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Question

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

Match each anti-money laundering (AML) and sanctions compliance mechanism on the left with its primary regulatory requirement on the right.

  • Independent AML Program TestingRequires periodic evaluation of the broker-dealer's compliance system by qualified personnel independent of AML administration.
  • FinCEN Section 314(a) RequestsMandates searching internal broker-dealer records against government-provided lists of individuals suspected of money laundering or terrorism.
  • CDD Beneficial Ownership RuleRequires identifying and verifying any natural person who owns 25% or more equity in a legal entity customer.
  • OFAC Sanctions ScreeningRequires immediate blocking or rejecting of transactions and accounts associated with individuals or entities on the SDN list.

Answer

Independent AML Program Testing matches periodic independent review of compliance systems; FinCEN Section 314(a) Requests match searching internal records against government suspect lists; CDD Beneficial Ownership Rule matches identifying individuals owning 25% or more of legal entity accounts; and OFAC Sanctions Screening matches mandatory blocking of assets on the SDN list.
Each compliance mechanism aligns directly with its statutory mandate: Independent AML testing requires periodic external or separate audit; Section 314(a) dictates searching internal records for law enforcement inquiries; the CDD beneficial ownership rule sets a 25% ownership verification threshold for legal entities; and OFAC screening requires immediate asset blocking for entities listed on the SDN list.

Step-by-Step Solution

1
Determine the regulatory requirement for Independent AML Program Testing
FINRA Rule 3310 mandates periodic independent audits conducted by personnel separate from routine AML duties.
Independent testing ensures the integrity and effectiveness of the firm's compliance system without self-review bias.
2
Determine the operational obligation under FinCEN Section 314(a)
Firms must search internal customer account and transaction records for matches against FinCEN-issued suspect lists.
Section 314(a) is an information-sharing mechanism between federal law enforcement agencies and financial institutions.
3
Determine the threshold and scope of the Customer Due Diligence (CDD) Beneficial Ownership rule
Broker-dealers must identify natural persons holding a 25% or greater equity stake in legal entity customers.
The CDD rule prevents illicit actors from hiding behind shell companies or complex corporate ownership structures.
4
Determine the compliance duty regarding OFAC sanctions
Firms must screen all accounts and freeze or block assets of individuals or entities on the SDN list.
OFAC enforces federal economic trade sanctions and prohibits financial dealings with sanctioned entities.

Key Concept

Anti-Money Laundering (AML) Compliance Framework and Sanctions Obligations
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Topics

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