Date: October 4, 2018
This research guide, or “source tool,” is a compilation of key AML laws, rules, orders, 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. A wealth of related AML guidance materials is also available. To aid research efforts into AML requirements and to assist broker-dealers with AML compliance, 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 AML requirements to which they are subject. Although this research guide summarizes some of the key AML obligations that are applicable to broker-dealers, it is not comprehensive. You should not rely on the summary information provided, but should refer to the relevant statutes, rules, orders, and interpretations.
Second, AML laws, rules, and orders are subject to change and may change quickly. Statutes that include AML-related provisions may be amended from time to time, and new statutes may be enacted which include AML-related provisions. The information summarized in this guide is current as of October 4, 2018. In addition, please note that in July 2007, the SEC approved the establishment of the Financial Industry Regulatory Authority (FINRA). FINRA consolidated the former NASD and the member regulation, enforcement, and arbitration operations of NYSE Regulation. The Source Tool reflects the historical issuance of AML rules and guidance by the NASD and NYSE as well as new rules and guidance issued by FINRA.
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 guidance, you should consult with an attorney experienced in the areas covered by this guide.
This compilation was prepared by staff in the Office of Compliance Inspections and Examinations (OCIE), Securities and Exchange Commission. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed in this document are those of the staff and do not necessarily represent the views of the Commission, or other Commission staff.
The following topics are addressed in this guide:
The Bank Secrecy Act (BSA), initially adopted in 1970, establishes the basic framework for AML 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 investigating and prosecuting money laundering and other financial crimes. The Financial Crimes Enforcement Network (FinCEN), a bureau within Treasury, has regulatory responsibilities for administering 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 rules adopted under the BSA.
The USA PATRIOT Act was enacted by Congress in 2001 in response to the September 11, 2001 terrorist attacks. Among other things, the USA PATRIOT Act amended and strengthened the BSA. It imposed a number of AML obligations directly on broker-dealers, including:
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 program that complies with SRO rule requirements.
An AML program must be in writing and include, at a minimum:
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:
The CIP rule provides that, under certain defined circumstances, broker-dealers may rely on the performance of another financial institution to fulfill some or all of the requirements of the broker-dealer's CIP. For example, in order for a broker-dealer to rely on the other financial institution the reliance must be reasonable. The other financial institution also must be subject to an AML compliance program rule and be regulated by a federal functional regulator. The broker-dealer and other financial institution must enter into a contract and the other financial institution must certify annually to the broker-dealer that it has implemented an AML program. The other financial institution must also certify to the broker-dealer that the financial institution will perform the specified requirements of the broker-dealer's CIP.
Covered financial institutions are required to establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program required under 31 U.S.C. 5318(h) and its implementing regulations.
Legal entity customer means a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction that opens an account.
Beneficial owner means each of the following:
(1) Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests of a legal entity customer; and
(2) A single individual with significant responsibility to control, manage, or direct a legal entity customer, including:
(i) An executive officer or senior manager (e.g., a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer); or
(ii) Any other individual who regularly performs similar functions.
(3) If a trust owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, the beneficial owner for purposes of paragraph (d)(1) of this section shall mean the trustee. If an entity listed in paragraph (e)(2) of this section owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, no individual need be identified for purposes of paragraph (d)(1) of this section with respect to that entity's interests.
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 mutu