AML Compliance

The whole unit on one sheet: the stages, the thresholds, the deadlines, and who receives what.

The Three Stages of Money Laundering

• Placement: illegally obtained cash enters the financial system. Most vulnerable stage to detect (physical cash). Structuring / "smurfing" is the classic technique.
• Layering: complex transactions separate the money from its illegal source. Multiple accounts, shell companies, foreign banks, wire transfers.
• Integration: "clean" money re-enters the legitimate economy (real estate, businesses, securities). Hardest stage to detect.

The One-Liners That Win Points

• SAR = Suspicious activity of $5,000 or more (needs suspicion). CTR = Cash over $10,000 (automatic, no suspicion needed).
• CTRs apply to cash only. A suspicious wire above $5,000 triggers a SAR, not a CTR, even over $10,000.
• Both SARs and CTRs are filed with FinCEN (Financial Crimes Enforcement Network), never directly with the FBI, SEC, or police.
• A registered representative reports suspicious activity to the firm's AML compliance officer (AMLCO); the AMLCO decides and files.
• Structuring is itself illegal, even if the underlying funds are legitimate. Detecting it requires a SAR.
• Tipping off is prohibited: the firm can NEVER tell the customer a SAR was filed, even if asked directly. Applies to everyone at the firm.

Numbers to Lock In

FinCEN and OFAC (both Treasury, different jobs)

• FinCEN = financial crime reporting. A bureau of the U.S. Department of the Treasury; administers the Bank Secrecy Act, receives SARs and CTRs, analyzes and shares intelligence. Does not conduct criminal investigations.
• OFAC (Office of Foreign Assets Control) = economic sanctions. Also Treasury. Maintains the Specially Designated Nationals and Blocked Persons (SDN) List. Firms must screen, block/freeze, then report blocked transactions within 10 business days.
• Block first, report after. A firm must comply with both FinCEN reporting and OFAC sanctions; one transaction can trigger both a block and a SAR.

The Five AML Program Pillars

• Policies and procedures to detect and report suspicious activity
• AML Compliance Officer (AMLCO) to run the program day-to-day
• Ongoing employee training
• Independent testing (audit), on a calendar-year basis, internal or external
• Customer due diligence (CDD): know the nature and purpose of the relationship, identify beneficial owners of legal-entity customers, and monitor on an ongoing basis

Plus: approved by senior management, and a Customer Identification Program (CIP) verifying name, date of birth, address, and identification number for every new account.

Memory Aid: CTR vs. SAR

• CTR = Cash over $10,000 (automatic). SAR = Suspicious activity of $5,000 or more (requires suspicion).

Top Gotchas

• 10 days on a SAR answer choice is the OFAC window, not a SAR deadline. SAR = 30 (or 60) calendar days; CTR = 15 calendar days; OFAC = 10 business days.
• Structuring is placement, not layering, and it is a crime on its own.
• The Bank Secrecy Act applies to all financial institutions, not just banks; the USA PATRIOT Act built on it and did not replace it.
• Filing a SAR does not require closing the customer's account.
• Independent testing can be internal staff, as long as they have no role in running the AML program.

One-Breath Recap

Dirty money in (placement), spin it around (layering), clean money out (integration). Firms answer with an AML program, CIP at the door, SARs for suspicious activity of $5,000 or more, CTRs for cash over $10,000, both to FinCEN, and OFAC blocking anyone on the SDN List. Nail the thresholds and deadlines and this unit answers itself.

Need more than the recap? Read the full AML Compliance unit.