Currency Transaction Report

Reporting Requirement for Broker-Dealers

The rules for brokers or dealers in securities cross-refer to the general reporting rules. Under Section 1023.310, the reports of transactions in currency requirements for brokers or dealers in securities are located in subpart C of part 1010 of Title 31 and in subpart C of part 1023. Section 1023.311 refers to Section 1010.311 for reports of transactions in currency filing obligations for brokers or dealers in securities. Section 1023.312 refers to Section 1010.312 for identification requirements for reports of transactions in currency filed by brokers or dealers in securities. Section 1023.313 refers to Section 1010.313 for reports of transactions in currency aggregation requirements for brokers or dealers in securities.

The rule that sets the reporting duty, Section 1010.311, is headed Filing obligations for reports of transactions in currency. Under that section, each financial institution other than a casino files a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than ten thousand dollars. The Treasury definition of a financial institution is each agent, agency, branch, or office within the United States of any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of listed capacities, and one of the listed capacities is a broker or dealer in securities.

Currency and Transactions in Currency

Currency is the coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.

For purposes of Sections 1010.311, 1010.313, 1020.315, 1021.311 and 1021.313, and other provisions of the chapter relating solely to the report required by those sections, a transaction in currency is a transaction involving the physical transfer of currency from one person to another. If cash debit or credit totals exceed ten thousand dollars in a business day, a CTR is required.

Aggregation of Currency Transactions

Section 1010.313, headed Aggregation, has two paragraphs. Under paragraph (a), a financial institution includes all of its domestic branch offices, and any recordkeeping facility, wherever located, that contains records relating to the transactions of the institution's domestic offices, for purposes of the transactions in currency reporting requirements in the chapter.

Under paragraph (b), in the case of financial institutions other than casinos, multiple currency transactions are treated as a single transaction if the financial institution has knowledge that they are by or on behalf of any person and result in either cash in or cash out totaling more than ten thousand dollars during any one business day. Deposits made at night or over a weekend or holiday are treated as if received on the next business day following the deposit.

All the individual transactions a financial institution has knowledge of being conducted by or on behalf of the same person during a single business day must be aggregated. Debits must be added to debits, and credits must be added to credits. Financial institutions should not off-set debits and credits against one another.

Identification Required

Under Section 1010.312, before concluding any transaction with respect to which a report is required, a financial institution verifies and records the name and address of the individual presenting a transaction, and records the identity, account number, and the social security or taxpayer identification number, if any, of any person or entity on whose behalf the transaction is to be effected.

Verification of the identity of an individual who indicates that he or she is an alien or is not a resident of the United States must be made by passport, alien identification card, or other official document evidencing nationality or residence. Verification of identity in any other case must be made by examination of a document, other than a bank signature card, that is normally acceptable within the banking community as a means of identification when cashing checks for nondepositors, such as a driver's license or credit card. A bank signature card may be relied upon only if it was issued after documents establishing the identity of the individual were examined and notation of the specific information was made on the signature card.

In each instance, the specific identifying information used in verifying the identity of the customer must be recorded on the report, and the mere notation of "known customer" or "bank signature card on file" on the report is prohibited.

Filing and Retention

Under Section 1010.306(a)(1), a report required by Section 1010.311 must be filed by the financial institution within fifteen days following the day on which the reportable transaction occurred. The Financial Crimes Enforcement Network, known as FinCEN, requires all FinCEN CTRs to be filed within fifteen calendar days of the reported transaction or transactions.

A CTR must be filed electronically through the BSA E-Filing System. Under Section 1010.306(a)(2), a copy of each report filed pursuant to Sections 1010.311, 1010.313, 1020.315, 1021.311 and 1021.313 must be retained by the financial institution for a period of five years from the date of the report. Under Section 1010.430(d), all records that are required to be retained by chapter X of Title 31 must be retained for a period of five years, and all such records must be filed or stored in such a way as to be accessible within a reasonable period of time, taking into consideration the nature of the record, and the amount of time expired since the record was made.

Structuring

Section 1010.314 is headed Structured transactions. Under the section, no person may, for the purpose of evading the transactions in currency reporting requirements, cause or attempt to cause a domestic financial institution to fail to file a report required under those requirements, cause or attempt to cause a domestic financial institution to file a report that contains a material omission or misstatement of fact, or structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions.

A person structures a transaction if that person, acting alone, or in conjunction with, or on behalf of, other persons, conducts or attempts to conduct one or more transactions in currency, in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading the reporting requirements under Sections 1010.311, 1010.313, 1020.315, 1021.311 and 1021.313. In any manner includes, but is not limited to, the breaking down of a single sum of currency exceeding ten thousand dollars into smaller sums, including sums at or below ten thousand dollars, or the conduct of a transaction, or series of currency transactions at or below ten thousand dollars. The transaction or transactions need not exceed the ten thousand dollar reporting threshold at any single financial institution on any single day in order to constitute structuring within the meaning of the definition.

Section 5324(a)(3) of Title 31 of the United States Code prohibits any person, for the purpose of evading the reporting requirements of section 5313(a) or 5325 or any regulation prescribed under any such section, from structuring or assisting in structuring, or attempting to structure or assist in structuring, any transaction with one or more domestic financial institutions. Under Section 5324(d)(1), whoever violates the section is fined in accordance with title 18, United States Code, imprisoned for not more than five years, or both.

Currency Transaction Reports and Suspicious Activity Reports

A CTR is required when a transaction in currency exceeds the threshold. A Suspicious Activity Report, known as a SAR, rests on the broker-dealer's knowledge, suspicion, or reason to suspect, as covered below. Section 1023.320 requires every broker or dealer in securities within the United States to file with FinCEN, to the extent and in the manner required by the section, a report of any suspicious transaction relevant to a possible violation of law or regulation.

Under Section 1023.320(a)(2), a transaction requires reporting if it is conducted or attempted by, at, or through a broker-dealer, it involves or aggregates funds or other assets of at least five thousand dollars, and the broker-dealer knows, suspects, or has reason to suspect that the transaction, or a pattern of transactions of which the transaction is a part, falls within the categories the section lists. Under Section 1023.320(b)(3), a SAR must be filed no later than thirty calendar days after the date of the initial detection by the reporting broker-dealer of facts that may constitute a basis for filing a SAR.

Anti-Money Laundering Program: Rule 3310

Rule 3310 of the Financial Industry Regulatory Authority, known as FINRA, is headed Anti-Money Laundering Compliance Program. Under the rule, each member develops and implements a written anti-money laundering program reasonably designed to achieve and monitor the member's compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 5311, et seq.), and the implementing regulations promulgated thereunder by the Department of the Treasury. Each member's anti-money laundering program must be approved, in writing, by a member of senior management.

The program must, at a minimum, establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions required under 31 U.S.C. 5318(g) and the implementing regulations thereunder, and establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder.

The program must also provide for annual independent testing for compliance, on a calendar-year basis, to be conducted by member personnel or by a qualified outside party, unless the member does not execute transactions for customers or otherwise hold customer accounts or act as an introducing broker with respect to customer accounts, such as a member that engages solely in proprietary trading or conducts business only with other broker-dealers, in which case such independent testing is required every two years on a calendar-year basis.

The program must designate and identify to FINRA, by name, title, mailing address, e-mail address, telephone number, and facsimile number, an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program, and the individual or individuals must be an associated person of the member. The program must provide prompt notification to FINRA regarding any change in the designation, and it must provide ongoing training for appropriate personnel.

The program must also include appropriate risk-based procedures for conducting ongoing customer due diligence, to include, but not be limited to, understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. Customer information includes information regarding the beneficial owners of legal entity customers, as defined in 31 CFR 1010.230(e).

Exam Relevance

The Securities Industry Essentials examination content outline lists, under Topic 3.2.3, Anti-money Laundering (AML), the bullets Definition of money laundering, Stages of money laundering with structuring, layering, and placement named in parentheses, AML compliance program, Suspicious Activity Report (SAR), and Currency Transaction Report (CTR). The list of rules in Section 3, Understanding Trading, Customer Accounts and Prohibited Activities, includes 3310, Anti-money Laundering Compliance Program. Candidates should check the current outline before the examination.

Common Misunderstandings

A CTR is required for a cash transaction of exactly ten thousand dollars. Section 1010.311 applies to a transaction in currency of more than ten thousand dollars, and if cash debit or credit totals exceed ten thousand dollars in a business day, a CTR is required.

Each cash transaction is measured separately. Under Section 1010.313(b), multiple currency transactions are treated as a single transaction if the financial institution has knowledge that they are by or on behalf of any person and result in either cash in or cash out totaling more than ten thousand dollars during any one business day.

Cash deposits offset cash withdrawals. Debits must be added to debits, and credits must be added to credits, and financial institutions should not off-set debits and credits against one another.

Keeping each transaction at or below ten thousand dollars avoids any problem. Structuring includes the breaking down of a single sum of currency exceeding ten thousand dollars into smaller sums, including sums at or below ten thousand dollars, and the transactions need not exceed the ten thousand dollar reporting threshold at any single financial institution on any single day in order to constitute structuring within the meaning of the definition.

A check or wire transfer is a transaction in currency. A transaction in currency is a transaction involving the physical transfer of currency from one person to another.

A CTR requires suspicion. A CTR is triggered by a transaction in currency of more than ten thousand dollars, and a SAR requires that the broker-dealer knows, suspects, or has reason to suspect that the transaction falls within the categories listed in Section 1023.320(a)(2).

A CTR is filed within thirty days. A CTR must be filed within fifteen days following the day on which the reportable transaction occurred, and a SAR must be filed no later than thirty calendar days after initial detection of facts that may constitute a basis for filing.

A copy of a filed CTR is kept for three years. A copy of each report must be retained by the financial institution for a period of five years from the date of the report.

Key Points to Retain

A CTR is the report required for each deposit, withdrawal, exchange of currency or other payment or transfer which involves a transaction in currency of more than ten thousand dollars.

A transaction in currency is a transaction involving the physical transfer of currency from one person to another.

Multiple currency transactions are treated as a single transaction if the financial institution has knowledge that they are by or on behalf of any person and result in either cash in or cash out totaling more than ten thousand dollars during any one business day.

Debits are added to debits and credits are added to credits.

Before concluding a reportable transaction, the financial institution verifies and records the name and address of the individual presenting the transaction and the identifying information required by Section 1010.312.

A CTR must be filed within fifteen days following the day on which the reportable transaction occurred, and a copy must be retained for five years from the date of the report.

Structuring is conducting one or more transactions in currency, in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading the reporting requirements.

A SAR depends on the broker-dealer's knowledge, suspicion, or reason to suspect, with a reporting amount of at least five thousand dollars, and must be filed no later than thirty calendar days after initial detection of facts that may constitute a basis for filing.

Under FINRA Rule 3310, each member develops and implements a written anti-money laundering program reasonably designed to achieve and monitor compliance with the Bank Secrecy Act.