Anti-Money Laundering Program

What does screening a customer against the Specially Designated Nationals list actually require of a firm?

1. A.Comparing every customer and transaction against the published list, regardless of size or any suspicion.Correct. The prohibition arises from the identity of the counterparty, so no threshold or suspicion trigger applies.
2. B.Checking customers whose transactions exceed the reporting threshold that triggers a currency report.Wrong. Attaching sanctions screening to a currency threshold would leave every smaller dealing with a prohibited person unexamined.
3. C.Reviewing the list whenever the firm has already decided that a customer's activity is suspicious.Wrong. Suspicion drives the judgment-based reporting obligations, whereas sanctions screening runs unconditionally.
4. D.Confirming at account opening that the customer is not a resident of a country subject to sanctions.Wrong. The list names specific persons and entities, and residence is neither the test nor a substitute for it.

Why: Screening against the SDN list is a mechanical comparison of names against a published list of persons and entities with whom United States persons may not deal. It applies to every customer and every transaction regardless of size, and it does not depend on the firm finding anything suspicious, because the prohibition arises from who the counterparty is rather than from what the transaction looks like. Where a genuine match exists, the firm must block or reject the transaction as the sanctions programme requires and report the action, rather than simply declining the business quietly. This is why sanctions screening sits alongside, and not inside, the judgment-based parts of an anti-money-laundering programme.

A long-standing customer walks into a branch of Wexler Securities and deposits 14,000 dollars in currency to fund his account. He presents full identification and gives a plausible, verifiable explanation of the source. Nothing about the transaction strikes the branch or compliance as suspicious. What reporting obligation arises?

1. A.A suspicious activity report must be filed, because any currency deposit over 10,000 dollars is presumptively suspicious.Wrong. Size alone does not make a transaction suspicious; that is what the CTR, not the SAR, exists to capture.
2. B.No report is required, because the customer identified himself and documented the source of the funds.Wrong. The CTR obligation is triggered by the amount and does not depend on the customer's cooperation.
3. C.A Currency Transaction Report is required because currency exceeding 10,000 dollars moved in one business day, regardless of suspicion, and the customer may be told it is being filed.Correct. The CTR is amount-driven, routine, and not confidential from the customer.
4. D.A Currency Transaction Report is required only if the firm concludes the deposit lacks a lawful business purpose.Wrong. No purpose determination is involved; the filing is mandatory on the dollar threshold alone.

Why: The Bank Secrecy Act requires a Currency Transaction Report for currency transactions exceeding 10,000 dollars conducted by or on behalf of one person in a single business day. The obligation is purely mechanical: it turns on the amount and the fact that the transaction is in currency, not on any judgment about the customer's intent. There is no prohibition on telling a customer that a CTR will be filed, which is what distinguishes it from a suspicious activity report, where tipping off the customer is forbidden. On these facts no SAR is triggered because nothing suspicious has been identified.

Under the Bank Secrecy Act as amended by the USA PATRIOT Act, a broker-dealer's written anti-money laundering compliance program must contain, at a minimum:

1. A.Quarterly filing of suspicious activity reports whether or not any suspicious activity has been identified.Wrong. A suspicious activity report is filed when a reportable suspicion arises; there is no routine quarterly filing.
2. B.A designated AML compliance officer plus the annual filing of a currency transaction report for every customer.Wrong. A currency transaction report is filed only when cash transactions exceed the reporting threshold, never routinely for every customer.
3. C.Written internal policies, procedures and controls; a designated AML compliance officer; ongoing employee training; and independent testing of the program.Correct. These are the four required pillars, with risk-based customer due diligence added as a further element.
4. D.Written internal policies together with an annual on-site audit conducted by the SEC.Wrong. The rule requires INDEPENDENT testing arranged by the firm. Regulatory examinations are separate and are not a program element.

Why: The AML program rests on four long-standing pillars: written internal policies, procedures and controls reasonably designed to achieve compliance; a designated AML compliance officer; ongoing training for appropriate personnel; and INDEPENDENT TESTING of the program, which may be performed by qualified internal staff outside the AML function or by an outside party. Risk-based customer due diligence, including identifying the beneficial owners of legal entity customers, has since been added as a further required element.

A firm wants to rely on another financial institution's own customer identification program to satisfy its obligations for a jointly serviced account, rather than independently performing its own verification. Under what condition may this reliance be permitted?

1. A.Reliance is permitted freely and informally with any other financial institution, regulated or not, as long as both firms agree verbally to split responsibility.Wrong. Reliance requires the other institution to be regulated and subject to an AML program, plus a written agreement, not an informal verbal split.
2. B.Reliance is never permitted under any circumstances; each firm must always perform its own complete, independent verification regardless of any other institution's involvement.Wrong. Reliance is permitted under specific conditions; it is not categorically unavailable.
3. C.Reliance is permitted automatically for any account where a customer is already a client of another broker-dealer, without any further conditions or documentation.Wrong. Reliance is not automatic; it requires meeting specific conditions and a written agreement.
4. D.The reliance must satisfy specific conditions, including that the other institution is itself subject to an anti-money laundering program and is regulated by a federal functional regulator, and the reliance is documented in a written agreement, rather than being available informally to any firm the account happens to touch.Correct. Reliance requires the other institution to meet specific regulatory conditions and requires a documented written agreement.

Why: Relying on another financial institution's customer identification program is not something a firm may do informally simply because both firms happen to service the same account. It is permitted only under specific conditions -- the other institution must itself be subject to an anti-money laundering program and regulated by a federal functional regulator, and the reliance arrangement must be documented in a written agreement between the two firms -- ensuring the reliance is placed on an institution that is itself held to comparable standards.