A registered representative (RR) is informed by their client that they are involved in a Ponzi scheme. The RR suspects the client is attempting to launder money through their brokerage account. What is the immediate and mandatory action the RR's firm must take under the Bank Secrecy Act and FINRA rules?
- AFile a Suspicious Activity Report (SAR) with the Financial Crimes Enforcement Network (FinCEN).
- BNotify FINRA directly and await instructions.
- CImmediately freeze the client's assets and notify the client.
- DConduct an internal investigation for 90 days before taking further action.
Show answer & explanationAnswer & explanation
Correct answer: A. File a Suspicious Activity Report (SAR) with the Financial Crimes Enforcement Network (FinCEN).
If a firm suspects money laundering, it is immediately required to file a Suspicious Activity Report (SAR) with FinCEN. Freezing assets or notifying the client is generally prohibited, as it could tip off the money launderer. An internal investigation should occur, but filing the SAR is the immediate and mandatory reporting action.
Why the other options are wrong
- B. While FINRA may be involved later, the direct and immediate reporting obligation for money laundering is to FinCEN via a SAR.
- C. Freezing assets and notifying the client could 'tip off' the money launderer, which is prohibited.
- D. While an internal investigation is part of the AML program, the SAR must be filed promptly (typically within 30 days) once suspicious activity is detected, not after a prolonged investigation.
Suspicious Activity Report (SAR)
A Suspicious Activity Report (SAR) is a confidential document that financial institutions are required to file with the Financial Crimes Enforcement Network (FinCEN) when they detect suspicious transactions that may be indicative of money laundering or other illegal activities.
- Mandatory for suspected money laundering/fraud.
- Filed with FinCEN.
- Must be confidential; 'no tipping off' rule.
- Filed within 30 days of detection.
Memory trick: Suspect ML? 'SAR with FinCEN, Keep it Quiet, Don't Freeze, Don't Wait'.