Anti-Money Laundering
Four pillars, three acronyms, one red flag
Futures commission merchants and introducing brokers are "financial institutions" under the Bank Secrecy Act and must maintain a written anti-money-laundering program built on four pillars: a designated AML compliance officer, written policies and procedures reasonably designed to detect money laundering and terrorist financing, ongoing training for relevant personnel, and independent testing of the program. The customer identification program must collect name, date of birth for individuals, address and identification number, verify identity, and check government lists; records are kept five years after the account closes.
Three acronyms drive the questions. OFAC: screen customers and transactions against the SDN list, block prohibited property and report blocked property to OFAC - there is no de minimis threshold and no tipping off. SAR: file a suspicious activity report with FinCEN for transactions of $5,000 or more that the firm knows, suspects, or has reason to suspect involve illegal funds or an effort to evade BSA requirements, including attempted transactions, generally within 30 days of detection; never tell the customer, and retain the SAR and supporting documentation for five years. CTR: currency transactions exceeding $10,000 in a business day are reported to FinCEN.
Traps: assuming introducing brokers are exempt from AML obligations (they are not); believing a SAR requires proof that a crime occurred (suspicion is enough); and missing structuring, where a customer deliberately splits deposits to stay under $10,000.
Worked example: a customer wants to deposit $15,000 cash but asks to split it into two $7,500 deposits on consecutive days. The branch declines to structure the deposit, escalates to the AML officer, and a SAR is considered - with nothing said to the customer.
Rule of thumb: if the customer is working hard to avoid a threshold, that is the red flag.