Policy

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Compliance Notes and Policy

Section 326 of the USA PATRIOT Act amended the BSA to require financial institutions, including broker-dealers, to establish written customer identification programs (CIP). Treasury’s implementing rule requires a broker-dealer’s CIP to include, at a minimum, procedures for:

  • obtaining customer identifying information from each customer prior to account opening;
  • verifying the identity of each customer, to the extent reasonable and practicable, within a reasonable time before or after account opening;
  • making and maintaining a record of information obtained relating to identity verification;
  • determining within a reasonable time after account opening or earlier whether a customer appears on any list of known or suspected terrorist organizations designated by Treasury;2 and
  • providing each customer with adequate notice, prior to opening an account, that information is being requested to verify the customer’s identity.

Section 356 of the USA PATRIOT Act amended the BSA to require broker-dealers to monitor for, and report, suspicious activity (so-called SAR reporting).

Under Treasury’s SAR rule, a broker-dealer is required to file a suspicious activity report if: (i) a transaction is conducted or attempted to be conducted by, at, or through a broker-dealer; (ii) the transaction involves or aggregates funds or other assets of at least $5000; and (iii) the broker-dealer knows, suspects, or has reason to suspect that the transaction: (a) involves funds or is intended to disguise funds derived from illegal activity, (b) is designed to evade requirements of the BSA, (c) has no business or apparent lawful purpose, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, or (d) involves the use of the broker-dealer to facilitate criminal activity.

Broker-dealers must report the suspicious activity using a form Treasury has issued for the securities and futures industry, the SAR-SF (also referred to as FinCEN Form 101). The form, which is confidential, includes instructions.

Broker-dealers must maintain a copy of any SAR-SF filed and supporting documentation for a period of five years from the date of filing the SAR-SF.

In situations that require immediate attention, such as terrorist financing or ongoing money laundering schemes, broker-dealers should immediately notify law enforcement in addition to filing a SAR-SF. In addition, if a firm wishes to report suspicious transactions that may relate to terrorist activity, in addition to filing a SAR-SF, the firm may call FinCEN’s Hotline at 1-866-556-3974.