USA PATRIOT Act of 2001

  • Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act)
  • FINCEN requires financial institutions to establish AML standards
  • Procedures in place
  • Appoint a qualified compliance officer
  • Continuous training
  • Allow independent testing of program
  • Suspicious Activity Report (SARs)
  • Under the AML:
  • Broker/dealers are required to file SARs for suspicious transactions such as:
    • Deposits of $5,000 or more
    • Withdrawals of $5,000 or more
    • Transfers of $5,000 or more
  • SAR reports must be filed within 30 days of initial discovery
  • The Financial Company or Insurer is required to report if they know, suspect, or have reason to suspect that:
    • Has no business or lawful purpose
    • Uses the financial institution to assist in criminal activities
    • Is obtained using fraudulent funds
    • Is intended to mask funds from other illegal activities
    • Uses fake IDs, similar IDs
    • Customer changes a transaction after learning they need to show ID
    • Customer transacts just below the required reporting amount
    • Two or more customers working together
    • Customer uses 2 or more bank locations or cashiers on the same day to break a large transaction into smaller ones

Compliance Officers

  • Under the USA PATRIOT Act:
    • Compliance officers may be held accountable
    • However, the company is ultimately responsible for all monitoring activity
  • Minimum requirements on customers include:
    • Name
    • Address
    • Date of Birth
    • Location of Birth
    • Social Security number
  • Auditing is self-regulated:
    • FinCEN does not require audits.
    • Audits should be fairly executed and reported through written assessment with recommendations for improvements.
  • Failure to comply with guidelines by the USA PATRIOT Act are subject to severe fines and penalties

Bank Secrecy Act (BSA)

  • Established to identify the source, volume, and movement of currency transported in or out of the U.S.
  • Funds in excess of $3,000:
    • broker/dealers must obtain info about the giver and receiver of the funds
  • Funds in excess of $10,000:
    • Financial institutions must verify the identity of people conducting the transaction
  • Broker/dealers must file a Currency Transaction Report (CTR) for single or multiple transactions in one day.
  • CTR’s are filed with Financial Crimes Enforcement Network (FINCEN)

Anti-Money Laundering Act

  • Each member shall implement an approved, written procedure to comply with the BSA
  • Under the Customer Identification Program:
  • Certain standards exist for customer identification
    • Verify the customer opening an account
    • Maintain records to identify the customer
    • Consult government-provided list of known or suspected terrorists

Financial Action Task Force (FATF)

  • Designed to set standards for combatting money laundering, terrorists financing threats to the integrity of the international financial system
    • “policy making body” to generate necessary political will to bring about national legislative and regulatory reforms in these areas

Office of Foreign Assets Control (OFAC)

  • Bureau of the Treasury Department
    • Administers and enforces trade sanctions based on US Foreign policy and national security goals
    • Impose controls on transactions and may freeze foreign assets under US jurisdiction

Customer Complaints

  • Member firms must keep a file of all written complaints in the OSJ
  • Any written communication with a member firm by a customer regarding the activities of employees of the firm with respect to transactions, securities, or funds

Procedural Rules

  • Members must keep a current copy of the FINRA manual for customers’ examination upon request
  • Members must provide information upon request
  • FINRA must be allowed to inspect and copy records and accounts with respect to any matter involved in the investigation or complaint

Code of Arbitration

  • Quicker and cost effective resolution to settle disputes
  • Matters eligible for submission include disputes:
  • Among members
  • Between members and associated persons
  • Between members, associated persons, and customers
  • Customers must agree to arbitration
  • Statute of limitations is 6 years

National Arbitration Committee

  • FINRA Board of Governors elects the FINRA Dispute Resolution Board of Directors, who in turn appoints a National arbitration and Mediation Committee
  • The Chairman of the Committee shall be chosen by the Chairman of the Dispute Resolution Board
  • The Committee shall recommend appropriate rules, regulations, and procedures to FINRA Dispute Resolution Board
  • The committee shall meet at least once a year
  • The appointed panel shall consist of an odd number, 3, possibly 5 members
  • The final decision is binding

Simplified Arbitration

  • For disputes for up to $50,000, simplified arbitration is available
  • There is no opportunity for a hearing
  • One arbitrator renders a decision based on written submission by both parties
  • Written submissions must be made within 10 days
  • Awards must be paid within 30 days, if not Registration is suspended

Code of Procedure

A written complaint must be filed with:

  • First, the District Business Conduct Committee
  • Then, the National Business Conduct Committee
  • Next, the FINRA Board of Governors
  • FINRA may suggest an AWC
  • Write a Letter to Accept the finding of the violation,
  • Consent to sanctions
  • Waive right to a hearing
  • Respondent has 10 days to accept
  • Next, to the SEC
  • And finally, the Federal Courts

Mediation

  • Informal, flexible process that is less expensive than arbitration
  • 80% of FINRA cases are resolved through mediation
  • If a settlement is not reached, the parties may still arbitrate

Sanctions for Violations

Sanctions are broken down into 3 sections

  • Sanctions for violating rules
  • Censure member or associated person
  • Suspend membership or suspend registration
  • Expel a member or membership
  • Suspend or bar a member from associating with any member
  • Suspension, revocation, or cancellation of the registration of a person associated with a member
  • Bar from association in any capacity with any member, including clerical or ministerial capacity
  • The member shall not receive any commission, profit, or other remunerations from any securities transaction
  • Release of disciplinary information
  • Must disclose on employment history, including U-4
  • Disclose on current registrations
  • Disclosed to main office of existing business
  • Any event or proceeding required to be reported
  • Monetary sanctions
  • Impose fines
  • After 7 days’ notice in writing:
  • Membership may be summarily suspended if member fails to do any of the following:
  • Pay promptly any sanction imposed
  • Terminate immediately the association of a person who fails to pay a fine or monetary sanction
  • Registration may be summarily suspended also
  • Costs of proceedings
  • A member disciplined under the rules shall bear such costs of the proceedings
  • Expungement
  • Members and associated persons may seek expunge information from the CRD if they obtain an order from a court of competent jurisdiction or confirming an arbitration award containing expungement relief