in which Haywood detected red flags during account opening and declined the business, but nevertheless failed to file SARs when its own AML procedures required them.

In one example, a prospective customer was a former registered representative with FINRA disciplinary history who appeared to be located outside the United States despite providing U.S. addresses and a U.S. passport. Haywood also identified his involvement with an individual convicted of running an investment fraud scheme.

Haywood declined the account — but the SEC found that it should also have addressed the SAR obligation under its procedures. That is an important distinction: Declining a client or transaction does not necessarily end the AML analysis.

What Does This Have to Do With Investment Bankers?

Most investment bankers are not AML officers, and they should not be expected to decide whether a SAR should be filed. They are, however, often the first people at a broker-dealer to encounter information that could warrant further review.

FINRA has long emphasized that identifying a red flag does not automatically mean a SAR must be filed. It means the firm should investigate sufficiently to determine whether there is a reasonable and legitimate explanation. FINRA has also specifically noted that private-placement firms may rely heavily on frontline personnel and controls because their business looks very different from that of a retail trading firm.

For a registered investment banker, the practical rule is much simpler:

If something about the client, investor, ownership structure, money flow, or transaction doesn’t make sense, tell Compliance. Do not assume someone else already knows.

AML Red Flags Investment Bankers Should Escalate

1. Significant Criminal, Regulatory, or Adverse-Media History

A news article alone does not establish wrongdoing. Nor does every lawsuit or regulatory matter create an AML concern. But Compliance should know when a client, investor, beneficial owner, executive, director, or other material participant appears connected to:

• Securities fraud or investment fraud

• Money laundering

• Bribery or corruption

• Financial crimes

• Criminal investigations

• Regulatory bars or serious disciplinary actions

• Law-enforcement subpoenas or asset freezes

• Sanctions concerns

• Significant credible allegations involving financial misconduct

This is particularly important when the individual does not appear prominently in the formal ownership chart but has historical, familial, financial, or control relationships with the company. The Haywood case illustrates why looking only at the name on the account can miss the actual risk.

2. Ownership Structures That Are Difficult to Explain

Trusts, holding companies, offshore entities, SPVs, family offices, and multilayered ownership structures are common and frequently legitimate.

Complexity itself is not suspicious.

But complexity without a sensible business explanation deserves attention.

Examples include:

• A beneficial owner who appears to exercise control but does not appear on organizational documents.

• Ownership transferred to relatives shortly before a transaction.

• Newly created trusts or entities inserted into the structure.

• Multiple entities in jurisdictions unrelated to the business.

• Inconsistent explanations of who ultimately owns or controls the company.

• Reluctance to identify beneficial owners.

• An ownership structure that changes unexpectedly during diligence.

The question is not simply whether an entity is offshore. It is whether the structure makes economic and business sense given the transaction.

3. Another Financial Institution Refused the Business

This fact should get Compliance’s attention. There may be an innocent explanation. Banks and broker-dealers have different risk tolerances, and firms decline customers for many reasons. But if a client tells the banker:

• “Our bank won’t process this.”

• “The other broker-dealer wouldn’t take the account.”

• “Our previous firm wouldn’t allow this transaction.”

• “We need to move this somewhere else quickly.”

...that information should be escalated rather than treated simply as a business opportunity.

In the Haywood order, the SEC specifically identified Haywood’s knowledge that one customer had experienced difficulty opening an account at another U.S. broker-dealer.

4. Money Is Moving Somewhere Other Than Where You Expected

Investment bankers often know how transaction proceeds are supposed to move.

That makes them well positioned to notice when the actual instructions suddenly change. Examples include:

• Proceeds directed to an unrelated third party.

• Last-minute changes in wiring instructions.

• Payments directed to an individual’s account rather than the issuer.

• Funds routed through an unexplained trust or affiliate.

• Compensation requested outside the approved engagement structure.

• Investors asked to send money somewhere different from the subscription documents.

• An unexpected foreign account.

• A newly created account established specifically to receive proceeds.

Any unexpected change in the path of transaction funds should be escalated before anyone assumes it is merely administrative.

5. The Transaction Doesn’t Match the Client’s Business

A real company can still engage in suspicious activity. In another Haywood example, an LLC described as being in the international property-sale business opened an account solely to sell shares of an unrelated public company. The SEC noted that the securities transaction had no apparent relationship to the company’s stated business purpose.

Investment bankers should pay attention when:

• A transaction seems unrelated to the company’s normal operations.

• The stated use of proceeds keeps changing.

• The amount being raised bears little relationship to the company’s apparent needs.

• An entity suddenly enters a business line with no obvious connection to its history.

• Management cannot provide a coherent explanation for why a particular entity is involved.

A transaction does not need to be illegal to warrant questions. It simply needs to be sufficiently inconsistent with what the firm reasonably expected.

6. Someone Seems More Interested in Moving Money Than in the Economics of the Deal

Behavior can itself be informative. Potential warning signs include unusual urgency, indifference to transaction economics, willingness to pay unexpectedly high fees, pressure to bypass normal diligence, or repeated attempts to restructure a transaction after Compliance raises questions.

None of those facts automatically establishes suspicious activity. In combination with other concerns, however, they may materially change the risk assessment.

7. Information Changes Depending on Who Is Asking

Bankers sometimes hear one explanation while Compliance receives another.

That discrepancy matters. For example:

• The banker is told one person controls the company while diligence documents identify someone else.

• Management describes one source of funds to the banker and another in formal paperwork.

• An investor describes the investment purpose differently from the subscription documents.

• Management asks the banker not to mention a particular relationship or participant.

• Someone provides inconsistent addresses, citizenship, employment, ownership, or financial information.

Do not try to reconcile material inconsistencies privately with the client and then move on. Let Compliance know what was originally said and how the explanation changed.

You Do Not Need to Determine Whether Something Is “Money Laundering”

This is one of the most important points for registered representatives. A banker does not need evidence of a crime before escalating an issue. Broker-dealer SAR obligations are designed around suspicious activity, not proof beyond a reasonable doubt that someone committed an offense. SEC guidance describes broker-dealers’ AML obligations as including monitoring, detecting, and reporting suspicious activity, while FINRA guidance emphasizes that red flags should trigger appropriate investigation.

The banker therefore does not need to decide:

• whether a SAR is required;

• whether the conduct constitutes money laundering;

• whether the client’s explanation is legally sufficient; or

• whether the relationship should be terminated.

Those decisions belong with the firm’s AML/compliance personnel. The registered representative’s responsibility is to make sure relevant information reaches the people responsible for making them.

And Don’t Tell the Client a SAR May Be Filed

SARs and information revealing the existence of a SAR are subject to strict confidentiality requirements. If Compliance begins asking questions after a banker escalates a concern, the banker should not tell the client that the firm is “considering a SAR,” “reporting them,” or conducting a regulatory investigation.

Instead, any necessary follow-up should be coordinated through the firm’s normal diligence and compliance process.

The Bigger Lesson From Haywood

The SEC’s case was not simply about whether Haywood had an AML manual.

According to the SEC, Haywood had written procedures identifying many of the relevant red flags. The problem was implementation: red flags were not always adequately investigated, certain high-risk accounts were not monitored as required, SARs were not filed in circumstances identified by the firm’s procedures, and registered representatives were not adequately trained regarding the SAR rule. That distinction matters for every broker-dealer.

An AML program works only if the people closest to the business understand what information Compliance needs to know. For investment bankers, that does not mean becoming an AML investigator. It means recognizing that an unusual fact learned on a client call, during diligence, over dinner with management, or while discussing transaction logistics may reportable.

When in doubt, escalate it.

Compliance can decide what happens next.

Our Policy at Britehorn Securities

Here at Britehorn Securities, we take pride in always being just an email or phone call away, with all our top-level experts available to discuss whether something needs to be reported. Our message to all registered represenative is:

You are not responsible for deciding whether your broker-dealer files an SAR. You are responsible for telling Compliance when you learn something unusual or concerning about a client, investor, beneficial owner, source or destination of funds, transaction purpose, compensation arrangement, or other participant in a securities transaction. Do not investigate it yourself, do not decide it isn’t important, and do not tell the client that an SAR may be considered or filed.

Compliance can document the investigation and either file or document why the activity did not warrant filing. FINRA expressly says identifying a red flag doesn’t automatically mean a SAR is required; we will follow up to determine whether there is a reasonable legitimate explanation and document its review.

If that sounds like the kind of Compliance team you'd like to work with, please contact us to learn more!