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Question

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

A customer at a member broker-dealer deposits $8,500 in physical cash into their securities account. Two days later, the customer requests an urgent wire transfer of those funds to a foreign financial institution in a high-risk jurisdiction subject to OFAC sanctions monitoring. When the registered representative requests mandatory documentation to verify the ultimate beneficial owner of the receiving account, the customer abruptly cancels the wire request and demands to withdraw the full amount via a cashier's check made payable to an unrelated third party. Which of the following describes the broker-dealer's mandatory compliance requirement under federal Anti-Money Laundering (AML) regulations?

  1. File a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days and refrain from informing the customer of the filing under any circumstances.Answer
  2. B
    File a Currency Transaction Report (CTR) with FinCEN within 15 calendar days because the suspicious transaction activity exceeds the $5,000 regulatory threshold.
  3. C
    Issue a written notification to the customer detailing the red flags within 5 business days, granting them 30 days to clear the OFAC sanctions screening.
  4. D
    Submit a CTR report to the Securities and Exchange Commission (SEC) within 30 calendar days and freeze all account assets indefinitely without notifying FinCEN.

Answer

The broker-dealer must file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days and strictly maintain confidentiality regarding the filing.
Under federal Anti-Money Laundering regulations and FINRA rules, broker-dealers must file a Suspicious Activity Report (SAR) with FinCEN whenever a transaction (or series of transactions) involves at least $5,000 and the firm suspects or has reason to suspect illegal activity, evasion of BSA requirements, or lack of business purpose. The scenario presents classic red flags: attempting an international wire to an OFAC-monitored high-risk area, refusing identity verification, and attempting to divert funds to an unrelated third party. The SAR must be filed within 30 calendar days, and the law strictly forbids informing the client that a report has been or will be filed.

Step-by-Step Solution

1
Analyze the financial transaction amount and nature of customer behavior.
The transaction involves 8,500(8,500 ( 5,000+ threshold met for SAR reporting) and displays clear suspicious red flags (attempted wire to OFAC high-risk jurisdiction, refusal to provide verification, abrupt cancellation, and request for third-party payment).
Broker-dealers are required under the Bank Secrecy Act to detect and report suspicious transactions.
2
Distinguish between CTR and SAR reporting requirements.
A Currency Transaction Report (CTR) is triggered only for cash amounts exceeding 10,000inasinglebusinessday.ASuspiciousActivityReport(SAR)appliestosuspicioustransactionsatorabove10,000 in a single business day. A Suspicious Activity Report (SAR) applies to suspicious transactions at or above 5,000.
Because the cash deposit was 8,500,aCTRisnotautomaticallyrequiredforthecashdepositalone,buttheevasivebehavioraroundthe8,500, a CTR is not automatically required for the cash deposit alone, but the evasive behavior around the 8,500 wire transfer requires a SAR.
3
Identify the mandatory filing timeframe and confidentiality rules for a SAR.
The SAR must be submitted to FinCEN within 30 calendar days, and federal law strictly prohibits disclosing the existence of a SAR to the customer.
Confidentiality protects ongoing law enforcement monitoring and prevents tipping off potential criminals.

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