AML Anti Money Laundering Financial Crimes Risk – Guide by AAFM

 

Anti-Money Laundering (AML) Compliance Tool

This research guide, or “source tool,” is a compilation of key AML laws, rules, and guidance applicable to broker-dealers. Several statutory and regulatory provisions, and related rules of the securities self-regulatory organizations (SROs), impose AML obligations on broker-dealers. There is also a wealth of related AML guidance materials. To aid research efforts into AML requirements and to assist broker-dealer compliance efforts, this source tool organizes key AML compliance materials and provides related source information.

When using this research “tool” or guide, you should keep the following in mind:

First, securities firms are responsible for complying with all applicable AML requirements. Although this research guide summarizes some of the key broker-dealer AML obligations, it is not comprehensive. You should not rely on the summary information provided, but should refer to the actual statutes, rules, orders, and interpretations.

Second, AML rules, regulations, and orders are subject to change and may change quickly. The information summarized in this guide is current as of January 1, 2007.

Finally, you will find a list of telephone numbers and useful websites at the end of this guide. If you have questions concerning the meaning, application, or status of a particular law, rule, order, or interpretation, you should consult with an attorney experienced in the areas covered by this guide.

TABLE OF CONTENTS

The following topics are addressed in this guide:

1. The Bank Secrecy Act
    
2. The USA PATRIOT Act
    
3. AML Compliance Programs
    
4. Customer Identification Programs
    
5. Correspondent Accounts: Prohibition on Foreign Shell Banks and Due Diligence Programs
    
6. Due Diligence Programs for Private Banking Accounts
    
7. Suspicious Activity Monitoring and Reporting
    
8. Other BSA Reports
    
9. Records of Funds Transfers
    
10. Information Sharing With Law Enforcement and Financial Institutions
     
11. Special Measures Imposed by the Secretary of the Treasury
     
12. Office of Foreign Asset Control (OFAC) Sanctions Programs and Other Lists
     
13. Selected Additional AML Resources
     
14. Useful Contact Information

1. The Bank Secrecy Act

The Bank Secrecy Act (BSA), initially adopted in 1970, established the basic framework for anti-money laundering obligations imposed on financial institutions. Among other things, it authorizes the Secretary of the Treasury (Treasury) to issue regulations requiring financial institutions (including broker-dealers) to keep records and file reports on financial transactions that may be useful in investigations and prosecuting money laundering and other financial crimes. The Financial Crimes Enforcement Network (FinCEN), a bureau within Treasury, is the administrator of the BSA.

Rule 17a-8 under the Securities Exchange Act of 1934 (Exchange Act) requires broker-dealers to comply with the reporting, recordkeeping, and record retention requirements adopted under the BSA.

Source Documents:

• Bank Secrecy Act: The Bank Secrecy Act is codified at 31 U.S.C. §§ 5311 et seq. and is available at:
   
  http://www4.law.cornell.edu/uscode/html/uscode31/
  usc_sup_01_31_08_IV_10_53.html
   
• Bank Secrecy Act Rules: The rules adopted by Treasury implementing the BSA are located at 31 C.F.R. Part 103 and are available at:
   
  http://www.access.gpo.gov/nara/cfr/waisidx_06/31cfr103_06.html
• Exchange Act Rule 17a-8: 17 C.F.R. § 240.17a-8.
   

2. The USA PATRIOT Act

The official title of the USA PATRIOT Act is “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001.” The USA PATRIOT Act, enacted by Congress in 2001 in response to the September 11, 2001 terrorist attacks, (among other things) amended and strengthened the BSA . It imposed a number of AML obligations directly on broker-dealers, including:

• AML compliance programs;
   
• customer identification programs;
   
• monitoring, detecting, and filing reports of suspicious activity;
   
• due diligence on foreign correspondent accounts, including prohibitions on transactions with foreign shell banks;
   
• due diligence on private banking accounts;
   
• mandatory information-sharing in response to requests by federal law enforcement); and
   
• compliance with “special measures” imposed by the Secretary of the Treasury to address particular AML concerns.

Source Document:

• USA PATRIOT Act: Title 3 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 296 (2001). The text is available at:
   
  http://www.treas.gov/offices/domestic-finance/
  financial-institution/cip/pl107-56.pdf

3. AML Compliance Programs

Section 352 of the USA PATRIOT ACT amended the BSA to require financial institutions, including broker-dealers, to establish AML programs. Broker-dealers can satisfy this requirement by implementing and maintaining an AML compliance program that complies with SRO rule requirements. NASD Rule 3011 and NYSE Rule 445 require their member organizations to establish risk-based AML compliance programs.

An AML program must be in writing and include, at a minimum:

• policies, procedures, and internal controls reasonably designed to achieve compliance with the BSA and its implementing rules;
   
• policies and procedures that can be reasonably expected to detect and cause the reporting of transactions under 31 U.S.C. 5318(g) and the implementing regulations thereunder;
   
• the designation of an AML compliance officer (AML Officer), including notification to the SROs;
   
• ongoing AML employee training; and
   
• an independent test of the firm’s AML program, annually for most firms.

Source Documents:

• AML Program Rule: 31 C.F.R. § 103.120.
   
• Final Rule Release: 67 Fed. Reg. 21110 (April 29, 2002).
   
• SEC Order Approving SRO AML Compliance Program Rules: Exchange Act Release No. 45798 (April 22, 2002). See also 67 Fed. Reg. 20854 (April 26, 2002).
   
• NYSE AML Compliance Program Rules and Related Guidance:
   
• NYSE Rule 445: Anti-Money Laundering Compliance Program.
   
• SEC Release Approving NYSE Amendment to Rule 445: Exchange Act Release No. 53176 (January 25, 2006). See also 71 Fed. Reg. 5392 (February 1, 2006). (The rule amendments refine AML compliance program requirements relating to independence, testing, and AML Officer notifications.)
   
• Other Related NYSE Guidance:
   
• IM-02-16: Anti-Money Laundering Compliance Requirements (April 12, 2002).
   
• IM 02-21: Approval of New Rule 445 — Anti-Money Laundering Compliance Program (May 6, 2002).
   
• IM 03-48: Rule 445 — Initial Anti-Money Laundering Audit (October 23, 2003).
   
• IM 06-04: Amendments to Rule 445 (February 3, 2006).
   
• NASD AML Compliance Program Rules and Related Guidance
• NASD Rule 3011: Anti-Money Laundering Compliance Program.
   
• IM-3011-1: Independent Testing Requirements.
   
• IM-3011-2: Review of Anti-Money Laundering Compliance Person Information.
   
• SEC Release Approving NASD Amendment to Rule 3011: Exchange Act Release No. 53030 (December 28, 2005). See also 71 Fed. Reg. 632 (January 5, 2006). (The rule amendments refine AML compliance program requirements relating to independence, testing, and AML Officer notifications).
   
• Other Related NASD Guidance:
   
• NTM 02-21: NASD Provides Guidance to Member Firms Concerning Anti-Money Laundering Compliance Programs Required by Federal Law (April 2002).²
   
• NTM 02-78: NASD Adopts Amendments to Rule 3011 to Require Members to Provide to NASD Contact Information for an Anti-Money Laundering Compliance Person(s) (November 2002).
   
• NTM 06-07: SEC Approves Amendments to Anti-Money Laundering Compliance Program Rule and Adoption of Interpretative Material (February 2006).
   
• NASD Small Firm Template: The template provides model language for AML program compliance and supervisory procedures and is available on the NASD website at:
   
  http://www.nasd.com/RulesRegulation/IssueCenter/Anti-MoneyLaundering/NASDW_006340.
   
• NASD AML Frequently Asked Questions: The Qs and As are available on the NASD website at:
   
  http://answers.atgnow.com/nasd/categoryBrowse.do;
  ?category=/Topics/Securities%20Firms/
  Anti-Money%20Laundering

4. Customer Identification Programs

Section 326 of the USA PATRIOT Act amended the BSA to require financial institutions, including broker-dealers, to establish written customer identification programs (CIP). Treasury’s implementing rule requires a broker-dealer’s CIP to include, at a minimum, procedures for:

• obtaining customer identifying information from each customer prior to account opening;
   
• verifying the identity of each customer, to the extent reasonable and practicable, within a reasonable time before or after account opening;
   
• making and maintaining a record of information obtained relating to identity verification;
   
• determining whether a customer appears on any list of known or suspected terrorist organizations designated by Treasury within a reasonable time after account opening or earlier;³ and
   
• providing each customer with adequate notice, prior to opening an account, that information is being requested to verify the customer’s identity.

Source Documents:

• Customer Identification Program Rule: 31 C.F.R. § 103.122.
   
• Final Rule Release: Exchange Act Release No. 47752 (April 29, 2003). See also 68 Fed. Reg. 25113 (May 9, 2003).
   
• Other Rule-Related Documents:
   
• Proposed Rule: Exchange Act Release No. 46192 (July 12, 2002). See also 67 Fed. Reg. 48306 (July 23, 2002).
   
• Treasury Department Provides Guidance on Compliance with Section 326 of the USA PATRIOT ACT: PO-3530 (October 11, 2002).⁴
   
• SEC Staff Guidance:
   
  Staff Q&A Regarding the Broker-Dealer Customer Identification Program Rule (October 1, 2003). (The Q&A provides staff guidance regarding when a broker-dealer maintaining an “omnibus account” for a financial intermediary may treat the financial intermediary as the “customer” for CIP purposes.)
   
• No-Action Letters to the Securities Industry Association (“SIA”) (February 12, 2004; February 10, 2005; and July 11, 2006). (The letters provide staff guidance regarding the extent to which a broker-dealer may rely on an investment adviser to conduct the required elements of the CIP rule, prior to such adviser being subject to an AML rule.)
   
• Staff Q&A Regarding Broker-Dealer CIP Rule Responsibilities under the Agency Lending Disclosure Initiative (April 26, 2006). (The Q&A provides staff guidance on the application of the CIP rule to the Agency Lending Disclosure Initiative.)
   
• NYSE Guidance:
   
• IM 02-46: Compliance with Section 326 (“Verification of Identification”) of the USA Patriot Act (October 31, 2002).
   
• IM 03-32: Customer Identification Programs For Broker-Dealers (July 14, 2003).
   
• NASD Guidance:
   
• NTM 02-50: Treasury and SEC Request Comment on Proposed Regulation Regarding Broker/Dealer Anti-Money Laundering Customer Identification Requirements (August 2002).
   
• NTM 03-34: Treasury and SEC Issue Final Rule Regarding Customer Identification Programs for Broker/Dealers (June 2003).
   
• NASD Customer Identification Program Notice (2003).
   
• NASD Comparison of the AML Customer Identification Rule and the SEC’s Books & Records Customer Account Records Rule (2003).

5. Correspondent Accounts: Prohibition on Foreign Shell Banks and Due Diligence Programs

Overview: Sections 312, 313, and 319 of the USA PATRIOT Act, which amended the BSA, are inter-related provisions involving accounts called “correspondent accounts.” These inter-related provisions include prohibitions on certain types of correspondent accounts (those maintained for foreign “shell” banks) as well as requirements for risk-based due diligence of foreign correspondent accounts more generally.

A “correspondent account” is defined as: “any formal relationship established for a foreign financial institution to provide regular services to effect transactions in securities.”

A “foreign financial institution” includes: (i) a foreign bank (including a foreign branch or office of a U.S. bank); (ii) a foreign branch or office of a securities broker-dealer, futures commission merchant, introducing broker in commodities, or mutual fund; (iii) a business organized under foreign law (other than a branch or office of such business in the U.S.) that if it were located in the U.S. would be a securities broker-dealer, futures commission merchant, introducing broker in commodities, or a mutual fund; and (iv) a money transmitter or currency exchange organized under foreign law (other than a branch or office of such entity in the U.S.).

In addition, Treasury has clarified that, for a broker-dealer, a “correspondent account” includes:

• accounts to purchase, sell, lend, or otherwise hold securities, including securities repurchase arrangements;
   
• prime brokerage accounts that clear and settle securities transactions for clients;
   
• accounts for trading foreign currency;
   
• custody accounts for holding securities or other assets in connection with securities transactions as collateral; and
   
• over-the-counter derivatives contracts.

Prohibitions on Foreign Shell Banks: A broker-dealer is prohibited from establishing, maintaining, administering, or managing “correspondent accounts” in the U.S. for, or on behalf of, foreign “shell” banks (i.e., foreign banks with no physical presence in any country). Broker-dealers also must take steps to ensure that they are not indirectly providing correspondent banking services to foreign shell banks through foreign banks with which they maintain correspondent relationships. In order to assist institutions in complying with the prohibitions on providing correspondent accounts to foreign shell banks, Treasury has provided a model certification that can be used to obtain information from foreign bank correspondents. In addition, broker-dealers must obtain records in the United States of foreign bank owners and agents for service of process (Sections 313 and 319 of the USA PATRIOT Act).

Source Documents:

• Shell Bank Prohibition: 31 C.F.R. § 103.177. See also 31 C.F.R. § 103.175 (definitions).
   
• Final Rule Release: 67 Fed. Reg. 60562 (September 26, 2002).
   
• Extension of Implementation Date: 67 Fed. Reg. 78383 (December 24, 2002).
   
• Other Rule-Related Documents:
   
• Interim Guidance: 66 Fed. Reg. 59342 (November 27, 2001).
   
• Proposed Rule: 66 Fed. Reg. 67460 (December 28, 2001).
   
• FinCEN Guidance:
   
• FIN-2006-G003: Frequently Asked Questions: Foreign Bank Recertifications under 31 C.F.R. § 103.77 (February 3, 2006).

Due Diligence Regarding Foreign Correspondent Accounts: A broker-dealer is required to establish a risk-based due diligence program (that is part of its AML compliance program) for any “correspondent accounts” maintained for foreign financial institutions. The due diligence program, which is required to be a part of the broker-dealer’s overall AML compliance program, must include appropriate, specific, risk-based policies, procedures, and controls reasonably designed to enable the broker-dealer to detect and report, on an ongoing basis, any known or suspected money laundering conducted through or involving any foreign correspondent account (Section 312 of the PATRIOT Act).

Treasury has re-proposed a related rule that would clarify when enhanced due diligence on foreign financial institutions is required. This proposal is still pending.

Source Documents:

• Correspondent Account Due Diligence Rule: 31 C.F.R. § 103.176. See also 31 C.F.R. § 103.175 (definitions).
   
• Final Rule Release: 71 Fed. Reg. 496 (January 4, 2006).
   
• Extension of Applicability Date: 71 Fed. Reg. 16040 (March 30, 2006).
   
• Enhanced Due Diligence Re-Proposed Rule: 71 Fed. Reg. 516 (January 4, 2006).
• Other Rule-Related Documents:
   
• Proposed Rule: 67 Fed. Reg. 37736 (May 30, 2002).
   
• Interim Final Rule: 67 Fed. Reg. 48348 (July 23, 2002).
   
• FinCEN Guidance:
   
• Fact Sheet: Section 312 of the USA PATRIOT Act (December 2005).
   
• FIN-2006-G009: Application of the Regulations Requiring Special Due Diligence Programs for Certain Foreign Accounts to the Securities and Futures Industries (May 10, 2006).
   
• NYSE Guidance:
   
• IM 02-34: Special Due Diligence for Correspondent Accounts and Private Banking Accounts (August 1, 2002).
   
• IM 06-50: Effective Dates for Section 312 of the USA PATRIOT Act (July 3, 2006).

6. Due Diligence Programs for Private Banking Accounts

Section 312 of the USA PATRIOT Act amended the BSA to require financial institutions, including broker-dealers, to establish and maintain a risk-based due diligence program for accounts defined as “private banking accounts,” and to provide enhanced scrutiny to any such accounts provided to “senior foreign political figures.”

A “private banking account” is defined as an account that: (a) requires a minimum deposit of assets of at least $1,000,000; (b) is established or maintained on behalf of one or more non-U.S. persons who are direct or beneficial owners of the account; and (c) has an employee assigned to the account who is a liaison between the broker-dealer and the non-U.S. person.

The definition of “senior foreign political figure” extends to any member of the political figure’s immediate family, and any person widely and publicly known to be a close associate of the foreign political figure as well as any entities formed for the benefit of such persons (such persons are commonly referred to as PEPs, or Politically Exposed Persons).

Broker-dealers providing private banking accounts must take reasonable steps to:

• determine the identity of all nominal and beneficial owners of the private banking accounts;
   
• determine whether any such owner is a “senior foreign political figure” and therefore subject to enhanced scrutiny that is reasonably designed to detect transactions that may involve the proceeds of foreign corruption;
   
• determine the source of funds deposited into the private banking account and the purpose and use of such account;
   
• review the activity of the account as needed to guard against money laundering; and
   
• report any suspicious activity, including transactions involving senior foreign political figures that may involve proceeds of foreign corruption.

Source Documents:

• Private Banking Due Diligence Rule: 31 C.F.R. § 103.178. See also: 31 C.F.R. § 103.175 (definitions).
   
• Final Rule Release: 71 Fed. Reg. 496 (January 4, 2006).
   
• Extension of Applicability Date: 71 Fed. Reg. 16040 (March 30, 2006).
   
• Other Rule-Related Documents:
   
• Proposed Rule: 67 Fed. Reg. 37736 (May 30, 2002).
   
• Interim Final Rule: 67 Fed. Reg. 48348 (July 23, 2002).
   
• FinCEN Guidance:
   
• Fact Sheet: Section 312 of the USA PATRIOT Act (December 2005).
   
• FIN-2006-G009: Application of the Regulations Requiring Special Due Diligence Programs for Certain Foreign Accounts to the Securities and Futures Industries (May 10, 2006).
   
• NYSE Guidance:
   
• IM 02-34: Special Due Diligence for Correspondent Accounts and Private Banking Accounts (August 1, 2002).
   
• IM 06-50: Effective Dates for Section 312 of the USA PATRIOT Act (July 3, 2006).
   

7. Suspicious Activity Monitoring and Reporting

Section 356 of the USA PATRIOT Act amended the BSA to require broker-dealers to monitor for, and report, suspicious activity (so-called SAR reporting).

Under Treasury’s SAR rule, a broker-dealer is required to file a suspicious activity report if: (i) a transaction is conducted or attempted to be conducted by, at, or through a broker-dealer; (ii) the transaction involves at least $5000; and (iii) the broker-dealer knows, suspects, or has reason to suspect that the transaction involves funds from an illegal activity, is designed to evade requirements of the BSA, has no business or apparent lawful purpose, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, or involves the use of the broker-dealer to facilitate criminal activity.

Broker-dealers must report the suspicious activity using a form Treasury has issued for the securities and futures industry, the SAR-SF (also referred to as FinCEN Form 101). The form, which is confidential, includes instructions.

Finally, FinCEN advises that if a firm knows, suspects, or has reason to suspect that a customer may be linked to terrorist activity against the United States, the firm should immediately call FinCEN’s Hotline at 1-866-556-3974.

Source Documents:

• SAR Rule: 31 C.F.R. § 103.19.
   
• Final Rule Release: 67 Fed. Reg. 44048 (July 1, 2002).
   
• Proposed Rule: 66 Fed. Reg. 67670 (December 31, 2001).
   
• SAR-SF: FinCEN Form 101.
   
• http://www.fincen.gov/forms/fin101_sar-sf.pdf
   
• FinCEN has delayed implementation of their new revised version of this form:
   
  FinCEN Delays Implementation of Revised Suspicious Activity Report (SAR) Forms (April 26, 2007)
   
• FinCEN Guidance:
   
• SAR Bulletin Issue No. 4 - Aspects of Financial Transactions Indicative of Terrorist Funding (January 2002).
   
• Unauthorized Disclosure of Suspicious Activity Reports (August 18, 2004).
   
• Interpretative Release No. 2004-02 — Unitary Filing of Suspicious Activity and Blocking Reports 69 Fed. Reg. 76847 (December 23, 2004).
   
• Guidance on Sharing of Suspicious Activity Reports by Securities Broker-Dealers, Futures Commission Merchants, and Introducing Brokers in Commodities (January 20, 2006).⁵
   
• FIN-2006-G014: Potential Money Laundering Risks Related to Shell Companies (November 9, 2006).
   
• SAR Narrative Guidance Package: This three-part package includes guidance on preparing Suspicious Activity Reports and is available on FinCEN’s website at:
   
  www.fincen.gov
   
• SAR Activity Reviews: These are available on FinCEN’s website at:
   
  www.fincen.gov⁶
   
• NYSE Guidance:
   
• IM 02-64: USA PATRIOT Act Updates: Section 356 Requirement to Report Suspicious Transactions; Deadline Extension for Sections 313 and 319 (December 24, 2002).
   
• NASD Guidance:
   
• NTM 02-47: Treasury Issues Final Suspicious Activity Reporting Rule for Broker/Dealers (August 2002).
   
• NTM 02-21: NASD Provides Guidance to Member Firms concerning Anti-Money Laundering Compliance Programs Required by Federal Law (April 2002). (This includes a list of “red flags” that may be useful in identifying possible money laundering.)⁷
   

8. Other BSA Reports

Broker-dealers have other reporting obligations imposed by the BSA. They include:

Currency Transaction Reports (CTRs): Broker-dealers are required to file with FinCEN a CTR for any transaction over $10,000 in currency, including multiple transactions occurring during the course of the same day. A CTR filing is made using a Currency Transaction Report, FinCEN Form 104 (formerly IRS Form 4789).

Reports of Foreign Bank and Financial Accounts (FBARs): Broker-dealers are required to file reports of foreign bank and financial accounts if the aggregate value of the accounts exceeds $10,000. FBARs are filed with Treasury using Form TD F 90-22.1.

Reports of Currency or Monetary Instruments (CMIRs): Broker-dealers must report any transportation of more than $10,000 in currency or monetary instruments into or outside of the U.S. on a Report of International Transportation of Currency or Monetary Instruments, FinCEN Form 105 (formerly Customs Form 4790). CMIRs are filed with the Commissioner of Customs.

Source Documents:

• CTR: 31 C.F.R. §§ 103.22, 103.27-28.
   
• FinCEN Form 104.
   
• FBAR: 31 C.F.R. §§103.24, 103.27.
   
• Form TD F 90-22.1.
   
• CMIR: 31 C.F.R. §§ 103.23, 103.27.
   
• FinCEN Form 105.
   
• FinCEN Guidance:
   
• FinCEN Ruling 2003-1: Regarding the Aggregation of Currency Transactions Pursuant to 31 CFR Section 103.22 (October 3, 2002).
   
• Guidance on Interpreting Financial Institution Policies in Relation to Recordkeeping Requirements under 31 C.F.R. 103.29 (November 2002).
   
• FinCEN Ruling 2005-6: Suspicious Activity Reporting (Structuring) (July 15, 2005).
   
• NYSE Guidance:
   
• IM 86-2: Revised Currency Transaction Report (January 29, 1986).
   
• IM 89-5: Reporting of Suspicious Transactions Under the Money Laundering Control Act of 1986 (January 20, 1989).
   
• IM 89-14: Amendments to Bank Secrecy Act Regulations Relating to Currency Transactions (March 22, 1989).
   

9. Records of Funds Transfers

Under the “joint rule” and “travel rule,” broker-dealers must keep records of funds transfers of $3000 or more (such as wire transfers), including certain related information (such as name, address, account number of client, date and amount of wire, payment instructions, name of recipient institution, and name and account information of wire payment recipient).

Source Documents:

• Joint Rule: 31 C.F.R. § 103.33(f).
   
• Travel Rule: 31 C.F.R § 103.33(g).
   
• Other Rule-Related Documents:
   
• Advance Notice of Proposed Rulemaking: 71 Fed. Reg. 35564 (June 21, 2006).
   
• FinCEN Guidance:
• FinCEN Advisory: Funds Transfers: Questions & Answers (June 1996).⁸
• FinCEN Advisory: Funds “Travel” Regulations: Questions & Answers (January 1997).⁹

10. Information Sharing with Law Enforcement and Financial Institutions

Two provisions relating to information sharing were added to the BSA by the USA PATRIOT Act. One provision requires broker-dealers to respond to mandatory requests for information made by FinCEN on behalf of federal law enforcement agencies. The other provides a safe harbor to permit and facilitate voluntary information sharing among financial institutions.

Mandatory Information Sharing: Section 314(a) Requests: Broker-dealers are required to respond to requests for information made by federal law enforcement agencies. FinCEN, on behalf of a requesting Federal law enforcement agency, may require broker-dealers to search their records to determine whether they have accounts for, or have engaged in transactions with, any specified individual, entity, or organization. These requests are often referred to as “Section 314(a) information requests.” Broker-dealers must report to FinCEN if they have any account or transaction matching the information listed on the information request. Broker-dealers must also designate a contact person (typically the firm’s AML compliance officer) to receive the requests and must maintain the confidentiality of any request and any responsive reports to FinCEN.

Source Documents:

• Section 314(a) Rule: 31 C.F.R. § 103.100. See also 31 C.F.R. § 103.90 (definitions).
   
• Rule Release: 67 Fed. Reg. 60579 (September 26, 2002).
   
• FinCEN Guidance:
   
• Treasury Issues Moratorium on Section 314(a) Information Requests (November 26, 2002).
   
• FinCEN to Reinstate USA PATRIOT Act Section 314(a) Information Requests (February 6, 2003).
   
• Implementation of Web-based 314(a) Secure Communication System (February 4, 2005).
   
• Changing your Point-of-Contact for 314(a) (October 17, 2006).
   
• FinCEN 314(a) Fact Sheet (March 15, 2007).
   
• NYSE Guidance:
   
• IM 02-58: Temporary Moratorium on Information Requests Under Section 314 of the USA Patriot Act (December 26, 2002).
   
• IM 03-3: Lifting of the Temporary Moratorium on Information Requests Under Section 314 of the USA Patriot Act (February 20, 2003).
   
• NASD Guidance:
   
• NTM 02-80: Development Regarding Treasury Information Requests Under Section 314 of the PATRIOT Act (December 2002).
   

Voluntary Information Sharing: A separate safe harbor provision encourages and facilitates voluntary information sharing among financial institutions. The safe harbor provision, added to the BSA by Section 314(b) of the USA PATRIOT Act, protects the broker-dealer from certain civil liabilities in connection with the information sharing. To qualify, a broker-dealer must file an annual notice with FinCEN, maintain procedures to protect the security and confidentiality of the information, and take reasonable steps to verity that the other financial institution with which it intends to share information has filed a notice with FinCEN. This may be done by checking a list that FinCEN makes available. A notification form and instructions for submitting a notification form (initial or renewal) are available on FinCEN’s website.

Source Documents:

• Section 314(b) Rule: 31 C.F.R. § 110. See also 31 C.F.R. § 103.90 (definitions).
   
• Final Rule Release: 67 Fed. Reg. 60579 (September 26, 2002).
   
• Rule-Related Documents:
   
• Interim Final Rule: 67 Fed. Reg. 9874 (March 4, 2002).
   

11. Special Measures Imposed by the Secretary of the Treasury

Section 311 of the USA PATRIOT Act amended the BSA to authorize the Secretary of the Treasury to require broker-dealers to take “special measures” intended to address particular money laundering concerns. The Secretary of the Treasury may impose special measures on foreign jurisdictions, financial institutions, or transactions or types of accounts found to be of “primary money laundering concern.” There are five “special measures” including prohibiting U.S. financial institutions from opening or maintaining certain correspondent accounts. As of January 1, 2007, there were final rules instituting special measures against (i) Burma, (ii) Myanmar Mayflower Bank and Asia Wealth Bank, (iii) Commercial Bank of Syria, and (iv) VEF Banka.

Source Documents:

• Section 311 Information: Information about Section 311 is generally available at:
   
  www.fincen.gov.
   
• NYSE Guidance:
   
• IM 07-34: NASD and NYSE Joint Release Regarding Special Measures against Specified Banks Pursuant to Section 311 of the USA Patriot Act (April 18, 2007).
   
• IM 06-58: NYSE and NASD Joint Release Regarding Special Measures Against Specified Banks Pursuant to Section 311 of the USA Patriot Act (August 14, 2006).
   
• NASD Guidance:
   
• NTM 07-17: NYSE and NASD Joint Release Regarding Special Measures Against Specified Banks Pursuant to Section 311 of the USA Patriot Act (April 2007).
   
• NTM 06-41: NASD and NYSE Joint Release on Section 311 of the USA PATRIOT Act (August 2006).
   

12. OFAC Sanctions Programs and Other Lists

OFAC is an office within Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorism sponsoring organizations, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.

OFAC’s sanctions programs are separate and distinct from, and in addition to, the AML requirements imposed on broker-dealers under the BSA.

As a tool in administering sanctions, OFAC publishes a list of Specially Designated Nationals and Blocked Persons (SDNs). These are individuals and entities from all over the world whose property is subject to blocking and with whom U.S. persons cannot conduct business. This list is continually being updated and is not all-inclusive; OFAC also administers country-based sanctions that are broader in scope than the “list-based” programs. In general, OFAC regulations require broker-dealers to:

• block accounts and other property or property interests of entities and individuals that appear on the SDN list;
   
• block accounts and other property or property interests of entities and individuals subject to blocking under OFAC country-based programs; and
   
• block or reject unlicensed trade and financial transactions with OFAC-specified countries, entities, and individuals.

Broker-dealers must report all blockings and rejections of prohibited transactions to OFAC within 10 days of being identified and annually. OFAC has the authority to impose substantial civil penalties administratively. To guard against engaging in OFAC prohibited transactions, one “best practice” that has emerged entails “screening against the OFAC list.” OFAC has stated that it will take into account the adequacy of a firm’s OFAC compliance program when it evaluates whether to impose a penalty if an OFAC violation has occurred. Firms should be aware of other lists, such as the Financial Action Task Force (“FATF”) list of non-compliant countries (the “NCCT list”). If transactions originate from or are routed to any FATF-identified countries, it might be an indication of suspicious activity.¹⁰

Source Documents:

• OFAC Guidance:
   
• Program information, including the SDN list and countries subject to OFAC sanctions, is available on the OFAC website at:
   
  www.treas.gov/ofac
   
• Foreign Assets Control Regulations for the Securities Industry (April 24, 2004).
   
• OFAC Frequently Asked Questions, available on the OFAC website at:
   
  www.treas.gov/ofac
   
• Publication of Economic Sanctions Enforcement Guidelines, 68 Fed. Reg. 4422 (January 29, 2003).¹¹
   
• FinCEN Guidance:
   
• Interpretive Release No. 2004-02-Unitary Filing of Suspicious Activity and Blocking Reports. See also 69 Fed. Reg. 76847 (December 23, 2004).
   
• NASD Guidance:
   
• NTM 01-67: Executive Order Targeting Terrorists (October 2001).
   
• OFAC Search Tool: This tool is available as a hyperlink, called "Specially Designated Nationals and Blocked Persons" (SDN) List, and is available on the NASD website.
   
• NYSE Guidance:
   
• IM 95-45: Department of Treasury List of Specifically Designated Narcotics Traffickers (October 25, 1995).
   
• IM 96-11: Updated Listing of The Department of Treasury “Specially Designated Nationals and Blocked Persons” (April 1, 1996).
   
• IM 97-10: Updated Listing of the Department of Treasury “Specially Designated Nationals and Blocked Persons” (February 7, 1997).
   
• IM 97-28: Updated Listing of the Department of Treasury “Specially Designated Nationals and Blocked Persons” (May 20, 1997).
   
• IM 01-26: Terrorism Executive Order and Updated Listing of the Department Of Treasury “Specially Designated Nationals and Blocked Persons” (September 24, 2001).
   
• IM 01-35: Updated Listing of the Department of Treasury Specially Designated Nationals and Blocked Persons (October 19, 2001).
   
• IM 01-39: Updated Listing of the Department of Treasury “Specifically Designated Nationals and Blocked Persons” (November 21, 2001).
   
• Other Lists:
   
• Other lists of countries supporting international terrorism are available at:
   
  www.state.gov/s/ct
   

13. Selected Additional AML Resources

• SEC Staff Materials:
   
• Richards, Lori, “Money Laundering; It’s on the SEC’s Radar Screen,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (May 8, 2001).
   
• Richards, Lori, “Life After the Patriot Act,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (May 2, 2002).
   
• Richards, Lori, “The Next Phase: Implementing the Patriot Act,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (March 27, 2003).
   
• Richards, Lori, “Anti-Money Laundering in 2006: It’s the Total Mix,” Remarks before the Securities Industry Association Conference on Anti-Money Laundering Compliance (March 29, 2006).
   
• Selected AML Enforcement Cases:
   
• In the Matter of Hartsfield Capital Securities, Inc., United States of America Department of the Treasury Financial Crimes Enforcement Network No. 2003-05 (December 24, 2003).
   
• Oppenheimer & Co. Inc., New York Stock Exchange Hearing Panel Decision 05-181 (December 29, 2005). See also In the Matter of Oppenheimer & Company, New York, New York, United States of America Department of the Treasury Financial Crimes Enforcement Network No. 2005-4 (December 29, 2005).
   
• Bear Stearns & Co. Inc., New York Stock Exchange Hearing Panel Decision 05-163 (December 22, 2005).
   
• In the Matter of Crowell, Weedon & Co., Exchange Act Release No. 53847 (May 22, 2006).
   
• NASD Fines Bank of America Investment Services, Inc. $3 Million for Failing to Comply with Anti-Money Laundering Rules in Connection with High Risk Accounts (January 29, 2007).
   
• In the Matter of Park Financial Group, Inc. and Gordon C. Cantley, Exchange Act Release No. 55614 (April 11, 2007).
   
• FFIEC AML Examination Manual — June 2006,¹² available at:
   
  http://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_098.htm
   

14. Useful Contact Information

FinCEN
Financial Institutions Hotline:	1-866-556-3974
Regulatory Helpline:	1-800-949-2732
Office of Public Affairs:	703-905-3770
General Information:	703-905-3591
FinCEN website:	www.fincen.gov
IRS Computing Center (for filing forms)
CTR Forms:	1-800-800-2877
Magnetic Media (SARs and CTRs):	1-313-234-2011
OFAC
Hotline:	1-800-540-6322
OFAC website:	www.treas.gov/ofac
NASD Please contact your local NASD District Liaison directly with any questions relating to AML requirements. If you have not received notification of your assigned Liaison, contact your NASD District Office for more details. Contact information is available at the following link: http://www.nasd.com/ContactUs/DistrictOffices/index.htm
NASD website	www.nasd.com
NYSE	212-656-3254 212-656-5685
NYSE website	www.nyse.com
SEC Staff
Division of Market Regulation Office of Interpretation and Guidance	202-551-5777
Office of Compliance Inspections & Examinations, Office of Chief Counsel	202-551-6460
SEC website	www.sec.gov

¹ The following OCIE staff contributed significantly to this compilation: Karen Buck Burgess, Laury Cornell, Katrina Carroll, Sarah Green, Nancy Hansbrough, Lisa Byington, and Joe McHale. Significant contributions also were made by the following staff in the Division of Market Regulation: Lourdes Gonzalez, David Blass and Haimera Workie. OCIE staff also would like to acknowledge the contributions made to this project by Michael Rufino and Sheila Haney (New York Stock Exchange), Alma Angotti (NASDR), Mary Ellen Walker, Susan Lang, and Kendal McManus (FinCEN) and Lorraine Lawlor (OFAC).

² Note that, since NTM 02-21 was issued, there have been a number of changes to AML requirements. For example, the NASD revised its AML program rule. See NASD NTM 06-07. FinCEN also adopted a number of AML requirements, including the requirement to file suspicious activity reports. See 67 Fed.Reg. 44048 (July 1, 2002).

³ As of the publication date of this guide, there are no designated government lists to verify specifically for CIP purposes. Customer comparisons to lists issued by OFAC involve separate and distinct requirements.

⁴ FinCEN and the federal banking agencies have issued guidance applicable to banks regarding the CIP rule that may be of interest to securities firms. See Interagency FAQs: Final CIP Rule (January 2004) and Interagency Interpretive Guidance on Customer Identification Program Requirements under Section 326 of the USA PATRIOT Act (April 28, 2005).

⁵ The federal banking agencies have issued guidance applicable to banks regarding SAR reporting that may be of interest to securities firms. See Interagency Guidance on Sharing Suspicious Activity Reports with Head Offices and Controlling Companies (January 20, 2006) and Suspicious Activity Report Filing Requirements for Nonbank Subsidiaries of Bank Holding Companies and State Member Banks, Federal Reserve Board (December 24, 2002).

⁶ SAR Activity Reviews include two separate publications: SAR Activity Review Trends, Tips & Issues and SAR Activity Review By the Numbers. They are published on a regular basis under the auspices of the Bank Secrecy Act Advisory Group. These publications include: statistics regarding SAR filings and trends; an industry forum highlighting compliance issues and practices prepared by private sector members of the Advisory Group; and guidance regarding practical issues relevant to SAR filing and reporting. Guidance contained in these publications may be of interest and useful to securities firms. For example, see the following discussions contained in issues of The SAR Activity Review – Trends, Tips, and Issues: (i) “National Security Letters and Suspicious Activity Reporting,” Issue 8 (April 2005); (ii) “Providing SARs to Appropriate Law Enforcement,” Issue 9 ( October 2005); (iii) “Should a Financial Institution Document its Decision Not to File a Suspicious Activity Report ” Issue 10 (May 2006); and (iv) “When Does the 30 Day Time Period in which to File a Suspicious Activity Report Begin?” Issue 10 (May 2006).

⁷ Note that, since NTM 02-21 was issued, there have been a number of changes to AML requirements. For example, the NASD revised its AML program rule. See NASD NTM 06-07). FinCEN also has adopted a number of AML requirements, including the requirement to file SARs. See 67 Fed. Reg. 44048 (July 1, 2002).

⁸ FinCEN staff have indicated that the responses to Questions 17 and 18 in this Advisory are no longer completely accurate due to the expiration on July 1, 2004, of an exception relating to coded names and pseudonyms, at which time FinCEN confirmed the prohibition of the use of coded names and pseudonyms, but determined that the Travel Rule should be read to allow the use of mailing addresses. See 68 Fed. Reg. 66708 (November 28, 2003).

⁹ FinCEN staff have indicated that the responses to Questions 2 and 16 in this Advisory are no longer completely accurate due to the expiration on July 1, 2004 of an exception relating to coded names and pseudonyms, at which time FinCEN confirmed the prohibition of the use of coded names and pseudonyms, but determined that the Travel Rule should be read to allow the use of mailing addresses. See 68 Fed. Reg. 66708 (November 28, 2003).

¹⁰ As of the publication date of this guide, there are no countries listed on the NCCT list.

¹¹ Guidance issued by Treasury relating to banking institutions and their OFAC obligations also may be of interest to securities firms. See Economic Sanctions Enforcement Procedures for Banking Institutions, 71 Fed. Reg. (January 12, 2006). See also Federal Financial Institution Examination Council Bank Secrecy Act Anti-Money Laundering Examination Manual (June 2006), at pp. 7, 24-39, 141-143, and 220-224.

¹² This examination manual, issued by the federal banking regulators regarding the AML requirements applicable to banks, contains guidance that may be of interest to securities firms.

 

http://www.sec.gov/about/offices/ocie/amlsourcetool.htm

 

 

 

Anti-Money Laundering and Terrorist Financing

The Patriot Act, which amends the Bank Secrecy Act (BSA), was adopted in response to the September 11 terrorist attacks. The Patriot Act is intended to strengthen U.S. measures to prevent, detect, and prosecute international money laundering and the financing of terrorism. These efforts include new anti-money laundering (AML) tools that impact the banking, financial, and investment communities.

Under the Patriot Act, persons who are or are required to be registered as futures commission merchants (FCMs), introducing brokers (IBs), commodity pool operators (CPOs), and commodity trading advisors (CTAs) are subject to new requirements for establishing AML programs, reporting suspicious activity, verifying the identity of customers, and dealing with certain types of accounts involving foreign persons.

Establishing AML Programs
Reporting Suspicious Activity
Verifying the Identity of Customers
Due Diligence Measures for Certain Accounts Involving Foreign Persons
Special Measures
Transactions in Excess of $10,000 in Currency
Foreign Bank and Financial Accounts
International Transportation of Currency or Monetary Instruments
Information Sharing among Financial Institutions and Law Enforcement
Additional Resources

Establishing AML Programs
The Patriot Act amended the BSA to require that financial institutions establish AML Programs. FCMs, CPOs, and CTAs are now included in the definition of financial institution in the BSA. IBs are considered to be “brokers or dealers in commodities” within the financial institution definition.

An AML Program must be in writing and must include:

• the development of internal policies, procedures, and controls;
• the designation of a compliance officer;
• an ongoing employee training program; and
• an independent audit function to test programs.

Treasury has adopted interim final rules regarding AML Programs for financial institutions. These rules exempt CPOs and CTAs from the AML Program requirement pending the issuance of final rules. However, Treasury has proposed rules that will require commodity pools and commodity trading advisors to establish and implement written anti-money laundering programs. As required by Section 356(c) of the Patriot Act, Treasury has issued a report to Congress that sets forth existing requirements that apply to both registered and unregistered investment companies, including commodity pools, and contains recommendations on additional regulatory requirements that might be imposed. National Futures Association has adopted Rule 2-9(c) and a related Interpretive Notice regarding AML Programs for its FCM and IB members. Other AML Program rule notices for specified financial institutions include:

• Mutual Funds;
• Operators of a Credit Card System;
• Money Service Businesses;
• Broker-dealer members of the National Association of Securities Dealers (NASD);
• Broker-dealer members of the New York Stock Exchange;
• Insurance companies (final rule);
• Investment Advisers (proposed rules); and
• Dealers in precious metals, stones or jewels (interim final rule).

Reporting Suspicious Activity
The Patriot Act authorizes Treasury to issue rules requiring FCMs, CPOs, and CTAs to file Suspicious Activity Reports (SARs). Treasury has issued a final rule requiring FCMs and IBs to file SARs. The rule applies only to transactions occurring after May 18, 2004. Treasury has not yet proposed a rule requiring CPOs and CTAs to file SARs. Treasury also has issued a SAR SF form and Instructions for the securities and futures industry, which FCMs and IBs must use to report suspicious transactions, and which CPOs and CTAs may use to report voluntarily.

• Final BSA rules require that SARs be filed by any broker or dealer in securities; mutual fund; money service business; insurance company; or bank.
• Pursuant to guidance issued by Treasury, FCMs, IBs and securities broker-dealers are permitted to share a SAR with parent entities, regardless of whether the parent is located inside the United States or abroad. Treasury has not yet issued guidance on whether FCMs, IBs and securities broker-dealers may share a SAR with affiliates other than parent entities.
• Banking agencies with regulations that require the filing of SARs include: Federal Reserve Board; Comptroller of the Currency; Federal Deposit Insurance Corporation; Office of Thrift Supervision; and National Credit Union Administration. The Federal Reserve Board has issued a supervisory letter that provides relief from the Board's SAR filing requirements for nonbank subsidiaries of bank holding companies or state member banks, such as broker-dealers and FCMs, that file suspicious activity reports pursuant to separate Treasury suspicious activity reporting requirements.

Verifying the Identity of Customers
The Patriot Act requires Treasury to issue rules setting forth minimum standards for financial institutions to identify and verify the identity of customers.

Treasury and the CFTC have jointly issued final rules that require FCMs and IBs to have customer identification programs (CIPs) for identifying and verifying the identity of customers. An FCM’s or IB’s procedures must enable it to form a reasonable belief that it knows the true identity of each customer.

The staff of Treasury and the CFTC has issued guidance where an omnibus account, sub-account or relationship is established by or on behalf of a financial intermediary for the purposes of executing transactions that clear or settle at another financial institution. The guidance clarifies that if the financial intermediary is the account holder, the intermediary can be treated as the customer for the purposes of the CIP rule.

The staff of the CFTC and Treasury also has jointly issued guidance, in question-and-answer format, regarding the application of the CIP rule for FCMs and IBs. These rules permit FCMs and IBs to rely on other financial institutions to perform identification/verification functions; however, the reliance must be reasonable under the circumstances, the relied-upon financial institution must be subject to an AML program rule under the BSA and be regulated by a Federal functional regulator, and the financial institution must enter into a contract requiring it to certify annually to the FCM or IB that it has implemented an AML program and that it will perform specified requirements of the CIP. Pursuant to a no-action letter issued on March 14, 2005, FCMs and IBs may rely upon certain CTAs to perform procedures of the FCM's or IB's CIP even though such CTAs are not yet subject to an AML program rule.

Final rules regarding customer identification programs have also been issued for banks, savings associations and credit unions; broker-dealers; mutual funds; and banks without a federal functional regulator. The rules are substantively identical for all affected sectors of the financial services industry. These rules require that financial institutions have procedures for checking customer’s names against lists of known or suspected terrorists or terrorist organizations that are prepared by any federal agency and made available to the institution. Although no lists have yet been designated, financial institutions are separately required to comply with the rules of the Office of Foreign Assets and Control (OFAC) and must consult OFAC’s lists of sanctioned countries and specially designated nationals and blocked persons.

Sources for complying with OFAC rules:

• The American Bankers Association’s primer on OFAC compliance; and
• OFAC forms for reporting blocked or rejected transactions.

Due Diligence Measures for Certain Types of Accounts Involving Foreign Persons
The Patriot Act requires that financial institutions must establish appropriate, and where necessary, enhanced due diligence policies, procedures, and controls that are reasonably designed to detect and report instances of money laundering through foreign private banking and correspondent accounts.

Final rules issued by Treasury require covered financial institutions, including FCMs, IBs, and securities broker-dealers, to establish due diligence programs that include appropriate, specific, risk-based, and where necessary, enhanced policies, procedures and controls that are reasonably designed to detect and report, on an ongoing basis, any known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed by such covered financial institution in the United States for a foreign financial institution.

The final rules also require covered financial institutions, including FCMs, IBs and securities broker-dealers, to maintain due diligence programs that are reasonably designed to detect and report known or suspected money laundering or suspicious activity conducted through or involving any private banking account that is established, maintained, administered, or managed in the United States by such financial institution for a non-U.S. person. The due diligence program must ensure, at a minimum, that the financial institution takes reasonable steps to ascertain the identity of the nominal and beneficial owners of the private account, whether any such person is a senior foreign political figure, the sources of funds deposited into the private banking account and the purpose and expected use of the account. The program also must ensure that the financial institution reviews the activity in the private banking account to ensure it is consistent with the information obtained about the client and reports known or suspected money laundering or suspicious activity conducted to, from or through the private banking account. Where a senior foreign political figure is the nominal or beneficial owner of a private banking account, the program must include enhanced scrutiny of the account that is reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption.

Under the final rule, covered financial institutions must apply the due diligence provisions to new foreign correspondent and private banking accounts established on or after July 5, 2006. Covered financial institutions have until October 2, 2006 to apply these due diligence provisions to foreign correspondent and private banking accounts opened before July 5, 2006.

Treasury also has issued a proposed rule that will require a covered financial institution, including an FCM, IB or securities broker-dealer, to ensure that its due diligence program provides for enhanced due diligence for correspondent accounts that have been established, maintained, administered or managed for certain foreign banks.

Special Measures
The Patriot Act authorizes Treasury to find that a foreign jurisdiction, institution, class of transactions or type of account is of "primary money laundering concern" and to require domestic financial institutions to take certain "special measures" against the primary money laundering concern. The first four special measures impose information gathering, reporting and recordkeeping requirements on those financial institutions dealing, directly or indirectly, with the designated jurisdiction or entity. Under special measure 5, a financial institution may be prohibited from opening or maintaining a correspondent account or a payable-through account. Pursuant to this authority, Treasury has designated each of the following as a primary money laundering concern:

• Nauru;
• Burma (also known as Myanmar);
• Burmese financial institutions, Myanmar Mayflower Bank and Asia Wealth Bank;
• Syrian financial institution, Commercial Bank of Syria;
• Belarusian financial institution, Infobank;
• Turkish Cypriot financial institution, First Merchant Bank OSH Ltd;
• Latvian financial institution, VEF Banka; and
• Macau financial institution, Banco Delta Asia SARL.

Pursuant to this authority, Treasury has imposed the following special measures:

• Special measure 5, which prohibits certain financial institutions (including FCMs and IBs) from establishing, maintaining, administering or managing correspondent or payable-through accounts in the United States for, or on behalf of, Burmese banking institutions, unless operation of those accounts is not prohibited by Executive Order 13310 ^[1] and the Burma-related activities of such accounts are solely to effect transactions that are exempt from, or licensed pursuant to, Executive Order 13310. This prohibition extends to correspondent or payable-through accounts maintained for other foreign banks when such accounts are used by the foreign bank to indirectly provide financial services to a Burmese banking institution (final rule);
• Special measure 5, which prohibits certain domestic financial institutions (including FCMs and IBs) from establishing, maintaining, administering, or managing correspondent or payable-through accounts for, or on behalf of, Myanmar Mayflower Bank or Asia Wealth Bank. This prohibition extends to correspondent or payable-through accounts maintained for other foreign banks when such accounts are used to indirectly provide banking services to these banks (final rule);
• Special measure 5, which prohibits certain domestic financial institutions (including FCMs and IBs) from opening or maintaining any correspondent account for or on behalf of the Commercial Bank of Syria, including its Subsidiary, Syrian Lebanese Commercial Bank. As a corollary to this measure, these domestic financial institutions are required to apply special due diligence to their correspondent accounts to ensure that no such account is being used indirectly to provide services to the Commercial Bank of Syria (final rule); and
• Special measure 5, which prohibits certain domestic financial institutions (including FCMs and IBs) from opening or maintaining any correspondent account for or on behalf of VEF Banka. As a corollary to this measure, these domestic financial institutions are required to apply special due diligence to their correspondent accounts to ensure that no such account is being used indirectly to provide services to VEF Banka (final rule).

Treasury also has proposed (but not yet imposed) the following special measures:

• Special measure 5, which would prohibit certain financial institutions (including FCMs and IBs) from maintaining correspondent accounts for, or on behalf of, a Nauru financial institution. This prohibition would extend to correspondent accounts maintained for other foreign banks when such accounts are used by the foreign bank to indirectly provide services to a Nauru financial institution (proposed rule);
• Special measure 5, which would prohibit certain financial institutions (including FCMs and IBs) from maintaining correspondent accounts for, or on behalf of First Merchant Bank OSH Ltd, including its Subsidiaries, FMB Finance Ltd, First Merchant International Inc, First Merchant Finance Ltd, and First Merchant Trust Ltd. This prohibition would extend to correspondent accounts maintained for other foreign banks when such accounts are used by the foreign bank to indirectly provide services to First Merchant Bank OSH Ltd (proposed rule); and
• Special measure 5, which would prohibit certain financial institutions (including FCMs and IBs) from maintaining correspondent accounts for, or on behalf of Banco Delta Asia SARL. This prohibition would extend to correspondent accounts maintained for other foreign banks when such accounts are used by the foreign bank to indirectly provide services to Banco Delta Asia SARL (proposed rule).

Transactions in Excess of $10,000 in Currency
A financial institution and any “nonfinancial trade or business” must file a report concerning a transaction (or series of related transactions) in excess of $10,000 or more in currency.

• Interim final rules require any nonfinancial trade or business to file currency transaction reports on a Form 8300.
• CTAs and CPOs fall within the definition of “nonfinancial trade or business” for purposes of currency transaction reporting and thus are subject to the interim final rule.
• Regulations (31 CFR 103.22) require that financial institutions file currency transaction reports on a Form 4789, currency transaction report (CTR). A new final rule, which applies to transactions after May 18, 2004, adds FCMs and IBs to the definition of "financial institution" thereby requiring them to file CTRs.

Foreign Bank and Financial Accounts (FBAR)
The BSA requires each United States person who has a financial interest in, or signature authority over, any financial account in a foreign country to file an FBAR if the aggregate value of the financial account exceeds $10,000 at any time during the calendar year. The term "financial account" includes any commodity interest account. The term "United States person" includes any Commission registrant that is a citizen or resident of the United States, domestic partnership, domestic corporation, or a domestic estate or trust.

International Transportation of Currency or Monetary Instruments (CMIR)
The BSA requires the filing of a CMIR by any person, such as an FCM, who physically transports, mails, ships, or causes to be physically transported, mailed or shipped, currency or other monetary instrument in an aggregate amount exceeding $10,000 on any one occasion, whether that transportation is into or out of the United States. A CMIR also must be filed by any person who receives in the United States currency or other monetary instrument in an aggregate amount exceeding $10,000 that has come from outside the United States and on which no CMIR was filed. A CMIR does not need to be filed, however, if the person is a bank or broker-dealer, and the currency or other monetary instrument is mailed or shipped through the postal service or by a common carrier.

Information Sharing among Financial Institutions and Law Enforcement
Pursuant to the Patriot Act, Treasury has issued final rules that require financial institutions, including FCMs, IBs, CPOs, and CTAs, to comply with information requests received from law enforcement. The final rules require a financial institution to make an expeditious search of its records for accounts and transactions involving named suspects, provide specified information about the named suspects, and prohibit the financial institution from disclosing the fact that a request has been made (other than as necessary to comply with the information request).

CFTC registrants are reminded of the requirement in 31 CFR 103.100 to maintain adequate procedures to safeguard the security and confidentiality of any information request received from FinCEN. Firms may not disclose to any person other than FinCEN or the Federal law enforcement agency on whose behalf FinCEN is requesting information the fact that FinCEN has requested or has obtained information, except to the extent necessary to comply with the information request. There are significant penalties for willful violations of the BSA regulations.

The final rules also permit financial institutions required by the BSA to establish AML Programs and associations of such financial institutions to share information regarding individuals and other persons involved in possible terrorist activity or money laundering. FCMs and IBs are required to establish AML Programs, and thus are permitted to share information with other financial institutions that are required to establish AML Programs, such as other FCMs, IBs, broker-dealers, and banks.

Financial institutions and associations of financial institutions that intend to share information must file, on a yearly basis, a notice with Treasury’s Financial Crimes Enforcement Network (FinCEN). A copy of the notice is included as Appendix A to the final rules.

Additional Resources

• FinCEN, which has delegated authority to issue regulations requiring financial institutions to keep records and file reports on certain financial transactions, provides general information and updates about AML and the BSA relevant to all financial institutions. FinCEN also issues advisories that pertain to transactions involving certain jurisdictions.
• OFAC administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations and international narcotics traffickers.
• The Securities and Exchange Commission (SEC) provides links to AML requirements that pertain to regulated securities firms.
• National Futures Association, a registered futures association, issues AML rules applicable to its membership, provides regulatory updates concerning BSA amendments relevant to the futures industry, and offers web-based AML training for FCMs and IBs, under CFTC oversight.
• NASD, a national securities association, issues AML rules applicable to its membership, provides regulatory updates concerning BSA amendments relevant to the securities industry, and offers AML training for securities brokers and dealers, under SEC oversight.
• The Financial Action Task Force on Money Laundering (FATF), an inter-governmental organization whose members include 31 countries and two international organizations, sets forth the international framework for AML efforts in its Forty Recommendations on money laundering and nine special recommendations on terrorist financing. FATF also maintains a list of non-cooperative countries and territories.
• The State Department’s Economic Perspectives – The Fight Against Money Laundering.
• United Nations’ International Convention for the Suppression of the Financing of Terrorism.
• The Office of the Comptroller of the Currency issued AML Guidance for bankers.
• Interpol’s activities in the areas of money laundering and terrorist financing.
• The Council of Europe’s Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crimes.
• The Wolfsberg Principles for international private banks.
• The The Department of State's list of foreign terrorist organizations.

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