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Question

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

A registered representative at a member broker-dealer observes a corporate client conduct a $7,500 wire transfer from an offshore bank in a country with strict secrecy laws, followed immediately by an urgent request to journal the funds into an unrelated retail client's account. The representative identifies no legitimate commercial rationale for the transfer and suspects potential money laundering. Under Financial Crimes Enforcement Network (FinCEN) regulations and Bank Secrecy Act (BSA) rules, which of the following compliance actions must the member firm take regarding this transaction?

  1. A
    File a Currency Transaction Report (CTR) with FinCEN within 15 calendar days because the transaction exceeds the $5,000 threshold.
  2. File a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days and maintain strict confidentiality regarding the report.Answer
  3. C
    File a Suspicious Activity Report (SAR) within 15 calendar days and issue a written notification to the customer explaining the delay in fund transfer.
  4. D
    File a Currency Transaction Report (CTR) directly with the Securities and Exchange Commission (SEC) within 30 calendar days.

Answer

The member firm must file a Suspicious Activity Report (SAR) with FinCEN within 30 calendar days of initial detection and maintain strict confidentiality by not notifying the customer.
Under Bank Secrecy Act (BSA) regulations administered by FinCEN, broker-dealers are required to file a Suspicious Activity Report (SAR) for any transaction conducted or attempted by, at, or through the firm that involves or aggregates at least $5,000 in funds where the firm knows, suspects, or has reason to suspect potential money laundering, illegal activity, or lack of apparent business/lawful purpose. The firm must submit the SAR within 30 calendar days of detecting the suspicious activity. Furthermore, federal law strictly forbids notifying the customer or any involved party that a SAR has been filed.

Step-by-Step Solution

1
Determine the appropriate regulatory report based on the transaction type and monetary threshold.
The transaction is a suspicious 7,500wiretransferwithnobusinesspurpose.Sinceitinvolvesfundsof7,500 wire transfer with no business purpose. Since it involves funds of 5,000 or more and indicates potential money laundering, it triggers a Suspicious Activity Report (SAR) rather than a Currency Transaction Report (CTR), which requires physical cash exceeding $10,000.
BSA regulations mandate SAR filings for suspicious transactions of $5,000 or more.
2
Identify the mandatory filing timeframe for a SAR.
The firm has 30 calendar days from the date of initial detection of the suspicious activity to file Form SAR with FinCEN.
Federal regulations establish a 30-calendar-day window for filing SARs following discovery.
3
Evaluate customer notification and confidentiality requirements.
The firm and its representatives are legally prohibited from disclosing to the customer that a SAR has been filed or is under consideration.
Unauthorized disclosure of a SAR compromises law enforcement investigations and violates federal law.

Key Concept

Suspicious Activity Report (SAR) Filing Thresholds and Confidentiality
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Topics

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