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Question

Difficulty: HardAnti-Money Laundering (AML), KYC, and Sanctions Compliance

A principal at a broker-dealer reviews an automated compliance alert regarding a customer account. Over a two-day period, the customer completed three separate electronic funds transfers totaling 12,500intotheaccount,followedimmediatelybyanoutgoingwiretransferof12,500 into the account, followed immediately by an outgoing wire transfer of 12,000 to an unverified foreign commercial entity. The principal determines that these transactions appear designed to obscure the source and destination of funds without any clear business or lawful purpose. Under Bank Secrecy Act (BSA) regulations and FINRA rules, which action is the broker-dealer required to take?

  1. File a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of initial detection, while maintaining strict confidentiality by not informing the customer.Answer
  2. B
    File a Currency Transaction Report (CTR) with FinCEN within 15 calendar days because the total transaction amount exceeded $10,000.
  3. C
    File a Suspicious Activity Report (SAR) with the SEC within 15 calendar days and issue a written notice of transaction freeze to the account owner.
  4. D
    Immediately freeze all account assets and submit an initial blocking report to the Office of Foreign Assets Control (OFAC) within 10 business days.

Answer

The broker-dealer must file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of initial detection without notifying the customer.
Under the Bank Secrecy Act and FINRA Rule 3310, member firms are required to file a Suspicious Activity Report (SAR) with FinCEN for any transaction involving at least $5,000 in funds or assets that the firm knows, suspects, or has reason to suspect involves illegal activity, is designed to evade AML regulations, or has no business or apparent lawful purpose. The SAR must be filed within 30 calendar days after the firm detects the suspicious activity, and disclosure to the customer involved is strictly prohibited by law.

Step-by-Step Solution

1
Analyze the nature of the transaction and reporting threshold.
The activity involves non-cash electronic transfers and wire transfers totaling 12,500thatlackacleareconomicorlawfulpurpose.ThismeetstheSARthresholdof12,500 that lack a clear economic or lawful purpose. This meets the SAR threshold of 5,000 or more for suspicious activity.
Suspicious activity reporting is mandated when funds/assets equal or exceed $5,000 and indicate potential money laundering or evasion of regulatory controls.
2
Determine the appropriate reporting agency and statutory filing deadline.
The report must be submitted electronically to the Financial Crimes Enforcement Network (FinCEN) within 30 calendar days of detecting the suspicious activity.
Federal AML rules establish FinCEN as the central repository for SAR filings with a standard 30-day reporting window.
3
Apply confidentiality requirements regarding SAR filings.
The firm and its employees must maintain absolute confidentiality and cannot disclose to the customer or any unauthorized third party that a SAR is under consideration or has been filed.
Federal law strictly prohibits disclosing SAR filings to prevent tipping off targets of criminal investigations.

Key Concept

Suspicious Activity Report (SAR) Filing Triggers, Deadlines, and Confidentiality Rules
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Topics

Anti-Money Laundering (AML), KYC, and Sanctions Compliance