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Question

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

A member firm is reviewing its internal compliance protocols regarding Customer Identification Programs (CIP) and Office of Foreign Assets Control (OFAC) sanctions screening. Which of the following statements regarding CIP verification procedures and OFAC regulatory compliance are CORRECT?

  1. The mandatory identifying information—including customer name, date of birth, physical address, and identification number—must be obtained prior to opening an account, although verification of the customer's identity may occur within a reasonable time after account opening.Answer
  2. B
    If a prospective client's name matches an entry on the OFAC Specially Designated Nationals (SDN) list, the firm must file a Currency Transaction Report (CTR) within 15 calendar days and obtain SEC clearance prior to rejecting the account.
  3. Broker-dealers must cross-check prospective and existing account holders against OFAC lists, and if an exact match on the SDN list is verified, the firm must immediately block the customer's assets and report the match to OFAC.Answer
  4. D
    If a customer refuses to provide a Taxpayer Identification Number (TIN) during account setup, the firm may open the account provided it files a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days.

Answer

The correct statements are that mandatory CIP customer information must be collected prior to account opening (with identity verification permitted within a reasonable time thereafter) and that verified matches on the OFAC SDN list require immediate blocking of customer assets and reporting to OFAC.
The statements regarding CIP information collection prior to account opening and OFAC SDN asset blocking requirements are correct. Under federal CIP rules, a firm must gather a customer's name, date of birth, address, and tax identification number before opening an account, though verification of those details may occur within a reasonable time after opening. Furthermore, OFAC regulations mandate that broker-dealers screen customers against sanctions lists and immediately freeze/block the funds or assets of any verified match on the Specially Designated Nationals (SDN) list.

Step-by-Step Solution

1
Analyze Customer Identification Program (CIP) collection and verification timing requirements.
Confirm that collecting key identifying details (Name, Date of Birth, Physical Address, TIN/Tax ID) is mandatory prior to account opening, whereas verifying identity documents can happen within a reasonable timeframe after opening according to firm procedures.
Federal CIP rules under the USA PATRIOT Act mandate obtaining foundational identifying information before opening an account, while permitting a reasonable post-opening window for verification.
2
Evaluate Office of Foreign Assets Control (OFAC) screening and enforcement rules.
Confirm that when a customer matches the OFAC Specially Designated Nationals (SDN) list, the firm must immediately block/freeze assets and report the hit to OFAC within 10 business days.
OFAC regulations enforce strict liability for asset freezing upon identifying an SDN list match, distinguishing sanctions enforcement from BSA/AML reporting mechanisms like CTRs or SARs.
3
Evaluate the incorrect options regarding CTR filings and TIN omissions.
Identify that filing a CTR or SAR does not override mandatory CIP identification rules or satisfy OFAC blocking mandates.
CTRs apply specifically to currency transactions exceeding $10,000 within a single business day, and SAR filings cannot substitute for missing CIP elements required at account inception.

Key Concept

CIP Verification Timelines & OFAC Sanction Blocking Obligations
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Topics

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