anti-money-laundering

What this skill does

# Anti-Money Laundering Compliance

## Purpose
Guide the design and operation of Bank Secrecy Act / Anti-Money Laundering (BSA/AML) compliance programs for broker-dealers, banks, and investment advisers. This skill covers FinCEN reporting obligations, OFAC sanctions screening, red flag identification, customer risk rating, and the regulatory framework for detecting and preventing money laundering and terrorist financing.

## Layer
9 — Compliance & Regulatory Guidance

## Direction
prospective

## When to Use
- Designing or reviewing an AML compliance program under FINRA Rule 3310
- Determining whether a transaction triggers a Currency Transaction Report (CTR) filing
- Evaluating whether activity warrants a Suspicious Activity Report (SAR)
- Screening customers or counterparties against the OFAC SDN list
- Identifying red flags for structuring, layering, or integration
- Assessing customer risk ratings and risk-based monitoring procedures
- Reviewing AML obligations for investment advisers under evolving FinCEN rules
- Handling correspondent or omnibus account due diligence
- Preparing for an independent AML audit or regulatory examination
- Understanding FinCEN enforcement trends and penalty exposure

## Core Concepts

### Bank Secrecy Act (BSA) Framework
The Bank Secrecy Act of 1970 (31 U.S.C. §§ 5311–5332) is the foundational U.S. anti-money laundering statute. It requires financial institutions to assist government agencies in detecting and preventing money laundering by maintaining records and filing reports on certain transactions. The USA PATRIOT Act (2001) significantly expanded BSA obligations, adding enhanced due diligence requirements, information-sharing provisions (Section 314(a) and 314(b)), and the requirement for written AML programs. FinCEN (the Financial Crimes Enforcement Network) is the bureau within the U.S. Treasury Department that administers and enforces BSA compliance. FinCEN issues rules, collects reports (CTRs, SARs), and coordinates with law enforcement.

### FINRA Rule 3310 — AML Compliance Program
FINRA Rule 3310 requires every FINRA member firm to establish and implement a written AML compliance program that includes four pillars:

1. **Written procedures** — Policies and procedures reasonably designed to detect and cause the reporting of suspicious activity. Must be tailored to the firm's business model, products, customer types, and geographic exposure.
2. **Designated AML Compliance Officer (AMLCO)** — A qualified individual responsible for day-to-day AML oversight. The AMLCO must be identified by name and title in the firm's written procedures and registered with FINRA. The AMLCO must have sufficient authority, resources, and expertise.
3. **Independent testing (audit)** — The AML program must be tested independently at least every calendar year (or every two years if the firm does not execute transactions or hold customer funds/securities). Testing may be performed by qualified internal personnel not involved in the AML program or by an outside party.
4. **Ongoing training** — All relevant personnel must receive AML training appropriate to their responsibilities. Training must cover applicable BSA/AML regulations, the firm's own policies, red flags, and how to escalate suspicious activity. Training frequency and content should be documented.

### Currency Transaction Reports (CTRs)
Financial institutions must file FinCEN Form 112 (CTR) for each cash transaction exceeding $10,000 in a single business day (31 CFR § 1010.311). Key rules:

- **$10,000 threshold** — Applies to cash received or disbursed, including currency, coin, cashier's checks (under certain circumstances), and money orders purchased with cash.
- **Aggregation rule** — Multiple cash transactions by or on behalf of the same person during a single business day must be aggregated. If the aggregate exceeds $10,000, a CTR is required.
- **Filing deadline** — CTRs must be filed within 15 calendar days of the transaction date.
- **Structuring prohibition (31 U.S.C. § 5324)** — It is a federal crime to structure transactions (i.e., break up a transaction into smaller amounts) to evade CTR reporting requirements. Both the customer and any employee who assists are liable. Structuring is illegal regardless of the source of the funds — even legitimate funds structured to avoid reporting trigger criminal liability.
- **Exemptions** — Certain customers (e.g., listed companies, government agencies, banks) may be exempt from CTR filing under 31 CFR § 1020.315, but exemptions must be documented and periodically reviewed.

### Suspicious Activity Reports (SARs)
SARs are filed using FinCEN Form 111 to report known or suspected violations of law, suspicious transactions, or transactions with no apparent lawful purpose. Filing thresholds and obligations vary by institution type:

- **Broker-dealers (FINRA members)** — Must file a SAR for transactions of $5,000 or more that the firm knows, suspects, or has reason to suspect involve funds from illegal activity, are designed to evade BSA requirements, lack a business or apparent lawful purpose, or involve use of the firm to facilitate criminal activity (31 CFR § 1023.320).
- **Banks** — Must file a SAR for transactions of $5,000 or more involving known suspects, or $25,000 or more regardless of suspect identification (31 CFR § 1020.320).
- **Filing deadline** — SARs must be filed within 30 calendar days of initial detection. If no suspect is identified, the deadline extends to 60 days.
- **Continuing activity** — If suspicious activity continues, the firm must file continuing SARs at least every 90 days.
- **Tipping-off prohibition** — It is a violation to notify the subject of the SAR that a SAR has been or will be filed (31 U.S.C. § 5318(g)(2)). This prohibition extends to all employees, officers, and directors. Disclosure of a SAR filing can result in criminal penalties.
- **Safe harbor** — Financial institutions and their employees are protected from civil liability for filing SARs in good faith (31 U.S.C. § 5318(g)(3)). This safe harbor applies even if the reported activity turns out to be legitimate.
- **SAR confidentiality** — SARs are confidential. They cannot be produced in response to subpoenas, discovery requests, or FOIA requests (with narrow law enforcement exceptions). The underlying facts that triggered the SAR, however, are not themselves privileged.

### OFAC Screening
The Office of Foreign Assets Control (OFAC), a bureau within the U.S. Treasury, administers and enforces U.S. economic and trade sanctions. Financial institutions must screen customers, counterparties, and transactions against OFAC-maintained lists:

- **SDN List (Specially Designated Nationals and Blocked Persons)** — Individuals and entities owned or controlled by targeted countries, or designated as narcotics traffickers, terrorists, or proliferators. Transactions with SDN-listed parties must be blocked (frozen), and the blocked property must be reported to OFAC within 10 business days.
- **Sectoral Sanctions (SSI List)** — Restrictions on specific types of transactions with identified entities (e.g., prohibiting new debt or equity issuance). The transaction is not fully blocked; only the prohibited type of dealing is restricted.
- **Geographic sanctions** — Comprehensive sanctions programs prohibit virtually all transactions with certain countries or regions (e.g., North Korea, Iran, Cuba, the Crimea region). Any transaction touching a comprehensively sanctioned jurisdiction must be blocked or rejected.
- **Screening obligations** — Firms must screen at account opening, upon receipt of wire transfers or other transactions, and when OFAC updates its lists. Screening must cover all relevant identifiers: names, aliases, addresses, dates of birth, passport numbers, and other identifying information.
- **Strict liability** — OFAC violations are a strict liability regime. A firm can be penalized even if it did not know the counterparty was sa