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Question

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

A retail client visits a broker-dealer branch office and executes a 6,500currencydepositintotheirbrokerageaccountonTuesdaymorning.OnThursdayafternoon,thesameclientreturnstodepositanadditional6,500 currency deposit into their brokerage account on Tuesday morning. On Thursday afternoon, the same client returns to deposit an additional 5,000 in currency, specifically asking the registered representative if deposits under $10,000 are reported to federal authorities. Which of the following regulatory actions is the member firm required to take under Bank Secrecy Act and Anti-Money Laundering (AML) regulations?

  1. File a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of detecting the transaction pattern while maintaining strict confidentiality from the client.Answer
  2. B
    File a Currency Transaction Report (CTR) with FinCEN within 15 calendar days because the aggregate weekly cash transactions exceed $10,000.
  3. C
    File a Currency Transaction Report (CTR) within 30 calendar days after securing written identity verification and source-of-funds paperwork from the customer.
  4. D
    Take no reporting action because neither deposit individually met or exceeded the $10,000 mandatory threshold.

Answer

The member firm must file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of discovering the activity and must not inform the customer of the filing.
Structuring involves separating cash deposits into amounts below 10,000toevadeBankSecrecyActcurrencyreportingrequirements.Whenafirmdetectspotentialstructuringinvolving10,000 to evade Bank Secrecy Act currency reporting requirements. When a firm detects potential structuring involving 5,000 or more in funds or assets, federal regulations require the broker-dealer to file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days. Additionally, representatives and firms are legally prohibited from disclosing to the client that a SAR has been or will be filed.

Step-by-Step Solution

1
Analyze the deposit activity for Currency Transaction Report (CTR) applicability.
Individual deposits were 6,500and6,500 and 5,000 on separate business days, so neither single business day currency total exceeded $10,000. Therefore, no CTR filing is required.
CTRs are mandatory only when cash deposits exceed $10,000 in a single business day.
2
Analyze the deposit activity and customer inquiry for Suspicious Activity Report (SAR) applicability.
Splitting deposits across days combined with asking about reporting limits strongly indicates structuring to avoid BSA reporting, involving more than $5,000.
Structuring currency transactions to evade CTR reporting thresholds is a federal crime and requires a SAR filing for transactions aggregating $5,000 or more.
3
Determine the required reporting timeline and disclosure rules under FINRA/FinCEN regulations.
The firm must file the SAR with FinCEN within 30 calendar days of initial detection and is strictly prohibited from disclosing the filing to the customer.
Federal law requires SAR filings within 30 days of detection and enforces strict non-disclosure provisions to protect ongoing law enforcement investigations.

Key Concept

Structuring and SAR vs. CTR Reporting Thresholds
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Topics

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