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Question

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

A broker-dealer compliance officer is evaluating the firm's anti-money laundering (AML), Customer Identification Program (CIP), and sanctions compliance policies. Which of the following statements correctly describe mandatory compliance obligations for member firms under FINRA rules and federal regulations?

  1. Under Customer Identification Program (CIP) rules, the firm must retain records of the information used to verify a customer's identity for at least five years after the account is closed.Answer
  2. If a firm identifies a validated match against the OFAC Specially Designated Nationals (SDN) list, it must block or freeze the customer's assets and report the blocked property to OFAC within 10 business days.Answer
  3. C
    A Currency Transaction Report (CTR) must be filed with FinCEN within 30 calendar days whenever a customer deposits $5,000 or more in physical currency into a brokerage account.
  4. D
    If a registered representative suspects money laundering activity, they are required to directly notify FinCEN immediately before informing their member firm's designated AML compliance officer.

Answer

The statements regarding retaining CIP verification records for five years post-account closure and reporting OFAC SDN asset blocks within 10 business days are correct.
Under CIP rules, financial institutions must retain customer identification verification records for five years after the account is closed. Furthermore, when a hit occurs against OFAC's Specially Designated Nationals (SDN) list, the firm must freeze the assets and submit a blocked property report to OFAC within 10 business days.

Step-by-Step Solution

1
Analyze Customer Identification Program (CIP) recordkeeping mandates.
Broker-dealers are required to retain identifying information collected under CIP for five years after the account is closed.
Federal CIP rules set clear recordkeeping retention periods starting from account closure, not account opening.
2
Evaluate OFAC sanctions requirements for Specially Designated Nationals (SDN).
Matches on the SDN list require immediate blocking of transactions/assets and reporting to OFAC within 10 business days.
U.S. sanctions law prohibits financial transactions with listed blocked persons and mandates strict reporting deadlines.
3
Review CTR threshold and filing rules against SAR requirements.
Currency Transaction Reports (CTRs) apply to cash deposits exceeding 10,000inonedayandarefiledwithin15days,unlikeSuspiciousActivityReports(SARs)whichtargetsuspiciousactivityat10,000 in one day and are filed within 15 days, unlike Suspicious Activity Reports (SARs) which target suspicious activity at 5,000+ within 30 days.
Confusing CTR cash limits (10,000/15days)withSARthresholdlimits(10,000 / 15 days) with SAR threshold limits ( 5,000 / 30 days) is an error.
4
Determine internal escalation procedures for suspicious activities.
Associated persons report suspicious matters internally to their firm's AML officer, who evaluates whether a firm-level SAR filing is necessary.
FinCEN filings are made at the broker-dealer firm level, not by individual representatives acting independently.

Key Concept

AML, CIP, and OFAC Regulatory Obligations
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Topics

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