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Question

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

A registered representative at a member broker-dealer observes that a new client initially intended to deposit 14,000inphysicalcurrencyintotheirbrokerageaccount.However,immediatelyafterlearningthatcashtransactionsexceedingacertainlimitrequirefederalregulatoryreporting,theclientcancelledthesingledepositandinsteadmadethreeseparatephysicalcashdepositsof14,000 in physical currency into their brokerage account. However, immediately after learning that cash transactions exceeding a certain limit require federal regulatory reporting, the client cancelled the single deposit and instead made three separate physical cash deposits of 4,800 across three consecutive business days. Which of the following statements correctly describes the member firm's regulatory reporting obligation regarding this activity?

  1. The firm must file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of detecting the structuring activity, and it is strictly prohibited from informing the client of the filing.Answer
  2. B
    The firm must file a Currency Transaction Report (CTR) within 15 calendar days because the total aggregate cash intended for deposit exceeded $10,000.
  3. C
    The firm must file a Suspicious Activity Report (SAR) within 15 calendar days and issue a written explanation to the client detailing the report.
  4. D
    The firm must report the transaction directly to the Internal Revenue Service (IRS) within 5 business days for potential tax compliance auditing.

Answer

The firm must file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of detecting the structuring activity, and it is strictly prohibited from informing the client of the filing.
Structuring transactions to avoid federal cash reporting thresholds is a recognized anti-money laundering red flag. Under Bank Secrecy Act rules, a broker-dealer must file a Suspicious Activity Report (SAR) with FinCEN when a transaction involves $5,000 or more in suspicious funds or activity. The firm has 30 calendar days from the date of detection to file the SAR, and federal law strictly prohibits disclosing the filing to the customer.

Step-by-Step Solution

1
Analyze customer transaction pattern for regulatory triggers
The client altered a single 14,000cashdepositintothree14,000 cash deposit into three 4,800 deposits to keep each individual deposit below $10,000.
Breaking up currency deposits to evade mandatory CTR reporting thresholds constitutes illegal structuring.
2
Determine the appropriate Anti-Money Laundering (AML) reporting requirement
Because no single-day cash deposit exceeded 10,000,noCTRisrequired.However,suspiciousstructuringinvolving10,000, no CTR is required. However, suspicious structuring involving 5,000 or more mandates a Suspicious Activity Report (SAR).
FinCEN rules require broker-dealers to report suspicious activities involving $5,000 or more.
3
Identify statutory filing deadline and confidentiality rules
The SAR must be filed within 30 calendar days of discovery, and the customer must never be informed of the report.
The Bank Secrecy Act sets a 30-day SAR filing timeframe and enforces strict confidentiality.

Key Concept

Suspicious Activity Report (SAR) filing threshold, timeline, and mandatory confidentiality rules regarding structuring
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Topics

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