Jan. 2 (Bloomberg) -- Two E*Trade Financial Corp. subsidiaries were fined a total of $1 million for failing to implement money-laundering screening to detect suspicious securities trades, the brokerage industry’s main regulator said.

E*Trade Securities LLC and E*Trade Clearing used inadequate techniques, based on their business models, to monitor transactions from January 2003 until May 2007, the Financial Industry Regulatory Authority said today in a statement. The company assigned analysts and other employees to manually check for suspicious trades without giving them sufficient automated tools, the Washington-based regulator said. The broker’s system was “unreasonable,” Finra said in a Dec. 17 letter.

“E*Trade upgraded its systems to provide an automated method to monitor for this particular activity, and those systems have been in place for over a year,” company spokeswoman Pamela Erickson said in an e-mailed statement.

The $1 million fine was the second against New York-based E*Trade in the last six months. The firm agreed in July to pay $1 million to settle U.S. Securities and Exchange Commission claims it violated Patriot Act money-laundering clauses by failing to verify identities of more than 65,000 customers. The divisions of E*Trade, the fourth-largest online brokerage by client assets, didn’t admit or deny wrongdoing in settling Finra’s claims.

E*Trade’s money-laundering checks “lacked automated electronic systems specifically designed to detect potentially manipulative trading in customer accounts,” Susan L. Merrill, Finra’s enforcement chief, said in the regulator’s statement.

The July fine was the first million-dollar penalty by the SEC in a money-laundering case since Congress passed the Patriot Act in 2001 after the Sept. 11 attacks. The law requires financial companies to confirm identities of account holders and to alert regulators to suspicious transactions.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net; Linda Shen in New York at lshen21@bloomberg.net

Last Updated: January 2, 2009 16:30 EST