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 Originally enacted in 1970, the Bank Secrecy Act requires financial institutions to report cash transactions exceeding $10,000 and wire transactions exceeding $3,000 to the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

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 Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  2. Economics

    Explaining Manufacturer’s Suggested Retail Price

    The manufacturer’s suggested retail price (MSRP) is just what it describes – the price manufacturers recommend that retailers charge for their goods.
  3. Economics

    What Happens in a Make-or-Buy Decision?

    A make-or-buy decision happens when a company must choose to either manufacture an item itself, or buy it premade from a supplier.
  4. Insurance

    Explaining Indemnity Insurance

    Indemnity insurance is an insurance policy that protects business owners and employees from losses due to failure to deliver expected services.
  5. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  6. Insurance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  7. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  8. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  9. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  10. Economics

    Explaining Corporate Tax

    A corporate tax is a tax levied on the profits a corporation generates.
  1. Unicorn

    In the world of business, a unicorn is a company, usually a start-up ...
  2. Private Equity Real Estate

    A Definition of "Private Equity Real Estate" and how it applies ...
  3. Put-Call Parity

    A principle that defines the relationship between the price of ...
  4. Encumbrance

    A claim against a property by a party that is not the owner. ...
  5. EBITA

    Earnings before interest, taxes and amortization. To calculate ...
  6. Qualitative Analysis

    Securities analysis that uses subjective judgment based on nonquantifiable ...
  1. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  3. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  4. Why is Luxembourg considered a tax haven?

    Luxembourg has been the tax haven of choice for many corporations and mega-rich individuals around the world since the 197 ... Read Full Answer >>
  5. Who decides to print money in Canada?

    In Canada, new money comes from two places: the Bank of Canada (BOC) and chartered banks such as the Toronto Dominion Bank ... Read Full Answer >>
  6. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!