Examkin

Question

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

A registered representative at a broker-dealer is onboarding a new client and collecting account opening documentation. Under Federal Anti-Money Laundering (AML) regulations and USA PATRIOT Act requirements, which of the following statements regarding Customer Identification Program (CIP) and Office of Foreign Assets Control (OFAC) compliance obligations are correct?

  1. The member firm must verify the customer's identity within a reasonable timeframe either before or after opening the account.Answer
  2. The member firm must check the customer's name against the OFAC Specially Designated Nationals (SDN) list to ensure the client is not subject to US sanctions.Answer
  3. C
    If a customer refuses to provide a Taxpayer Identification Number (TIN), the firm must automatically file a Currency Transaction Report (CTR) with FinCEN within 15 days.
  4. The member firm must provide clear notice to prospective customers explaining that the firm will request information to verify their identity.Answer

Answer

The correct statements are that the broker-dealer must verify customer identity within a reasonable timeframe, check names against the OFAC SDN list, and provide adequate notice regarding identity verification requests before opening the account.
The valid requirements under CIP and OFAC regulations include verifying customer identity within a reasonable time before or after account opening, screening customers against OFAC's SDN list, and providing adequate customer notice about identity verification prior to account opening.

Step-by-Step Solution

1
Analyze CIP account opening requirements under the USA PATRIOT Act Section 326.
Broker-dealers must verify customer identity within a reasonable timeframe around account opening and must provide clear notice to clients about identity verification procedures.
CIP standards ensure financial institutions confirm who they are doing business with to prevent money laundering.
2
Evaluate OFAC sanctions screening obligations.
Checking new account holders against the OFAC Specially Designated Nationals (SDN) list is mandatory.
US persons and broker-dealers are legally prohibited from executing securities transactions for individuals listed on the SDN target lists.
3
Evaluate the mandatory triggers for filing a Currency Transaction Report (CTR).
A refusal to provide a TIN does not trigger a CTR; CTRs apply only to physical currency deposits/withdrawals exceeding $10,000.
Confusing CTR cash reporting rules ($10,000+ cash threshold) with CIP documentation rules or Suspicious Activity Report (SAR) red flags is a common misconception.

Key Concept

Customer Identification Program (CIP) and OFAC Sanctions Compliance Procedures
Rate this question

Topics

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