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NFA COMPLIANCE RULE 2-9: FCM AND IB ANTI-MONEY LAUNDERING PROGRAM
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A. Customer Identification Program
As part of its AML program, each FCM and IB Member must adopt a written customer identification program (CIP) that meets the requirements of the BSA. For purposes of the CIP requirements, a customer includes individuals and entities opening new accounts as of October 1, 2003. FCMs and IBs do not have to apply the CIP requirements to existing customers opening additional accounts provided the FCM or IB has a reasonable belief that it knows the true identity of the customer. FCMs and IBs should consider the following guidelines when determining whether it is required to apply its CIP requirements:
In addition, CIP requirements for certain intermediated accounts where the intermediary is the account holder, should focus on the intermediary, not the underlying participant or beneficiary. For example,
In the case of For an omnibus account where the intermediary is the account holder, the FCM should treat the intermediary as the customer and does not have to apply its CIP requirements to the underlying beneficiaries. See FIN-2006-G004, Frequently Asked Questions Regarding Customer Identification Programs for Futures Commission Merchants and Introducing Brokers (31 CFR 103.123), February 13, 2006.
- In a give-up arrangement, the clearing FCM, not an FCM acting solely as an executing broker, is required to apply its CIP to the customer. See FIN-2007-G001, Application of the Customer Identification Program Rule to Futures Commission Merchants Operating as Executing and Clearing Brokers in Give-Up Arrangements, April 20, 2007.
If an intermediary opens an account in the name of a collective investment vehicle, such as a commodity pool, the FCM is not required to apply its CIP to the pool's underlying participants.
B. Detection and Reporting of Suspicious Activity
For transactions occurring after May 18, 2004, FCMs and IBs22 are required23 to file a form SAR-SF24 with FinCEN to report suspicious transactions conducted, or attempted by, at or through an FCM or IB, involve an aggregate of at least $5,000 in funds or other assets (not limited to currency), and the FCM or IB knows, suspects or has reason to suspect that the transaction or pattern of transactions:
Although the BSA and the implementing regulations prohibit an FCM or IB from sharing both the SAR itself and the fact that a SAR has been filed,27 firms may share a SAR with parent entities, both domestic and foreign, for the purpose of the parent entity fulfilling its obligation to review compliance by its subsidiaries in meeting the legal requirements to identify and report suspicious activity. FCMs and IBs, however, must have written confidentiality agreements or other arrangements in place specifying that the parent entity (or entities) must protect the confidentiality of the SARs through appropriate internal controls.28
D. Section 312 Foreign Private Banking and Correspondent Accounts
Correspondent Account Rule - As part of its anti-money laundering program, FCMs and IBs must establish a due diligence program that includes appropriate, specific, risk based, and where necessary, enhanced policies, procedures and controls that are reasonably designed to enable the FCM/IB to detect and report, on an ongoing basis, any known or suspected money laundering activity conducted through or involving any correspondent account33 established, maintained, administered or managed by the FCM or IB in the United States for
the a foreign financial institution. However, an IB that only solicits or accepts orders for the purchase or sale of commodity futures contracts does not establish, maintain or administer a correspondent account for the foreign financial institution and therefore is not subject to the requirements of Section 312 (including the enhanced due diligence requirements for certain foreign banks described below) with respect to correspondent accounts. To the extent an IB performs additional services for the account, the IB may be administering or managing the correspondent account and would be subject to Section 312. Similarly, for give-up transactions involving correspondent accounts, the carrying FCM, and not the executing FCM, is subject to compliance with the due diligence provisions of the correspondent account rule.34
In assessing the risk presented by a correspondent account, FCMs and IBs should consider a number of factors as appropriate. These factors include: (1) the nature of the foreign financial institution's business and the markets it serves; (2) the type, purpose and anticipated activity of the correspondent account; (3) the nature and duration of the FCM's or IB's relationship with the foreign financial institution; (4) the anti-money laundering and supervisory regime in which the foreign financial institution is chartered or licensed; and (5) information known or reasonably available to the FCM or IB about the foreign financial institution's anti-money laundering record.35 The due diligence program should also require the FCM or IB to conduct a periodic review of the activity in the correspondent account.
FCMs and IBs36 are required to apply enhanced due diligence measures to correspondent accounts maintained for a foreign bank operating under an offshore banking license, under a license issued by a country designated as being non-cooperative with international money laundering principles by FATF (and the U.S. concurs with the designation)37, or under a license issued by a country that has been designated by the Secretary of Treasury as a primary money laundering concern and as warranting special measures under Section 311. At a minimum, these measures must include taking reasonable steps to (1) conduct risk-based enhanced scrutiny of correspondent accounts established or maintained for this type of foreign bank to guard against money laundering and to identify and report suspicious activity, (2) determine whether any such foreign bank maintains correspondent accounts for other foreign banks that enable those other foreign banks to gain access to the foreign bank's correspondent account with the FCM or IB, and if so, to take reasonable steps to obtain information to assess and mitigate the money laundering risks associated with such accounts, and (3) identify the owners of the foreign bank if the bank's shares are not publicly traded, and the nature and extent of each owner's ownership interest.
Enhanced scrutiny should require the FCM or IB, (1) to obtain and consider information related to the anti-money laundering program of the foreign bank to assess the risk of money laundering presented by the bank's correspondent account in appropriate circumstances; (2) to monitor transactions to, from or through the correspondent account in a manner reasonably designed to detect money laundering and suspicious activity; and (3) to obtain information from the foreign bank about the identity of any person with authority to direct transactions through any correspondent account that is a payable-through account, and the sources and beneficial owner of the funds and other assets in the payable-through account.
An FCM/IB's due diligence program should include procedures for situations where the FCM/IB cannot perform the enhanced due diligence, including when the FCM/IB should refuse to open an account, suspend transaction activity, file a suspicious activity report or close the account.
22Broker-dealers that are notice registered for purposes of offering security futures products are required to comply with the broker-dealer reporting requirements in the securities industry. Dually registered
23 Firms are encouraged to file form SAR-SF for suspicious activity that is not required to be reported (e.g. a transaction falling below the $5,000 threshold).
24 A copy of form SAR-SF and the filing instructions are available at www.fincen.gov.
27 FCMs and IBs are not prohibited from sharing or disclosing the existence of a SAR to appropriate law enforcement agencies or regulatory agencies, including the CFTC, NFA and other self-regulatory organizations of which they are members, as provided by the suspicious activity reporting rules. In addition, when requested by one of these agencies, FCMs and IBs are required to provide these agencies with any supporting documentation to a SAR. (See FIN-2007-G003, Suspicious Activity Report Supporting Documentation, June 13, 2007.)
28 FCMs and IBs may not share SARS with non-parent entity affiliates. FinCEN and the CFTC, however, are expected to issue additional guidance on this matter in the future.
33 Correspondent accounts include accounts for foreign financial institutions to engage in futures or commodity options transactions, funds transfers or other financial transactions, whether for the financial institution or principal or for its customers. An account includes an formal relationship established by an FCM to provide regular services, including but not limited to, those established to effect transactions in contracts of sale of a commodity for future delivery, options on a commodity or options on futures. 31 CFR 103.175(d)(2)(iii).
34 See FIN-2006-G011, Application of Regulations Requiring Special Due Diligence Programs for Certain Foreign Accounts to Certain Introduced Accounts and Give-Up Arrangements in the Futures Industry, June 7, 2006.
35 See 31 CFR 103.176(a)(2).
36 As previously noted, as a general rule, the FCM establishing and maintaining the account is subject to the enhanced due diligence requirements of Section 312. An IB that only solicits or accepts orders for the purchase or sale of commodity futures contracts is not subject to the enhanced due diligence requirements of Section 312.
37 The final rule refers to being designated by an intergovernmental group or organization of which the United States is a member. Currently, FATF is the only such group.