FINRA Anti-Money Laundering Regulations

If a money laundering concern or situation goes unreported & is discovered later the consequences could include

termination of employment, fines & criminal prosecution as well as imprisonment but such cases would not be handled through Arbitration.

Broker-dealers who transfer funds, including wire fund transfer of $3,000 or more, must collect, retain & record certain information including the:

● Name & address of the transmitter & recipient ● Recipient's financial institution, account number & amount. Broker-Dealers are required to verify the identity of any transmitter or recipient who is not an established customer.

Money Laundering occurs in 3 steps:

● Placement Stage - Cash enters the financial system ● Layering Stage - Funds are moved into other accounts ● Integration Stage - Funds are reintroduced into the economy to purchase legitimate assets.

Currency Transaction Report [CTR] - Broker-Dealers must file Currency Transaction Reports for transactions involving currency [cash] over

$10,000. ● If a person has a financial account in a foreign country, that person must report the relationship if the aggregate value of the account exceeds $10,000.

Member Firms must monitor accounts for suspicious activity & file a Suspicious Activity Report [SAR] for: 1. Any transaction conducted through a Broker-Dealer involving [separately or in the aggregate] funds or assets of $5,000 or more where the Broker-dealer detects any known or suspected Federal Criminal Violation.

2. The Broker-Dealer knows or suspects that the transaction: ● Involves funds relating to illegal activity. ● Is designed to evade the regulations. ● Has no business or apparent lawful purpose & the Broker-dealer knows of no reasonable explanation for the transaction after examining all available facts. 3. Suspicious activity would include lack of concern regarding risk & commissions as well as repeated journal entries between unrelated accounts. 4. If a member firm becomes aware of a suspicious transaction, the firm must file a Suspicious Activity Report [SAR] within 30 days.

Broker-dealers are subject to

AML Laws & Bank Secrecy Act reporting & record keeping requirements.

When a Broker-Dealer opens an account, it obtains

certain information from a customer as required by FINRA Rules.

Money Laundering -

is the acceptance of large amounts of cash from individuals or businesses where the money is suspected of being used for illegal purposes [i.e. drug trafficking, robbery, fraud, racketeering & terrorism].

To Summarize, FINRA Member Firms must establish an effective Anti-Money Laundering Program. The AML Program must at a minimum: ● Identify & verify customers opening accounts with additional due diligence on certain accounts. ● Use special due diligence for private banking accounts maintained for non-US citizens. ● Monitor accounts for suspicious activity.

● Use due diligence to identify and follow up on "Reg Flag" items. ● Comply with all reporting requirements. ● Share information with other financial institutions. ● Designate an AML Compliance Officer. ● Establish an ongoing Training Program ● Establish an Independent Testing Function annually and the report the results to Senior Management or an Internal Audit Committee. ● Insure that if you are a Clearing Broker-Dealer, you will work closely with your Introducing Broker-Dealer.

The Money Laundering Abatement Act imposes additional customer identification requirements on Member Firms including:

● to verify the identity of any customer seeking to open an account within five business days. ● to maintain customer identity records. ● to check that the customer does not appear on any terrorist list or list of embargoed countries.