A criminal can't spend a bag of cash without explaining where it came from, and a brokerage statement full of "investment gains" is a convincing explanation. That puts every broker-dealer, and every representative who opens accounts, on the front line.
Start with what money laundering is: making money from crime look as if it came from a legitimate source. Laundering gives dirty funds a believable history, so a trafficker, fraudster or corrupt politician can spend them openly.
Federal law makes it a crime. Under 18 U.S.C. 1956, a person launders money by conducting a transaction with proceeds known to come from unlawful activity, aiming to promote the crime or to conceal the proceeds' source, ownership or control. Designing a transaction to avoid a reporting requirement also counts, which is the idea behind structuring. Penalties reach 20 years in prison and a fine of $500,000 or twice the property involved, whichever is greater.
Brokerage accounts attract launderers because they hold large balances and wire money in minutes. The Bank Secrecy Act (BSA), the core federal anti-money laundering (AML) law, enlists broker-dealers in the...
Common mistakes
- Swapping layering and integration: Layering hides the trail, and integration spends the money as if it were clean. Buying a restaurant with funds that look like trading gains is integration.
- Thinking structuring needs a big number: Four $3,000 cash deposits of honestly earned wages, timed to dodge the report, are still structuring.
- Misreading the two thresholds: Exactly $10,000 in cash produces no CTR. Neither does a $9,000 cash deposit plus a $2,000 check. The SAR test runs the other way, so exactly $5,000 qualifies.
Bottom line
- Money laundering disguises criminal proceeds as legitimate funds: placement puts cash into the system, layering hides the trail and integration returns the money as apparently clean wealth.
- Structuring splits or arranges cash in any amount, at any number of institutions or days, to evade the CTR; it is a crime even with honestly earned cash and is a SAR trigger.
- FINRA Rule 3310 requires a written AML program with written senior-management approval, BSA procedures, annual independent testing (every two years for a firm with no customer business), a named AML compliance person, ongoing training and risk-based customer due diligence; MSRB...
- Under USA PATRIOT Act Section 326, the CIP collects name, date of birth, street address and identification number before opening and verifies within a reasonable time; FinCEN's customer due diligence rule adds each 25% owner plus one control person of...
Exam shortcut
Before reading the choices, sort each AML question by what triggers the duty: Cash with no suspicion: This points to a CTR. Ask "Is it currency?" and then "Is it more than $10,000 for one person in one business day?" Suspicion about any asset: This points to a SAR. Ask "Is it at least $5,000?" Stage questions: Find the verb. A deposit is placement.
The full lesson (about 3,869 words, 26 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- C16
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