A nonresident alien with no U.S. tax identification number asks a broker-dealer to open an account and provides a valid foreign passport.
Which statement is correct under the USA PATRIOT Act's customer identification requirements? Answer: The firm may treat the passport number and country of issuance as the customer's identification number and verify identity by documentary or non-documentary methods.
USA PATRIOT Act Section 326 and the FinCEN/SEC customer identification program rule for broker-dealers. The CIP rule requires a customer's name, date of birth, address, and an identification number, but a non-U.S. person may satisfy the identification-number requirement with a passport number and country of issuance instead of a U.S. taxpayer identification number. The firm may verify identity using documentary or non-documentary methods. The statement that federal law requires a U.S. taxpayer identification number for every customer is false; the 30-day deadline is not a CIP requirement; and nonresident aliens are subject to the CIP, so the firm has no duty to open the account without verifying the customer's identity.
- Under federal anti-money-laundering rules, which of the following statements regarding a broker-dealer's currency transaction report (CTR) filing obligation is correct?
Answer: A broker-dealer that knows that separate currency transactions are by or on behalf of the same person on the same business day must aggregate them and, if the total exceeds $10,000, file a CTR within 15 days.
Under the Bank Secrecy Act and FinCEN's currency transaction reporting rules, a broker-dealer must file a CTR for a transaction in currency of more than $10,000, must aggregate same-day currency transactions that it knows are by or on behalf of the same person, and must file the aggregated CTR within 15 days. The statement that smaller same-day currency transactions may not be combined is wrong because aggregation is required when the broker-dealer knows they are by or on behalf of the same person. The statement using a 30-day deadline is wrong because 30 days is the SAR deadline, not the CTR deadline. The statement treating wire transfers and securities transactions as currency for the CTR is wrong because the CTR threshold applies to currency transactions, and a SAR has its own separate deadline.
- Under federal anti-money-laundering rules, which of the following statements regarding the relationship between currency transaction reports and suspicious activity reports is correct?
Answer: A reportable currency transaction that also meets the SAR filing conditions must be reported on both a CTR and a SAR, and the broker-dealer must satisfy each reporting requirement separately.
Under the Bank Secrecy Act and FinCEN's implementing rules, the CTR and SAR obligations are separate and cumulative: a broker-dealer that has a reportable currency transaction (currency over $10,000) that also meets the SAR filing conditions must file both reports; one report does not satisfy the other. The statement that filing a SAR excuses a CTR is wrong because the CTR reports reportable currency transactions and the SAR reports suspicious activity. The statement that a CTR must be filed for every suspicious transaction regardless of amount is wrong because CTRs are limited to reportable currency transactions, while suspicious activity is reportable through SARs. The fiduciary-account statement is wrong because the reporting obligation depends on whether the transaction is reportable or suspicious, not on the account type or the customer's authority.
On April 3, a new customer of a broker-dealer attempted to wire $7,500 from a foreign bank to pay for a purchase of a microcap security. The wire was rejected by the receiving bank because the customer's name did not match the account. The customer, who was present in the branch, said the funds were "from the family business, but we cannot put them through the bank." The firm's AML compliance officer suspects the customer was attempting to launder funds.
Which reporting action is required under the Bank Secrecy Act? Answer: File a suspicious activity report within 30 days, because attempted suspicious transactions of $5,000 or more are reportable.
Bank Secrecy Act broker-dealer SAR rule: a SAR must be filed for any transaction, including an attempted transaction, of at least $5,000 that the firm knows, suspects, or has reason to suspect involves funds from illegal activity or is designed to evade a reporting requirement. The compliance officer suspected laundering, and the attempted wire was $7,500, so a SAR is required within 30 calendar days of detection. The option saying no report is required misreads the rule's coverage of attempted transactions. A currency transaction report is for currency transactions exceeding $10,000, not a wire, and it would not be the report for suspected laundering. The 60-day option confuses the extension for cases in which no suspect can be identified; here the customer was known and present.
During new-account screening, a broker-dealer matches a prospective customer's name, date of birth, and country of residence to a listing on the OFAC specially designated nationals (SDN) list. The prospective customer has already transferred $250,000 into the new account and instructs the firm to buy Treasury securities.
Which action is required under OFAC regulations? Answer: Block the funds and the account, and report the blocked property to OFAC; the purchase must not be executed.
OFAC sanctions regulations administered by the Treasury Department. When a U.S. financial institution has an exact match to the SDN list, it must block the property and report the block to OFAC; it may not execute the transaction or return the funds to the SDN. The option saying Treasury securities are exempt is wrong because OFAC blocks all property interests of a designated person. Returning the transferred funds is also a release of blocked property. Filing a SAR and waiting for OFAC confirmation is not the required OFAC action; a SAR does not substitute for blocking.
- Under federal customer identification program rules, which of the following statements regarding a customer who refuses or is unable to provide the required identifying information is correct?
Answer: A broker-dealer must not open an account if it cannot form a reasonable belief that it knows the customer's true identity.
Under the FinCEN customer identification program rule, a broker-dealer's CIP must enable it to form a reasonable belief that it knows each customer's true identity. If the firm cannot form that belief, it must not open the account; if an account is already open, it should consider closing it and whether a SAR is warranted. There is no 30-day waiting period before the firm may act. A written attestation is not a substitute for obtaining and verifying the required identifying information. A refusal to provide identifying information is not a currency transaction, so it does not trigger a CTR.
On September 5, the AML compliance officer of a broker-dealer identified transactions totaling $18,000 over the preceding two months that appear designed to evade the firm's recordkeeping requirements. The account is held in the name of a trust, and the officer cannot determine which individual controls the trust or gave the instructions. No suspect has been identified by September 30.
Under the broker-dealer SAR rule, by what date must the SAR be filed? Answer: November 4, because the filing deadline is extended to 60 calendar days after detection when no suspect is identified.
Bank Secrecy Act broker-dealer SAR rule. A SAR generally is due within 30 calendar days after detection, but if no suspect is identified, the rule permits 60 calendar days. Detection was September 5; 60 days later is November 4. The September 20 date is the CTR deadline, not a SAR deadline. The October 5 date applies when a suspect is known. The option saying there is no fixed deadline until a suspect is identified misstates the rule; the report cannot be delayed indefinitely.
On June 4, a customer deposited $6,200 in currency into a brokerage account at 9:40 a.m. and $4,100 in currency into the same account at 2:15 p.m. The branch manager knows the customer deliberately split the deposit to avoid a currency transaction report.
Which statement correctly describes the broker-dealer's reporting obligations? Answer: A currency transaction report is due by June 19 because the total was $10,300, and a suspicious activity report is also required.
Bank Secrecy Act CTR rule and SAR rule. Currency deposits by one person in one business day are aggregated; $6,200 plus $4,100 equals $10,300, so a CTR is due within 15 calendar days, which is June 19. Because the branch manager knew the customer was splitting deposits to evade reporting, the structuring is also suspicious and must be reported on a SAR; filing the CTR does not satisfy the SAR obligation. The option saying no CTR is required ignores aggregation; the option saying only a CTR is required ignores the SAR; the option saying both are due within 30 days misstates the CTR deadline.
A broker-dealer's AML program is due for its required independent testing. The firm has three employees: the AML compliance officer, a registered representative, and an administrative assistant. The registered representative is qualified to perform the testing, has no AML program duties, and does not report to the AML compliance officer; the administrative assistant handles customer identification as part of the AML program. The firm wants to avoid paying an outside consultant.
Under FINRA Rule 3310, which arrangement is permitted? Answer: The registered representative may perform the testing without the firm retaining an outside consultant.
FINRA Rule 3310 requires independent testing of a broker-dealer's AML program by a qualified person who is not the AML compliance person, does not perform the AML functions being tested, and does not report to either of them. The registered representative has no AML program duties and does not report to the AML compliance officer, so she satisfies the independence requirement and the firm need not hire an outside consultant. The administrative assistant performs customer identification within the AML program and therefore is not independent. The AML compliance officer may not test her own program. A written certification by the compliance officer is not a substitute for independent testing, and having few employees does not remove the testing requirement.
A registered representative of a broker-dealer learns that a long-time client has been depositing cash into his brokerage account in amounts just under $10,000 to "keep the government out of our business." The client says the cash came from a friend's retail store. The representative has not yet told anyone at the firm.
Which of the following is correct under the firm's AML obligations? Answer: The representative must promptly notify the firm's AML compliance officer of the client's statements and deposit pattern; the firm decides whether a suspicious activity report is required.
FINRA Rule 3310 and the Bank Secrecy Act require firms to establish AML procedures, including prompt internal escalation of red flags. An associated person who observes possible structuring must notify the firm's AML compliance officer; the broker-dealer, not the individual representative, files any SAR. The option allowing the representative to accept the deposits ignores the duty to escalate and the structuring red flag. The option that the representative files directly with FinCEN is wrong because the firm is the reporting institution. Regulation S-P is not a bar because disclosures required by law and regulatory reporting are permitted.
- Under federal anti-money-laundering rules, which of the following statements regarding a broker-dealer's suspicious activity report (SAR) filing obligation is correct?
Answer: A broker-dealer must file a SAR for a suspicious transaction or pattern of transactions involving or aggregating at least $5,000, within 30 days after detection, or within 60 days after detection if no suspect is identified.
Under FinCEN's suspicious activity reporting rule for broker-dealers, a SAR is required when a transaction, or a pattern of transactions, involves or aggregates funds of at least $5,000 and the broker-dealer knows, suspects, or has reason to suspect the transaction involves illegal proceeds, is designed to evade BSA requirements, or has no lawful purpose. The filing deadline is 30 calendar days after initial detection, extended to 60 calendar days when no suspect is identified. A 15-day deadline is the currency transaction report deadline and is measured from the transaction, not the SAR deadline. A $10,000 threshold is the CTR threshold, not the SAR threshold. The month-end deadline in another statement has no support in the SAR rule.
- Under federal customer identification program rules, which of the following statements regarding a new individual brokerage account is correct?
Answer: Before opening the account, the broker-dealer must obtain the customer's name, date of birth, residential or business street address, and an identification number; verification may be completed within a reasonable time after the account is opened using documentary or non-documentary methods.
Under FinCEN's customer identification program rule for broker-dealers, the firm must obtain specified identifying information before opening a new account and must verify that information within a reasonable time after account opening, using documentary methods, non-documentary methods, or both. For an individual, the required information includes name, date of birth, a residential or business street address, and an identification number. Verification before opening is stricter than the rule; the rule permits verification after opening. A photo ID is not the only permissible method. An oath or sworn application is not an alternative to the identification process, and reliance on another institution is available only under defined conditions and does not replace the broker-dealer's own program.
- Which of the following statements regarding a broker-dealer's handling of a suspicious activity report is correct?
Answer: A broker-dealer is generally barred from telling a person involved in a reported transaction that a SAR was filed, but may disclose SAR information to government authorities.
SARs are confidential under the Bank Secrecy Act. A broker-dealer and its employees generally may not notify a person involved in a reported transaction that the transaction has been reported. Disclosure is permitted to FinCEN and to appropriate law-enforcement and regulatory authorities, and in other limited circumstances. The statement that a customer has a right to a copy is wrong; the SAR rules create no such customer-access right. The statement that disclosure may be made to the customer's private attorney is wrong; that is not an authorized recipient. The statement that confidentiality ends once the investigation concludes is wrong; the restriction is not limited to the pendency of an investigation.
- Which of the following statements regarding a registered broker-dealer's obligation to maintain an anti-money-laundering program is correct?
Answer: Every broker-dealer must maintain a written AML program approved by senior management, and the program must include independent testing, a designated AML compliance person, and ongoing employee training.
Under the Bank Secrecy Act's broker-dealer AML program rule and FINRA Rule 3310, every registered broker-dealer must develop and implement a written AML program approved by senior management. The required components include internal policies, procedures, and controls; a designated AML compliance person; ongoing training for appropriate personnel; and an independent test of the program. The scope is not limited to firms that handle physical currency; the rule applies to all broker-dealers. Using a clearing firm's program does not remove the introducing broker-dealer's own obligation, and the program must be written even for a small firm.
