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Flashcards in Chapter 8.5 Deck (10):

Money Laundering

Under FINCEN, money laundering is the acceptance of large amounts of cash from individuals or businesses, where the money is suspected of being used for illegal purposes. Money laundering occurs in 3 stages:
-Placement Stage: Cash enters the financial system
-Layering Stage: Funds are moved into other accounts
-Integration Stage: Funds are reintroduced into the economy to purchase legitimate assets

**Money laundering can happen with new and existing accounts


Currency Transaction Report

B/D's must file Currency Transaction Reports for transactions involving cash over $10,000 for 1 person in the aggregate in a single business day, as well as, wire transfers over $10,000 and multiple currency transactions totaling over $10,000.
-If a person has a financial account in a foreign country, that person must report the relationship if the aggregate value of the account exceeds $10,000.
-The Currency Transaction Report must be filed within 15 calendar days after the day of the transaction, and supporting documentation is generally not included with submission of the report.


B/D's that transfer funds, including wire fund transfers of $3,000 or more must:

Collect, retain, and record certain information including:
-Name and address of the transmitter and recipient
-The recipient's financial institution, account number, and the amount. B/D's are required to verify the identity of any transmitter or recipient who is not an established customer.


Member firms must have a written AML Compliance Program, which at a minimum:

-Establish policies to detect and report suspicious transactions
-Establish policies to comply with the Bank Secrecy ACT
-Independently test for compliance using Member Firm personnel or a qualified outside party
-Designate a person or persons to implement day-to-day operations and internal controls
-Provide ongoing training for employees


The money laundering abatement ACT of 2001 imposes additional customer identification requirements on Member firms including:

-Verify the identity of any customer seeking to open an account within 5 business days
-Maintain customer identity records
-Check that the customer does not appear on any terrorist list or list of embargoed countries


Due diligence member firms should perform when opening an account:

-Inquire about the source of the customer's assets and income to determine if the inflow and outflow of money is consistent with the customer's financial status
-Understand the customer's trading patterns
-Maintain records of the owners of the accounts and their citizenship
-Require street address to open an account and periodically contact businesses to verify addresses and phone numbers
-Conduct credit history and criminal background checks


Suspicious Activity Reports(SAR) need to be filed for:

-Any transaction conducted through a B/D involving funds or assets of $5,000 or more, where the B/D detects any known or suspected Federal Criminal Violation.
-The B/D knows or suspects that the transaction:
-Involves funds relating to illegal activity
-Is designed to evade the regulations
-Has no business or apparent lawful purpose and the B/D knows of no reasonable explanation for the transaction, after examining all available facts
-If a member firm becomes aware of a suspicious transaction the firm must file a Suspicious Activity Report within 30 days
-Financial institutions may not disclose to the client or other financial institutions that a SAR was filed.


AML Compliance Officer

Every B/D must designate an AML Compliance officer to administer the firm's AML Compliance Program. The AML compliance officer does not have to be the B/D's current Compliance Officer. The AML Compliance Officer must help resolve due diligence and "Red Flag" issues.


AML Rules apply to who?

Both introducing B/D's and clearing B/D's
-Introducing B/D's are in a better position to identify money laundering concerns at the account opening stage
-Clearing B/D's are in a better position to identify money laundering concerns relating to trading, wire transfers and the deposit and withdrawal of funds from the account


Member firms are required to provide SAR information to FINRA staff in connection with:

-Investigations, and
-Risk assessment efforts within it's examination program