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 Originally enacted in 1970, the Bank Secrecy Act requires financial institutions to report cash transactions exceeding $10,000 and wire transactions exceeding $3,000 to the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

    How Brokers Are Compensated for Selling Bonds

    Find out how brokers are paid for selling bonds and how the transaction costs are passed on to the investor through a markup or commission.
  2. Investing

    Top 25 Broker-Dealer Firms as of October 2017

    These are the top 25 broker-dealer firms based on assets under management.
  3. Investing

    HSBC's Money Laundering Scandal

    .
  4. 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.
  5. Financial Advisor

    What Advisors Need to Know About Rule 3210

    Here's what advisors and brokers need to know about FINRA Rule 3210.
  6. Insights

    FINRA: How It Protects Investors

    Find out the history of FINRA, and how it's organized to monitor the markets and protect investors.
  7. Financial Advisor

    The Pros & Cons of Partnering with a Broker/Dealer

    Financial advisors must determine a business model that meets their needs and meets the expectations of their clients.
  8. Tech

    Criminals Are Too Stupid to Use Cryptocurrency: EU Report

    The European Union reports that criminals are having a difficult time spending Bitcoin, Ethereum, and other virtual currencies.
  9. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  10. Financial Advisor

    Broker-Dealer Industry 101: The Landscape

    Independent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center