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Enforcement Edge
July 26, 2021

Alpine Continues Its Fight to End SEC “Enforcement” of the BSA

Enforcement Edge: Shining Light on Government Enforcement

On July 19, 2021, Alpine Securities Corporation (Alpine), a penny stock broker, petitioned the US Supreme Court to decide whether the Securities and Exchange Commission (SEC) has the authority to “enforce” provisions of the Bank Secrecy Act (BSA) on broker-dealers, notwithstanding Congress’s express delegation to the Treasury Department administration and enforcement of the BSA.

Alpine’s petition is the latest chapter in the broker-dealer’s years-long battle contesting the SEC’s authority to bring an enforcement action against Alpine for allegedly failing to comply with BSA requirements regarding the filing of Suspicious Activity Reports (SARs). As explained in our last Advisory, both the Southern District of New York and the Second Circuit ruled that the SEC had such authority because, among other reasons, “[t]he fact that Rule 17a-8 requires broker-dealers to adhere to the dictates of the BSA in order to comply with the recordkeeping and reporting provisions of the Exchange Act does not constitute SEC enforcement of the BSA.”

Is Borrowing Really “Enforcing”?

Central to the lower courts’ holding is the premise that the SEC is not actually “enforcing” provisions of the BSA, but rather, in effect, “borrowing” BSA suspicious activity reporting requirements as part of efforts to “enforce” the SEC’s own recordkeeping requirements on broker-dealers under the Securities Exchange Act of 1934.

Alpine’s petition argues that the lower courts’ rulings fly in the face of “Congress’s deliberate decision to create a comprehensive anti-money-laundering scheme under the exclusive ultimate control of the Treasury Department.” It also argues the rulings are irreconcilable with Supreme Court precedent holding that where a “suit seek[s] remedies under one statute [it] is nonetheless ‘enforc[ing]’ another statute if the suit’s ‘success depends on’ proving a violation of that other statute.” See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, 136 S. Ct. 1562, 1569-70 (2016). According to Alpine, there is nothing wrong with the SEC bringing an enforcement action related to broker-dealer SAR recordkeeping, but it must “be an action to enforce Rule 17a-8 and the Exchange Act, not the BSA.”

Alpine Hopes To Be The Next Liu

Whether the Court will grant Alpine’s petition depends on how one reads tea leaves: On the one hand, and as the petition properly points out, the Court “hasn’t hesitated in the past to rein in the SEC when it exercises powers that Congress never granted it, even without a circuit split.” See, e.g., Liu v. SEC, 140 S. Ct. 1936 (2020). And Alpine’s petition makes clear that it thinks this case is an “even more brazen” overreach by the SEC than was the case in Liu.

On the other hand, the Court’s analysis in Liu does not map well here, primarily because the issue in Liu was the SEC’s broad interpretation of remedies available to it, not whether the SEC had statutory authority to bring the enforcement action in the first instance. The SEC also has successfully used the Second Circuit’s Alpine precedent to secure settlements in connection with similar enforcement actions against other regulated entities for SAR-related deficiencies.

It may be a long shot for the Court to take the case. But given the suspicious activity reporting standards and expectations established in the Alpine action, combined with the SEC’s continued prioritization of broker-dealer anti-money laundering compliance, broker-dealers will be eagerly awaiting the Court’s decision. 

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.