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 Originally enacted in 1970, the Bank Secrecy Act requires financial institutions to report cash transactions exceeding $10,000 and wire transactions exceeding $3,000 to the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.



Look Out!
The terms "Bank Secrecy Act" and "Patriot Act" are used interchangeably because they are both concerned with money-laundering activities.

Securities Investors Protection Act of 1970

Related Articles
  1. Investing

    What's Anti-Money Laundering?

    Anti-money laundering involves the laws and regulations designed to prevent criminals from generating income through illegal activities.
  2. Small Business

    Understanding Money Laundering

    The process of creating the appearance that large amounts of money obtained from serious crimes actually originated from a legitimate source.
  3. Investing

    Top 25 Broker-Dealer Firms of 2017

    These are the top 25 broker-dealer firms based on assets under management.
  4. Financial Advisor

    What are the Different Types of Financial Advisors?

    There are two primary types of financial advisors: investment advisors and investment brokers, who work for broker-dealers.
  5. Investing

    Top 10 British Broker-Dealer Firms In 2017 By AUM

    Here are the top 10 broker-dealers in the U.K. by assets under management.
  6. Taxes

    Switzerland's Declining Tax Haven Appeal

    Switzerland's tax haven allure is being threatened by efforts by the US and other governments to make Swiss banks give up their much-vaunted secrecy.
  7. Financial Advisor

    What Advisors Need to Know About Rule 3210

    Here's what advisors and brokers need to know about FINRA Rule 3210.
  8. Investing

    Deutsche Bank Faces New Fines

    The bank has paid fines for laundering money for Russian criminals and for selling toxic assets that caused the global recession. Now illegal currency trades may be the latest source of pain.
  9. Insights

    FINRA: How It Protects Investors

    Find out the history of FINRA, and how it's organized to monitor the markets and protect investors.
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center