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 over $5,000 (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 Four 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

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 = Cash over $10,000 (automatic). SAR = Suspicious over $5,000 (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 over $5,000, 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? This is a condensed summary. If it is not enough, read the full AML Compliance unit for the complete lesson.