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Question

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

A compliance officer at a FINRA member firm is auditing the firm's anti-money laundering (AML), Customer Identification Program (CIP), and sanctions procedures. Which of the following statements regarding CIP recordkeeping and OFAC sanctions compliance obligations are correct?

  1. Customer Identification Program (CIP) verification records must be retained for at least five years after the account is closed.Answer
  2. Transactions involving individuals or entities on the Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list must be blocked and reported 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 retail customer deposits physical currency exceeding $5,000.
  4. D
    If a customer refuses to provide a taxpayer identification number at account opening, the firm may open the account if a Suspicious Activity Report (SAR) is submitted within 15 calendar days.

Answer

The correct statements are that Customer Identification Program (CIP) verification records must be retained for at least five years after account closure, and transactions involving individuals or entities on the OFAC Specially Designated Nationals list must be blocked and reported within 10 business days.
CIP regulations require broker-dealers to retain identifying verification records for five years following account closure. Additionally, OFAC compliance mandates blocking transactions associated with Specially Designated Nationals (SDNs) and submitting a report to OFAC within 10 business days.

Step-by-Step Solution

1
Evaluate Customer Identification Program (CIP) record retention requirements.
CIP records used to verify customer identity must be kept for 5 years after the account is closed.
Federal regulations under the USA PATRIOT Act specify post-closure retention rules for identification documents and verification records.
2
Evaluate OFAC sanctions requirements for Specially Designated Nationals (SDNs).
Matches on the OFAC SDN list require blocking funds/transactions and filing a formal report within 10 business days.
OFAC regulations require prompt freezing of assets and administrative reporting within 10 business days.
3
Evaluate currency reporting thresholds and deadlines.
CTRs apply to cash transactions exceeding 10,000(filedwithin15days),whereasSARsapplytosuspiciousactivitiesof10,000 (filed within 15 days), whereas SARs apply to suspicious activities of 5,000 or more (filed within 30 days).
Conflating monetary thresholds (5,000vs5,000 vs 10,000) and deadlines (15 days vs 30 days) is a common misconception between CTR and SAR obligations.

Key Concept

Anti-Money Laundering (AML), CIP Recordkeeping, and OFAC Sanctions Obligations
Estimated Time:1m 30s
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Topics

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