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Question

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

A registered representative at a FINRA member firm is onboarding an foreign commercial account. During the Customer Identification Program (CIP) verification process, the corporate client refuses to provide a principal business address or taxpayer identification number (TIN), while simultaneously insisting on executing immediate outgoing international fund transfers. Which of the following compliance actions are mandatory for the broker-dealer under FINRA rules, FinCEN regulations, and the USA PATRIOT Act?

  1. Maintain written procedures to restrict or refuse account activity when required Customer Identification Program (CIP) verification elements cannot be obtainedAnswer
  2. File a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days if the firm suspects potential illicit financial activity involving $5,000 or moreAnswer
  3. C
    File a Currency Transaction Report (CTR) directly with the Internal Revenue Service (IRS) within 15 calendar days of the client's CIP refusal
  4. D
    Send a formal written notification to the prospective client within 5 business days detailing the reasons for submitting a Suspicious Activity Report (SAR)

Answer

The mandatory compliance actions are maintaining written procedures to restrict or refuse account activity when mandatory CIP information is missing, and filing a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days for suspicious activity involving $5,000 or more.
The correct requirements mandate maintaining written procedures to restrict or refuse account activity when required Customer Identification Program (CIP) verification information cannot be obtained, and filing a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days if the firm suspects potential illicit financial activity involving 5,000ormore.UndertheUSAPATRIOTAct,memberfirmsmustverifycustomeridentitiesandrestrictactivitywhenbasicrequirementslikeaTINorbusinessaddressarerefused.Simultaneously,suspiciousbehaviorinvolving5,000 or more. Under the USA PATRIOT Act, member firms must verify customer identities and restrict activity when basic requirements like a TIN or business address are refused. Simultaneously, suspicious behavior involving 5,000 or more requires filing a SAR with FinCEN within 30 calendar days.

Step-by-Step Solution

1
Evaluate Customer Identification Program (CIP) obligations
Broker-dealers must obtain key identification metrics (name, address, DOB, TIN/SSN) prior to account opening. If a client refuses to provide mandatory information, the firm must follow procedures to restrict or decline account activity.
Federal CIP rules mandate verification of customer identities to prevent unauthorized or illegal account access.
2
Analyze red flags for Suspicious Activity Reporting (SAR)
Refusing CIP information paired with immediate requests for foreign transfers constitutes a major AML red flag. For amounts of $5,000 or more, a SAR must be filed with FinCEN within 30 calendar days.
Broker-dealers are obligated under the USA PATRIOT Act to report suspicious transactions that lack business purpose or attempt to evade reporting.
3
Distinguish SAR rules from CTR and customer disclosure rules
Currency Transaction Reports (CTRs) apply only to physical cash deposits/withdrawals exceeding $10,000. Additionally, disclosing SAR filings to customers is strictly illegal.
CTRs deal with physical currency thresholds ($10,000+), while SAR filings carry strict statutory confidentiality provisions to preserve investigative integrity.

Key Concept

Customer Identification Program (CIP) procedures and Suspicious Activity Report (SAR) filing thresholds and confidentiality rules.
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Topics

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