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Question

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

A registered representative observes an existing retail customer complete two separate wire transfers out of their brokerage account totaling $8,500 over a three-day period to an offshore entity. When questioned about the transfers, the customer insists that the representative keep the transactions private and refrain from documenting any transfer details in the firm's internal customer note system. The firm's anti-money laundering (AML) compliance officer concludes that the activity has no discernible business purpose and suspects illegal activity. Under Bank Secrecy Act (BSA) regulations and FINRA rules, which of the following actions is the broker-dealer required to take?

  1. File a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days and strictly maintain confidentiality by not informing the customer.Answer
  2. B
    File a Currency Transaction Report (CTR) with FinCEN within 15 calendar days and notify the customer of the regulatory filing.
  3. C
    File a Suspicious Activity Report (SAR) with the SEC within 15 calendar days only if physical currency was deposited into the account prior to the wire.
  4. D
    Report the transaction directly to the Internal Revenue Service (IRS) and freeze all funds in the customer's account for 60 business days.

Answer

The broker-dealer must file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of detecting the suspicious activity and must not inform the customer about the filing.
Under Bank Secrecy Act (BSA) regulations administered by FinCEN and enforced by FINRA, broker-dealers are required to file a Suspicious Activity Report (SAR) for any transaction (or series of transactions) conducted or attempted through a broker-dealer that involves or totals at least $5,000 in funds or assets where the firm suspects illegal activity or lacks a legitimate business purpose. The SAR must be filed within 30 calendar days of initial discovery of the facts. Additionally, federal regulations mandate strict confidentiality, prohibiting the firm from informing the customer that a SAR has been or will be filed.

Step-by-Step Solution

1
Identify the transaction type and amount to determine reporting obligations.
The activity involves wire transfers totaling $8,500 with no clear business purpose and a request to withhold documentation.
Suspicious transactions involving $5,000 or more in funds or assets trigger a Suspicious Activity Report (SAR) requirement under BSA and FINRA rules.
2
Distinguish between SAR and CTR reporting thresholds and recipient agencies.
The event qualifies for a SAR (threshold 5,000+)filedwithFinCENwithin30calendardays,ratherthanaCTR(whichrequiresphysicalcash/currencyexceeding5,000+) filed with FinCEN within 30 calendar days, rather than a CTR (which requires physical cash/currency exceeding 10,000).
Wire transfers are electronic transfers of funds, not physical currency, making CTR rules inapplicable.
3
Apply statutory confidentiality requirements regarding SAR filings.
The firm and its associated persons are legally prohibited from disclosing to the customer that a SAR has been filed or is being considered.
Federal law enforces strict non-disclosure rules to prevent tipping off targets of financial crime investigations.

Key Concept

Suspicious Activity Report (SAR) Thresholds, Filing Timelines, and Confidentiality Rules
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Topics

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