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

A newly appointed compliance associate at a member broker-dealer is conducting a review of the firm's anti-money laundering (AML) policies, Customer Identification Program (CIP) standards, and Office of Foreign Assets Control (OFAC) procedures. Which of the following statements regarding the firm's regulatory obligations are CORRECT?

  1. Under CIP rules, the broker-dealer must collect four mandatory items of identifying information—name, date of birth, physical residential/business address, and taxpayer identification number—prior to opening an account.Answer
  2. A broker-dealer is required to file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of detecting a suspicious transaction involving $5,000 or more.Answer
  3. C
    A Currency Transaction Report (CTR) must be filed whenever a customer completes aggregate wire transfers or cashier's check deposits exceeding $5,000 within a single business week.
  4. D
    If a customer's name matches an entry on the OFAC Specially Designated Nationals (SDN) list, the firm must notify the customer in writing and provide 15 business days to clear the administrative mismatch.

Answer

The correct statements are that Customer Identification Programs (CIP) mandate collecting four core identifying items (name, date of birth, physical address, and TIN) prior to opening an account, and that Suspicious Activity Reports (SARs) must be filed with FinCEN within 30 calendar days for suspicious transactions of $5,000 or more.
The statements regarding CIP information collection and SAR filing requirements accurately state federal AML rules. CIP requires member firms to obtain a customer's name, date of birth, street address, and tax identification number prior to account opening. Additionally, broker-dealers must file a SAR with FinCEN within 30 calendar days for any transaction of $5,000 or more that is suspected of involving illegal activity or structuring.

Step-by-Step Solution

1
Evaluate CIP identity collection requirements.
Confirm that collecting name, date of birth, residential/business street address, and identification number (SSN/TIN) before opening an account is a mandatory CIP element under the USA PATRIOT Act.
Broker-dealers must verify customer identities using reliable documentary or non-documentary methods based on minimum collected data.
2
Evaluate SAR threshold and filing timeline rules.
Confirm that suspicious transactions involving $5,000 or more require filing a SAR with FinCEN within 30 calendar days.
FINRA Rule 3310 and U.S. Treasury regulations mandate SAR filings for transactions of $5,000+ where criminal activity or lack of lawful business purpose is suspected.
3
Analyze the CTR option against regulatory triggers.
Identify that CTR filings are triggered specifically by physical cash deposits/withdrawals exceeding 10,000inasinglebusinessday,makingthestatementregarding10,000 in a single business day, making the statement regarding 5,000 wire transfers incorrect.
Confusing non-cash instruments and lower monetary limits with actual CTR currency thresholds is a common misconception.
4
Analyze OFAC compliance and customer notification requirements.
Identify that firms must freeze assets immediately upon an SDN match and report to OFAC within 10 business days without notifying the customer.
Tipping off sanctioned individuals violates sanctions rules and jeopardizes law enforcement operations.

Key Concept

AML Reporting Requirements, CIP Verification Rules, and OFAC Sanctions Protocols
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Topics

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