Federal law and NFA rules require Introducing Brokers to maintain an Anti-Money Laundering program implemented by written policies, procedures and controls. NFA provides a number of materials to help IBs ensure their AML programs are compliant, including the Self-Examination Checklist, Exhibit A thereto, and other materials on NFA’s website.
The AML program has several components as described below. IBs must designate one or more individuals to oversee the AML program and on an annual basis must have an independent audit of their AML program and train employees on AML procedures.
1. Customer Identification Program (“CIP”)
The CIP must allow the IB to establish a reasonable belief that it knows the true identity of its customers. The CIP must provide that the IB will request certain information from the customer and will verify that information using documentary or non-documentary sources, must explain when steps will be taken if the IB cannot reasonably verify customer identity, must provide that additional due diligence will be done for customers from or doing business in places identified by the government as being AML deficient, and must provide for record keeping of details of the identification process. IBs may rely on an FCM to perform the CIP process if the IB enters into a reliance agreement with the FCM, so long as the reliance is reasonable under the circumstances and the FCM annually certifies it implements an AML program meeting CIP requirements.
2. Detecting and Reporting Suspicious Activity
The AML Program must prepare the IB to detect and report suspicious activities by customers. Suspicious activity includes activity that is without a lawful or apparent business purpose, that is unusual for the customer or that lacks any reasonable explanation. Firms must monitor for suspicious activity in the account opening process and during cash transfers and trading activity. While IBs frequently are not involved with the account opening process, they may still need to focus on the trading activity. The AML program should provide a list of “red flags” that employees should look for and provide that employees report suspicious activity to the designated person overseeing the AML program. The designated person must then evaluate the activity and determine whether a Suspicious Activity Report needs to be filed with FinCen. SARs and the fact that they have been filed must be kept confidential.
3. Types of Customers Requiring Special Action
Certain types of customers fall into categories that require additional action by IBs. Correspondence accounts for foreign financial institutions and private banking accounts for foreign individuals require monitoring for money-laundering activity, although this is not necessary for correspondence accounts for which IBs merely solicit or accept trades. IBs must review lists of sanctioned countries, Specially Designated Nationals and Blocked Persons published by OFAC, and must not engage in transactions with persons located in sanctioned countries and must block funds for SDNs and BPs.
Neal R. Stevens is an Attorney with Schuyler, Roche & Crisham, P.C. and can be reached at nstevens@SRCattorneys.com or 312 565.1045.