Recordkeeping Rules - Anti Money Laundering Regulations
The Bank Secrecy Act
There are a number of federal laws designed to thwart criminal activity involving large sums of cash. Originally enacted in 1970, the Bank Secrecy Act requires financial institutions to report cash transactions exceeding $10,000 and wire transactions exceeding $3,000 to the federal government. The broker-dealer must provide information on both the transmitting party and the recipient of the funds.
The act was passed in order to facilitate the following activities:
- Make it more difficult for criminals to use foreign bank accounts and otherwise launder money
- Create a written record of large currency transactions
- Detect and investigate more criminal activities
- Enforce compliance from financial institutions for such reporting by imposing civil and criminal penalties for failure to report such transactions
The Patriot Act
The Patriot Act, passed after 9/11, was designed to further control cash and other transactions that could be related to terrorism. For example, broker-dealers must report SARs (Suspicious Activity Reports) for any transaction that involves at least $5,000 in funds or securities if the broker/dealer knows or suspects that it falls within one of these four classes:
- The transaction involves funds derived from illegal activity
- The transaction is structured to evade the Bank Secrecy Act requirements
- The transaction appears to serve no lawful purpose and is not the type of transaction in which the particular customer would be expected to engage
- The transaction involves the use of the broker-dealer to facilitate criminal activity
The Patriot Act also requires broker-dealers to institute a Customer Identification Program. Such a program spells out the types of identification that different types of customers must provide in order to open an account. NASD (now known as FINRA) Rule 3011 requires all member firms to create a written anti-money laundering program designed to reasonably achieve and monitor compliance with the act. Such a program must be approved in writing by a member of the senior management. In addition, NASD (FINRA) Rule 3011 requires the program to provide for independent testing for compliance every calendar year, or every two calendar years if the member does not execute transactions for customers, hold customer accounts, or act as a broker for customer accounts.
The terms "Bank Secrecy Act" and "Patriot Act" are used interchangeably because they are both concerned with money-laundering activities.
In addition, NASD (FINRA) Rule 3011 requires the program to provide for independent testing for compliance every calendar year, or every two calendar years if the member does not execute transactions for customers, hold customer accounts, or act as a broker for customer accounts.