Low Priced CBD
Anti-Money Laundering (AML) Program:
Compliance and Supervisory Procedures
UPDATED AS OF September, 1, 2018
1. Firm Policy
It is the policy of Low Priced CBD to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities by complying with all applicable requirements under the Bank Secrecy Act (BSA) and its implementing regulations.
Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so that the proceeds appear to have derived from legitimate origins or constitute legitimate assets. Generally, money laundering occurs in three stages. Cash first enters the financial system at the "placement" stage, where the cash generated from criminal activities is converted into monetary instruments, such as money orders or traveler's checks, or deposited into accounts at financial institutions. At the "layering" stage, the funds are transferred or moved into other accounts or other financial institutions to further separate the money from its criminal origin. At the "integration" stage, the funds are reintroduced into the economy and used to purchase legitimate assets or to fund other criminal activities or legitimate businesses.
Although cash is rarely deposited into securities accounts, the securities industry is unique in that it can be used to launder funds obtained elsewhere, and to generate illicit funds within the industry itself through fraudulent activities. Examples of types of fraudulent activities include insider trading, market manipulation, Ponzi schemes, cybercrime and other investment-related fraudulent activity.
Terrorist financing may not involve the proceeds of criminal conduct, but rather an attempt to conceal either the origin of the funds or their intended use, which could be for criminal purposes. Legitimate sources of funds are a key difference between terrorist financiers and traditional criminal organizations. In addition to charitable donations, legitimate sources include foreign government sponsors, business ownership and personal employment. Although the motivation differs between traditional money launderers and terrorist financiers, the actual methods used to fund terrorist operations can be the same as or similar to methods used by other criminals to launder funds. Funding for terrorist attacks does not always require large sums of money and the associated transactions may not be complex.
Our AML policies, procedures and internal controls are designed to ensure compliance with all applicable BSA regulations and FINRA rules and will be reviewed and updated on a regular basis to ensure appropriate policies, procedures and internal controls are in place to account for both changes in regulations and changes in our business.
Rules: 31 C.F.R. § 1023.210; FINRA Rule 3310.
2. AML Compliance Person Designation and Duties
Low Priced CBD has designated Alan Horton as its Anti-Money Laundering Program Compliance Person, with full responsibility for Low Priced CBD’s AML program. Alan Horton has a working knowledge of the BSA and its implementing regulations and is qualified by experience, knowledge and training, including all accounting issues. The duties of the AML Compliance Person will include monitoring Low Priced CBD’s compliance with AML obligations, overseeing communication and training for employees, and any and all new or changed AML. The AML Compliance Person will also ensure that Low Priced CBD keeps and maintains all of the required AML records and will ensure that Suspicious Activity Reports (SARs) are filed with the Financial Crimes Enforcement Network (FinCEN) when appropriate. The AML Compliance Person is vested with full responsibility and authority to enforce Low Priced CBD’s AML program.
Low Priced CBD will provide FINRA with contact information for the AML Compliance Person through the FINRA Contact System (FCS), including: (1) name; (2) title; (3) mailing address; (4) email address; (5) telephone number; and (6) facsimile (if any). Low Priced CBD will promptly notify FINRA of any change in this information through FCS and will review, and if necessary update, this information within 17 business days after the end of each calendar year. The annual review of FCS information will be conducted by Alan Horton and will be completed with all necessary updates being provided no later than 17 business days following the end of each calendar year. In addition, if there is any change to the information, Alan Horton will update the information promptly, but in any event not later than 30 days following the change.
Rules: 31 C.F.R. § 1023.210; FINRA Rule 3310; FINRA Rule 4517.
3. Giving AML Information to Federal Law Enforcement Agencies and Other Financial Institutions
a. FinCEN Requests Under USA PATRIOT Act Section 314(a)
We will respond to a Financial Crimes Enforcement Network (FinCEN) request concerning accounts and transactions (a 314(a) Request) by immediately searching our records to determine whether we maintain or have maintained any account for, or have engaged in any transaction with, each individual, entity or organization named in the 314(a) Request as outlined in the Frequently Asked Questions (FAQ) located on FinCEN’s secure website. We understand that we have 14 days from the transmission date of the request to respond to a 314(a) Request. We will designate through the FINRA Contact System (FCS) one or more persons to be the point of contact (POC) for 314(a) Requests and will promptly update the POC information following any change in such information. Unless otherwise stated in the 314(a) Request or specified by FinCEN, we are required to search those documents outlined in FinCEN’s FAQ. If we find a match, Alan Horton will report it to FinCEN via FinCEN’s Web-based 314(a) Secure Information Sharing System within 14 days or within the time requested by FinCEN in the request. If the search parameters differ from those mentioned above (for example, if FinCEN limits the search to a geographic location), Alan Horton will structure our search accordingly.
If Alan Horton searches our records and does not find a matching account or transaction, then Alan Horton will not reply to the 314(a) Request. We will maintain documentation that we have performed the required search by printing a search self-verification document from FinCEN’s 314(a) Secure Information Sharing System confirming that your firm has searched the 314(a).
We will not disclose the fact that FinCEN has requested or obtained information from us, except to the extent necessary to comply with the information request. Alan Horton will review, maintain and implement procedures to protect the security and confidentiality of requests from FinCEN similar to those procedures established to satisfy the requirements of Section 501 of the Gramm-Leach-Bliley Act with regard to the protection of customers’ nonpublic information.
We will direct any questions we have about the 314(a) Request to the requesting federal law enforcement agency as designated in the request.
Unless otherwise stated in the 314(a) Request, we will not be required to treat the information request as continuing in nature, and we will not be required to treat the periodic 314(a) Requests as a government provided list of suspected terrorists for purposes of the customer identification and verification requirements.
Rule: 31 C.F.R. § 1010.520.
b. National Security Letters
We understand that the receipt of a National Security Letter (NSL) is highly confidential. We understand that none of our officers, employees or agents may directly or indirectly disclose to any person that the FBI or other federal government authority has sought or obtained access to any of our records. To maintain the confidentiality of any NSL we receive, we will process and maintain the NSL by securing in our locked filing cabinet. If we file a SAR after receiving an NSL, the SAR will not contain any reference to the receipt or existence of the NSL. The SAR will only contain detailed information about the facts and circumstances of the detected suspicious activity.
c. Grand Jury Subpoenas
We understand that the receipt of a grand jury subpoena concerning a customer does not in itself require that we file a Suspicious Activity Report (SAR). When we receive a grand jury subpoena, we will conduct a risk assessment of the customer subject to the subpoena as well as review the customer’s account activity. If we uncover suspicious activity during our risk assessment and review, we will elevate that customer’s risk assessment and file a SAR in accordance with the SAR filing requirements. We understand that none of our officers, employees or agents may directly or indirectly disclose to the person who is the subject of the subpoena its existence, its contents or the information we used to respond to it. To maintain the confidentiality of any grand jury subpoena we receive, we will process and maintain the subpoena by only discussing with need to know staff. If we file a SAR after receiving a grand jury subpoena, the SAR will not contain any reference to the receipt or existence of the subpoena. The SAR will only contain detailed information about the facts and circumstances of the detected suspicious activity.
d. Voluntary Information Sharing With Other Financial Institutions Under USA PATRIOT Act Section 314(b)
We will share information with other financial institutions regarding individuals, entities, organizations and countries for purposes of identifying and, where appropriate, reporting activities that we suspect may involve possible terrorist activity or money laundering. Alan Horton will ensure that Low Priced CBD files with FinCEN an initial notice before any sharing occurs and annual notices thereafter. We will use the notice form found at FinCEN’s website. Before we share information with another financial institution, we will take reasonable steps to verify that the other financial institution has submitted the requisite notice to FinCEN, either by obtaining confirmation from the financial institution or by consulting a list of such financial institutions that FinCEN will make available. We understand that this requirement applies even to financial institutions with which we are affiliated, and that we will obtain the requisite notices from affiliates and follow all required procedures.
We will employ strict procedures both to ensure that only relevant information is shared and to protect the security and confidentiality of this information, for example, by segregating it from Low Priced CBD’s other books and records.
We also will employ procedures to ensure that any information received from another financial institution shall not be used for any purpose other than:
- identifying and, where appropriate, reporting on money laundering or terrorist activities;
- determining whether to establish or maintain an account, or to engage in a transaction; or
- assisting the financial institution in complying with performing such activities.
Rules: 31 C.F.R. § 1010.540.
e. Joint Filing of SARs by Broker-Dealers and Other Financial Institutions
We will file joint SARs in the following circumstances, according to all current rules. We will also share information about a particular suspicious transaction with any broker-dealer, as appropriate, involved in that particular transaction for purposes of determining whether we will file jointly a SAR.
If we determine it is appropriate to jointly file a SAR, we understand that we cannot disclose that we have filed a SAR to any financial institution except the financial institution that is filing jointly. If we determine it is not appropriate to file jointly we understand that we cannot disclose that we have filed a SAR to any other financial institution or insurance company.
Rules: 31 C.F.R. § 1023.320; 31 C.F.R. § 1010.430; 31 C.F.R. § 1010.540.
f. Sharing SARs With Parent Companies
Because we are a subsidiary, we may share SARs with A and D, or Low Priced Vape. Before we share SARs with A and D, or Low Priced Vape, we will have in place written confidentiality agreements or written arrangements that all parties to protect the confidentiality of the SARs through appropriate internal controls.
4. Checking the Office of Foreign Assets Control Listings
Before opening an account, and on an ongoing basis, Alan Horton will check to ensure that a customer does not appear on the SDN list or is not engaging in transactions that are prohibited by the economic sanctions and embargoes administered and enforced by OFAC. Because the SDN list and listings of economic sanctions and embargoes are updated frequently, we will consult them on a regular basis and subscribe to receive any available updates when they occur. With respect to the SDN list, we may also access that list through various software programs to ensure speed and accuracy. FINRA’s OFAC Search Tool that screens names against the SDN list. Alan Horton will also review existing accounts against the SDN list and listings of current sanctions and embargoes when they are updated and he will document the review.
If we determine that a customer is on the SDN list or is engaging in transactions that are prohibited by the economic sanctions and embargoes administered and enforced by OFAC, we will reject the transaction and/or block the customer's assets and file a blocked assets and/or rejected transaction form with OFAC within 10 days. We will also call the OFAC Hotline at (800) 540-6322 immediately.
Our review will include customer accounts, transactions involving customer’s activity that passes through Low Priced CBD such as wires and the review of customer transactions that involve physical security certificates or application-based investments, mutual funds.
Rules: 31 C.F.R. § 501.603; 31 C.F.R. § 501.604.
5. Customer Identification Program
We do not open or maintain customer accounts within the meaning of 31 CFR 1023.100, in that we do not establish formal relationships with “customers” for the purpose of effecting transactions in securities. If in the future Low Priced CBD elects to open customer accounts or to establish formal relationships with customers for the purpose of effecting transactions in securities, we will first establish, document and ensure the implementation of appropriate CIP procedures.
We will collect information to determine whether any entity opening an account would be excluded as a “customer,” pursuant to the exceptions outlined in 31 CFR 1023.100(d)(2))
Rule: 31 C.F.R. § 1023.220.
a. Required Customer Information
Prior to opening an account, Alan Horton will collect the following information for all accounts, if applicable, for any person, entity or organization that is opening a new account and whose name is on the account:
(1) the name;
(2) date of birth;
(3) an address, which will be a residential or business street address (for an individual), an Army Post Office (APO) or Fleet Post Office (FPO) box number, or residential or business street address of next of kin or another contact individual or a principal place of business, local office, or other physical location; and
(4) an identification number, which will be a taxpayer identification number or one or more of the following: a taxpayer identification number, passport number and country of issuance, alien identification card number, or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or other similar safeguard.
In the event that a customer has applied for, but has not received, a taxpayer identification number, we will require a copy of the request to confirm that the application was filed before the customer opens the account and to obtain the taxpayer identification number within a reasonable period of time after the account is opened.
When opening an account for a foreign business or enterprise that does not have an identification number, we will request alternative government-issued documentation certifying the existence of the business or enterprise.
Rule: 31 C.F.R. § 1023.220(a)(2)(i).
b. Customers Who Refuse to Provide Information
If a potential or existing customer either refuses to provide the information described above when requested, or appears to have intentionally provided misleading information, our firm will not open a new account and, after considering the risks involved, consider closing any existing account. In either case, our AML Compliance Person will be notified so that we can determine whether we should report the situation to FinCEN on a SAR.
c. Verifying Information
Based on the risk, and to the extent reasonable and practicable, we will ensure that we have a reasonable belief that we know the true identity of our customers by using risk-based procedures to verify and document the accuracy of the information we get about our customers. Alan Horton will analyze the information we obtain to determine whether the information is sufficient to form a reasonable belief that we know the true identity of the customer (e.g., whether the information is logical or contains inconsistencies).
We will verify customer identity through documentary means. We will use documents to verify customer identity when appropriate documents are available. In light of the increased instances of identity fraud, we will supplement the use of documentary evidence by using the non-documentary means described below whenever necessary. We may also use non-documentary means, if we are still uncertain about whether we know the true identity of the customer. In verifying the information, we will consider whether the identifying information that we receive, such as the customer’s name, street address, zip code, telephone number, date of birth and Social Security number, allow us to determine that we have a reasonable belief that we know the true identity of the customer.
Appropriate documents for verifying the identity of customers include the following:
- For an individual, an unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver’s license or passport; and
- For a person other than an individual, documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement or a trust instrument.
We understand that we are not required to take steps to determine whether the document that the customer has provided to us for identity verification has been validly issued and that we may rely on a government-issued identification as verification of a customer’s identity. If, however, we note that the document shows some obvious form of fraud, we must consider that factor in determining whether we can form a reasonable belief that we know the customer’s true identity.
We will use the following non-documentary methods of verifying identity:
- Independently verifying the customer’s identity through the comparison of information provided by the customer with information obtained from a consumer reporting agency, public database or other sources;
- Checking references with other financial institutions; or
- Obtaining a financial statement.
We will verify the information within a reasonable time before or after the account is opened. Depending on the nature of the account and requested transactions, we may refuse to complete a transaction before we have verified the information, or in some instances when we need more time, we may, pending verification, restrict the types of transactions or dollar amount of transactions. If we find suspicious information that indicates possible money laundering, terrorist financing activity, or other suspicious activity, we will, after internal consultation with Low Priced CBD's AML Compliance Person, file a SAR in accordance with applicable laws and regulations.
We recognize that the risk that we may not know the customer’s true identity may be heightened for certain types of accounts, such as an account opened in the name of a corporation, partnership or trust that is created or conducts substantial business in a jurisdiction that has been designated by the U.S. as a primary money laundering jurisdiction, a terrorist concern, or has been designated as a non-cooperative country or territory. We will identify customers that pose a heightened risk of not being properly identified. We will also take the following additional measures that may be used to obtain information about the identity of the individuals associated with the customer when standard documentary methods prove to be insufficient.
Rule: 31 C.F.R. § 1023.220(a)(2)(ii).
d. Lack of Verification
When we cannot form a reasonable belief that we know the true identity of a customer, we will do the following: (1) not open an account; (2) impose terms under which a customer may conduct transactions while we attempt to verify the customer’s identity; (3) close an account after attempts to verify a customer’s identity fail; and (4) determine whether it is necessary to file a SAR in accordance with applicable laws and regulations.
Rule: 31 C.F.R. § 1023.220(a)(2)(iii).
We will document our verification, including all identifying information provided by a customer, the methods used and results of verification, and the resolution of any discrepancies identified in the verification process. We will keep records containing a description of any document that we relied on to verify a customer’s identity, noting the type of document, any identification number contained in the document, the place of issuance, and if any, the date of issuance and expiration date. With respect to non-documentary verification, we will retain documents that describe the methods and the results of any measures we took to verify the identity of a customer. We will also keep records containing a description of the resolution of each substantive discrepancy discovered when verifying the identifying information obtained. We will retain records of all identification information for five years after the account has been closed; we will retain records made about verification of the customer's identity for five years after the record is made.
Rule: 31 C.F.R. § 1023.220(a)(3).
f. Comparison with Government-Provided Lists of Terrorists
At such time as we receive notice that a federal government agency has issued a list of known or suspected terrorists and identified the list as a list for CIP purposes, we will, within a reasonable period of time after an account is opened (or earlier, if required by another federal law or regulation or federal directive issued in connection with an applicable list), determine whether a customer appears on any such list of known or suspected terrorists or terrorist organizations issued by any federal government agency and designated as such by Treasury in consultation with the federal functional regulators. We will follow all federal directives issued in connection with such lists.
We will continue to comply separately with OFAC rules prohibiting transactions with certain foreign countries or their nationals.
Rule: 31 C.F.R. § 1023.220(a)(4).
g. Notice to Customers
We will provide notice to customers that Low Priced CBD is requesting information from them to verify their identities, as required by federal law. We will use the following method to provide notice to customers by telephone, online, or walk-in, using one or more of the following.
Important Information About Procedures for Opening a New Account
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.
Rule: 31 C.F.R. § 1023.220(a)(5).
h. Reliance on Another Financial Institution for Identity Verification
We may, under the following circumstances, rely on the performance by another financial institution of some or all of the elements of our CIP with respect to any customer that is opening an account or has established an account or similar business relationship with the other financial institution to provide or engage in services, dealings or other financial transactions:
- when such reliance is reasonable under the circumstances;
- when the other financial institution is subject to a rule implementing the anti-money laundering compliance program requirements of 31 U.S.C. § 5318(h), and is regulated by a federal functional regulator; and
- when the other financial institution has entered into a contract with our firm requiring it to certify annually to us that it has implemented its anti-money laundering program and that it will perform specified requirements of the customer identification program.
Rule: 31 C.F.R. § 1023.220(a)(6).
6. Customer Due Diligence Rule
We do not open or maintain accounts for legal entity customers within the meaning of 31 CFR 1010.230. If in the future Low Priced CBD elects to open accounts for legal entity customers, we will first establish, document and ensure the implementation of appropriate CDD procedures.
7. Correspondent Accounts for Foreign Shell Banks
a. Detecting and Closing Correspondent Accounts of Foreign Shell Banks
We will identify foreign bank accounts and any such account that is a correspondent account. Upon finding or suspecting such accounts, firm employees will notify the AML Compliance Person, who will terminate any verified correspondent account in the United States for a foreign shell bank. We will also terminate any correspondent account that we have determined is not maintained by a foreign shell bank but is being used to provide services to such a shell bank. We will exercise cautionregarding liquidating positions in such accounts and take reasonable steps to ensure that no new positions are established in these accounts during the termination period. We will terminate any correspondent account for which we have not obtained the information described in Appendix A of the regulations regarding shell banks within the time periods specified in those regulations.
Rule: 31 C.F.R. § 1010.630; 31 C.F.R. § 1010.605.
We will require our foreign bank account holders to identify the owners of the foreign bank if it is not publicly traded, the name and street address of a person who resides in the United States and is authorized and has agreed to act as agent for acceptance of legal process, and an assurance that the foreign bank is not a shell bank nor is it facilitating activity of a shell bank. In lieu of this information the foreign bank may submit the Certification Regarding Correspondent Accounts For Foreign Banks provided in the BSA regulations. We will re-certify when we believe that the information is no longer accurate or at least once every three years.
Rule: 31 C.F.R. § 1010.630(b).
c. Recordkeeping for Correspondent Accounts for Foreign Banks
We will keep records identifying the owners of foreign banks with U.S. correspondent accounts and the name and address of the U.S. agent for service of legal process for those banks.
Rule: 31 C.F.R. § 1010.630(e).
d. Summons or Subpoena of Foreign Bank Records; Termination of Correspondent Relationships with Foreign Bank
When we receive a written request from a federal law enforcement officer for information identifying the non-publicly traded owners of any foreign bank for which we maintain a correspondent account in the United States and/or the name and address of a person residing in the United States who is an agent to accept service of legal process for a foreign bank’s correspondent account, we will provide that information to the requesting officer not later than seven days after receipt of the request. We will close, within 10 days, any correspondent account for a foreign bank that we learn from FinCEN or the Department of Justice has failed to comply with a summons or subpoena issued by the Secretary of the Treasury or the Attorney General of the United States or has failed to contest such a summons or subpoena. We will scrutinize any correspondent account activity during that 10-day period to ensure that any suspicious activity is appropriately reported and to ensure that no new positions are established in these correspondent accounts.
Rule: 31 C.F.R. § 1010.670.8. Due Diligence and Enhanced Due Diligence Requirements for Correspondent Accounts of Foreign Financial Institutions
8. Due Diligence and Enhanced Due Diligence Requirements for Correspondent Accounts of Foreign Financial Institutions
a. Due Diligence for Correspondent Accounts of Foreign Financial Institutions
We have reviewed our accounts and we do not have, nor do we intend to open or maintain, correspondent accounts for foreign financial institutions and if one is found trying to open such an account it will be stopped immediately.
Rule: 31 C.F.R. § 1010.610(a).
9. Due Diligence and Enhanced Due Diligence Requirements for Private Banking Accounts/Senior Foreign Political Figures
We do not open or maintain private banking accounts.
Rule: 31 C.F.R. § 1010.620.
10. Compliance with FinCEN’s Issuance of Special Measures Against Foreign Jurisdictions, Financial Institutions or International Transactions of Primary Money Laundering Concern
We do not maintain any accounts (including correspondent accounts) with any foreign jurisdiction or financial institution. However, ifFinCEN issues a final rule imposing a special measure againstone or more foreign jurisdictions or financial institutions, classes of international transactions or types of accounts deeming them to be of primary money laundering concern, we understand that we must read FinCEN’s final rule and follow any prescriptions or prohibitions contained in that rule.
Rules: 31 C.F.R. §§ 1010.651, 1010.653, 1010.655, 1010.658, 1010.659, 1010.660.
11. Monitoring Accounts for Suspicious Activity
We will monitor account activity for unusual size, volume, pattern or type of transactions, taking into account risk factors and red flags that are appropriate to our business. Monitoring will be conducted through the following methods: manual monitoring.The customer risk profile will serve as a baseline for assessing potentially suspicious activity. The AML Compliance Person or his or her designee will be responsible for this monitoring, will review any activity that our monitoring system detects, will determine whether any additional steps are required, will document when and how this monitoring is carried out, and will report suspicious activities to the appropriate authorities.
We will conduct the following reviews of activity that our monitoring system detects: All suspicious activities. We will document our monitoring and reviews as follows: written reports. The AML Compliance Person or his or her designee will conduct an appropriate investigation and review relevant information from internal or third-party sources before a SAR is filed. Relevant information can include, but not be limited to, the following: all written reports.
Rules: 31 C.F.R. § 1023.320; FINRA Rule 3310.
a. Emergency Notification to Law Enforcement by Telephone
In situations involving violations that require immediate attention, such as terrorist financing or ongoing money laundering schemes, we will immediately call an appropriate law enforcement authority. If a customer or company appears on OFAC’s SDN list, we will call the OFAC Hotline at (800) 540-6322. Other contact numbers we will use are: FinCEN’s Financial Institutions Hotline (866) 556-3974), local U.S. Attorney’s office (512) 916-5858, local FBI office (254) 772-1627 and local SEC office (817) 978-3821. If we notify the appropriate law enforcement authority of any such activity, we must still file a timely a SAR.
Although we are not required to, in cases where we have filed a SAR that may require immediate attention by the SEC, we may contact the SEC via the SEC SAR Alert Message Line at (202) 551-SARS (7277) to alert the SEC about the filing. We understand that calling the SEC SAR Alert Message Line does not alleviate our obligations to file a SAR or notify an appropriate law enforcement authority.
Rule: 31 C.F.R. § 1023.320.
b. Red Flags
Red flags that signal possible money laundering or terrorist financing include, but are not limited to:
Customers – Insufficient or Suspicious Information
• Provides unusual or suspicious identification documents that cannot be readily verified.
• Reluctant to provide complete information about nature and purpose of business, prior banking relationships, anticipated account activity, officers and directors or business location.
• Refuses to identify a legitimate source for funds or information is false, misleading or substantially incorrect.
• Background is questionable or differs from expectations based on business activities.
• Customer with no discernable reason for using Low Priced CBD’s service.
Efforts to Avoid Reporting and Recordkeeping
• Reluctant to provide information needed to file reports or fails to proceed with transaction.
• Tries to persuade an employee not to file required reports or not to maintain required records.
• “Structures” deposits, withdrawals or purchase of monetary instruments below a certain amount to avoid reporting or recordkeeping requirements.
• Unusual concern with Low Priced CBD’s compliance with government reporting requirements and firm’s AML policies.
Certain Funds Transfer Activities
• Wire transfers to/from financial secrecy havens or high-risk geographic location without an apparent business reason.
• Many small, incoming wire transfers or deposits made using checks and money orders. Almost immediately withdrawn or wired out in manner inconsistent with customer’s business or history. May indicate a Ponzi scheme.
• Wire activity that is unexplained, repetitive, unusually large or shows unusual patterns or with no apparent business purpose.
Certain Deposits or Dispositions of Physical Certificates
• Physical certificate is titled differently than the account.
• Physical certificate does not bear a restrictive legend, but based on history of the stock and/or volume of shares trading, it should have such a legend.
• Customer’s explanation of how he or she acquired the certificate does not make sense or changes.
• Customer deposits the certificate with a request to journal the shares to multiple accounts, or to sell or otherwise transfer ownership of the shares.
Certain Securities Transactions
• Customer engages in prearranged or other non-competitive trading, including wash or cross trades of illiquid securities.
• Two or more accounts trade an illiquid stock suddenly and simultaneously.
• Customer journals securities between unrelated accounts for no apparent business reason.
• Customer has opened multiple accounts with the same beneficial owners or controlling parties for no apparent business reason.
•. Customer transactions include a pattern of receiving stock in physical form or the incoming transfer of shares, selling the position and wiring out proceeds.
• Customer’s trading patterns suggest that he or she may have inside information.
Transactions Involving Penny Stock Companies
• Company has no business, no revenues and no product.
• Company has experienced frequent or continuous changes in its business structure.
• Officers or insiders of the issuer are associated with multiple penny stock issuers.
• Company undergoes frequent material changes in business strategy or its line of business.
• Officers or insiders of the issuer have a history of securities violations.
• Company has not made disclosures in SEC or other regulatory filings.
• Company has been the subject of a prior trading suspension.
Transactions Involving Insurance Products
• Cancels an insurance contract and directs funds to a third party.
• Structures withdrawals of funds following deposits of insurance annuity checks signaling an effort to avoid BSA reporting requirements.
• Rapidly withdraws funds shortly after a deposit of a large insurance check when the purpose of the fund withdrawal cannot be determined.
• Cancels annuity products within the free look period which, although could be legitimate, may signal a method of laundering funds if accompanied with other suspicious indicia.
• Opens and closes accounts with one insurance company then reopens a new account shortly thereafter with the same insurance company, each time with new ownership information.
• Purchases an insurance product with no concern for investment objective or performance.
• Purchases an insurance product with unknown or unverifiable sources of funds, such as cash, official checks or sequentially numbered money orders.
Activity Inconsistent With Business
• Transactions patterns show a sudden change inconsistent with normal activities.
• Unusual transfers of funds or journal entries among accounts without any apparent business purpose.
• Maintains multiple accounts, or maintains accounts in the names of family members or corporate entities with no apparent business or other purpose.
• Appears to be acting as an agent for an undisclosed principal, but is reluctant to provide information.
Other Suspicious Customer Activity
• Unexplained high level of accountactivity with very low levels of securities transactions.
• Funds deposits for purchase of a long-term investment followed shortly by a request to liquidate the position and transfer the proceeds out of the account.
• Law enforcement subpoenas.
• Large numbers of securities transactions across a number of jurisdictions.
• Buying and selling securities with no purpose or in unusual circumstances.
ayment by third-party check or money transfer without an apparent connection to the customer.
• Payment by third-party check or money transfer without an apparent connection to the customer.
• Payments to third-party without apparent connection to customer.
• No concern regarding the cost of transactions or fees (i.e., surrender fees, higher than necessary commissions, etc.).
c. Responding to Red Flags and Suspicious Activity
When an employee of Low Priced CBD detects any red flag, or other activity that may be suspicious, he or she will notify the Manager and the other partners. Under the direction of the AML Compliance Person, Low Priced CBD will determine whether or not and how to further investigate the matter. This may include gathering additional information internally or from third-party sources, contacting the government, freezing the account and/or filing a SAR.
12. Suspicious Transactions and BSA Reporting
We will monitor all transactions looking for anything suspicious and report according to the BSA reporting system.
Rule: 31 C.F.R. § 1023.320.
a. Filing a SAR
We will file SARs with FinCEN for any transactions (including deposits and transfers) conducted or attempted by, at or through our firm involving $5,000 or more of funds or assets where we know, suspect or have reason to suspect:
(1) the transaction involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation;
(2) the transaction is designed, whether through structuring or otherwise, to evade any requirements of the BSA regulations;
(3) the transaction has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and after examining the background, possible purpose of the transaction and other facts, we know of no reasonable explanation for the transaction; or
(4) the transaction involves the use of Low Priced CBD to facilitate criminal activity.
We will also file a SAR and notify the appropriate law enforcement authority in situations involving violations that require immediate attention, such as terrorist financing or ongoing money laundering schemes. In addition, although we are not required to, we may contact that SEC in cases where a SAR we have filed may require immediate attention by the SEC. See Section 11 for contact numbers. We also understand that, even if we notify a regulator of a violation, unless it is specifically covered by one of the exceptions in the SAR rule, we must file a SAR reporting the violation.
We may file a voluntary SAR for any suspicious transaction that we believe is relevant to the possible violation of any law or regulation but that is not required to be reported by us under the SAR rule. It is our policy that all SARs will be reported regularly to the Board of Directors and appropriate senior management, with a clear reminder of the need to maintain the confidentiality of the SAR.
We will report suspicious transactions by completing a SAR, and we will collect and maintain supporting documentation as required by the BSA regulations. We will file a SAR-SF no later than 30 calendar days after the date of the initial detection of the facts that constitute a basis for filing a SAR. If no suspect is identified on the date of initial detection, we may delay filing the SAR for an additional 30 calendar days pending identification of a suspect, but in no case will the reporting be delayed more than 60 calendar days after the date of initial detection. The phrase “initial detection” does not mean the moment a transaction is highlighted for review. The 30-day (or 60-day) period begins when an appropriate review is conducted and a determination is made that the transaction under review is “suspicious” within the meaning of the SAR requirements. A review must be initiated promptly upon identification of unusual activity that warrants investigation.
We will retain copies of any SAR filed and the original or business record equivalent of any supporting documentation for five years from the date of filing the SAR-SF. We will identify and maintain supporting documentation and make such information available to FinCEN, any other appropriate law enforcement agencies, federal or state securities regulators or SROs upon request.
We will not notify any person involved in the transaction that the transaction has been reported, except as permitted by the BSA regulations. We understand that anyone who is subpoenaed or required to disclose a SAR or the information contained in the SAR will, except where disclosure is requested by FinCEN, the SEC, or another appropriate law enforcement or regulatory agency, or an SRO registered with the SEC, decline to produce the SAR or to provide any information that would disclose that a SAR was prepared or filed. We will notify FinCEN of any such request and our response.
Rules: 31 C.F.R. § 1023.320; FINRA Rule 3310.
b. Currency Transaction Reports
We do not allow any transaction that exceeds $5,000.00 to be executed without the consent of both partners. Our firm prohibits transactions involving currency and has the following procedures to prevent such transactions: We do not allow Cash transactions larger than $1000.00. If we discover such transactions have occurred, we will file with FinCEN CTRs for currency transactions that exceed $10,000. Also, we will treat multiple transactions involving currency as a single transaction for purposes of determining whether to file a CTR if they total more than $10,000 and are made by or on behalf of the same person during any one business day. We will use the BSA E-Filing System to file the supported CTR Form.
Rules: 31 C.F.R. §§ 1010.311, 1010.306, 1010.312.
c. Currency and Monetary Instrument Transportation Reports
Our firm prohibits both the receipt of currency or other monetary instruments that have been transported, mailed or shipped to us from outside of the United States, and the physical transportation, mailing or shipment of currency or other monetary instruments by any means other than through the postal service or by common carrier. We will file a CMIR with the Commissioner of Customs if we discover that we have received or caused or attempted to receive from outside of the U.S. currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time. We will also file a CMIR if we discover that we have physically transported, mailed or shipped or caused or attempted to physically transport, mail or ship by any means other than through the postal service or by common carrier currency or other monetary instruments of more than $10,000 at one. We will use the CMIR Form provided on FinCEN’s website.
Rules: 31 C.F.R. §§ 1010.340, 1010.306.
d. Foreign Bank and Financial Accounts Reports
We will file a Foreign Bank and Financial Accounts Report (FBAR) for any financial accounts of more than $10,000 that we hold, or for which we have signature or other authority over, in a foreign country. We will use the BSA E-Filing System provided on FinCEN’s website.
Rules: 31 C.F.R. §§ 1010.306, 1010.350, 1010.420.
e. Monetary Instrument Purchases
We do not issue bank checks or drafts, cashier’s checks, money orders or traveler’s checks in the amount of $3,000 or more.
Rule: 31 C.F.R. § 1010.415.
f. Funds Transmittals of $3,000 or More Under the Travel Rule
When we are the transmittor’s financial institution in funds of $3,000 or more, we will retain either the original or a copy (e.g., microfilm, electronic record) of the transmittal order. We will also record on the transmittal order the following information: (1) the name and address of the transmittor; (2) if the payment is ordered from an account, the account number; (3) the amount of the transmittal order; (4) the execution date of the transmittal order; and (5) the identity of the recipient’s financial institution. In addition, we will include on the transmittal order as many of the following items of information as are received with the transmittal order: (1) the name and address of the recipient; (2) the account number of the recipient; (3) any other specific identifier of the recipient; and (4) any form relating to the transmittal of funds that is completed or signed by the person placing the transmittal order.
We will also verify the identity of the person placing the transmittal order (if we are the transmitting firm), provided the transmittal order is placed in person and the transmittor is not an established customer of Low Priced CBD. If a transmittor or recipient is conducting business in person, we will obtain: (1) the person’s name and address; (2) the type of identification reviewed and the number of the identification and (3) the person’s taxpayer identification number or, if none, alien identification number or passport number and country of issuance, or a notation in the record the lack thereof. If a transmittor or recipient is not conducting business in person, we shall obtain the person’s name, address, and a copy or record of the method of payment. In the case of transmittors only, we shall also obtain the transmittor’s taxpayer identification number or, if none, alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof. In the case of recipients only, we shall obtain the name and address of the person to which the transmittal was sent.
Rules: 31 C.F.R. § 1010.410(e) and (f); Exchange Act Rule 17a-8 (requiring registered broker-dealers subject to the Currency and Foreign Transactions Reporting Act of 1970 to comply with the BSA regulations regarding reporting, recordkeeping and record retention requirements); FINRA Rule 3310.
13. AML Recordkeeping
a. Responsibility for Required AML Records and SAR Filing
Our AML Compliance Person and his or her designee will be responsible for ensuring that AML records are maintained properly and that SARs are filed as required.
In addition, as part of our AML program, our firm will create and maintain SARs, CTRs, CMIRs, FBARs, and relevant documentation on customer identity and verification (See Section 5 above) and funds transmittals. We will maintain SARs and their accompanying documentation for at least five years. We will keep other documents according to existing BSA and other recordkeeping requirements, including certain SEC rules that require six-year retention periods (e.g., Exchange Act Rule 17a-4(a) requiring firms to preserve for a period of not less than six years, all records required to be retained by Exchange Act Rule 17a-3(a)(1)-(3), (a)(5), and (a)(21)-(22) and Exchange Act Rule 17a-4(e)(5) requiring firms to retain for six years account record information required pursuant to Exchange Act Rule 17a-3(a)(17)).
Rules: 31 C.F.R. § 1010.430; Exchange Act Rule 17a-8 (requiring registered broker-dealers subject to the Currency and Foreign Transactions Reporting Act of 1970 to comply with the BSA regulations regarding reporting, recordkeeping and record retention requirements); FINRA Rule 3310.
b. SAR Maintenance and Confidentiality
We will hold SARs and any supporting documentation confidential. We will not inform anyone outside of FinCEN, the SEC, an SRO registered with the SEC or other appropriate law enforcement or regulatory agency about a SAR. We will refuse any subpoena requests for SARs or for information that would disclose that a SAR has been prepared or filed and immediately notify FinCEN of any such subpoena requests that we receive. See Section 11 for contact numbers. We will segregate SAR filings and copies of supporting documentation from other firm books and records to avoid disclosing SAR filings. Our AML Compliance Person will handle all subpoenas or other requests for SARs. We may share information with another financial institution about suspicious transactions in order to determine whether we will jointly file a SAR according to the provisions of Section 3.d. In cases in which we file a joint SAR for a transaction that has been handled both by us and another financial institution, both financial institutions will maintain a copy of the filed SAR.
Rule: 31 C.F.R. § 1023.320(e).
c. Additional Records
We shall retain either the original or a microfilm or other copy or reproduction of each of the following:
A record of each extension of credit in an amount in excess of $10,000, except an extension of credit secured by an interest in real property. The record shall contain the name and address of the person to whom the extension of credit is made, the amount thereof, the nature or purpose thereof and the date thereof;
- A record of each advice, request or instruction received or given regarding any transaction resulting in the transfer of currency or other monetary instruments, funds, checks, investment securities or credit, of more than $10,000 to or from any person, account or place outside the U.S.;
- A record of each advice, request or instruction given to another financial institution or other person located within or without the U.S., regarding a transaction intended to result in the transfer of funds, or of currency, other monetary instruments, checks, investment securities or credit, of more than $10,000 to a person, account or place outside the U.S.;
- Each document granting signature or trading authority over each customer's account;
- Each record described in Exchange Act Rule 17a-3(a): (1) blotters, (2) ledgers for assets and liabilities, income, and expense and capital accounts, (3) ledgers for cash and margin accounts, (4) securities log, (5) ledgers for securities in transfer, dividends and interest received, and securities borrowed and loaned, (6) order tickets, (7) purchase and sale tickets, (8) confirms, and (9) identity of owners of cash and margin accounts;
- A record of each remittance or transfer of funds, or of currency, checks, other monetary instruments, investment securities or credit, of more than $10,000 to a person, account or place, outside the U.S.; and
- A record of each receipt of currency, other monetary instruments, checks or investment securities and of each transfer of funds or credit, of more than $10,000 received on any one occasion directly and not through a domestic financial institution, from any person, account or place outside the U.S.
Rules: 31 C.F.R. § 1010.410; 31 C.F.R. 1023.410; Exchange Act Rule 17a-8 (requiring registered broker-dealers subject to the Currency and Foreign Transactions Reporting Act of 1970 to comply with the BSA regulations regarding reporting, recordkeeping and record retention requirements); FINRA Rule 3310.
14. Clearing/Introducing Firm Relationships
We will work closely with our clearing firm to detect money laundering. We will exchange information, records, data and exception reports as necessary to with AML laws. Both our firm and our clearing firm have filed the necessary annual certifications for such information sharing, which can be found on FinCEN’s website. As a general matter, we will obtain and use the following exception reports offered by our clearing firm in order to monitor customer activity and we will provide our clearing firm with proper customer identification and due diligence information as required to successfully monitor customer transactions. We have discussed how each firm will apportion customer and transaction functions and how we will share information and set forth our understanding in a written document. We understand that the apportionment of functions will not relieve either of us from our independent obligation to comply with AML laws, except as specifically allowed under the BSA and its implementing regulations.
Rules: 31 CFR § 1010.540; FINRA Rule 3310; FINRA Rule 4311.
15. Training Programs.
We will develop ongoing employee training under the leadership of the AML Compliance Person and senior management. Our training will occur on at least an annual basis. It will be based on our firm’s size, its customer base, and its resources and be updated as necessary to reflect any new developments in the law.
Our training will include, at a minimum: (1) how to identify red flags and signs of money laundering that arise during the course of the employees’ duties; (2) what to do once the risk is identified; (3) what employees' roles are in Low Priced CBD's compliance efforts and how to perform them; (4) Low Priced CBD's record retention policy; and (5) the disciplinary consequences for non-compliance with the BSA.
We will develop training in our firm, or contract for it. Delivery of the training may include educational pamphlets, videos, intranet systems, in-person lectures and explanatory memos. Currently our training program is: all registered representatives must view the video entitled “Spotting Money Laundering” within two weeks of being hired. We will maintain records to show the persons trained, the dates of training and the subject matter of their training.
We will review our operations to see if certain employees, such as those in compliance, margin and corporate security, require specialized additional training. Our written procedures will be updated to reflect any such changes.
Rules: 31 CFR § 1023.210(b)(4); FINRA Rule 3310.
16. Program to Independently Test AML Program
Our manager will conduct the testing to confirm we are following the AML compliance program. This test will be given to all employees every two years.
The testing of our AML program will be performed every two calendar years by David Beeson, of our firm, who is not the AML Compliance Person nor does he perform the AML functions being tested nor do they report to any such persons. His qualifications include a working knowledge of applicable requirements under the BSA and its implementing regulations. To ensure that he remain independent, we will separate his functions from other AML activities. Independent testing will be performed more frequently if circumstances warrant.
Rules: 31 C.F.R. § 1023.210(b)(2); FINRA Rule 3310.
b. Evaluation and Reporting
After we have completed the independent testing, staff will report its findings to senior management. We will promptly address each of the resulting recommendations and keep a record of how each noted deficiency was resolved.
Rules: 31 C.F.R. § 1023.210(b)(2); FINRA Rule 3310.
17. Monitoring Employee Conduct and Accounts
We will subject employee accounts to the same AML procedures as customer accounts, under the supervision of the AML Compliance Person. We will also review the AML performance of supervisors, as part of their annual performance review. The AML Compliance Person’s accounts will be reviewed by David Beeson.
Rules: 31 C.F.R. § 1023.320; 31 C.F.R § 1023.210; FINRA Rule 3310.
18. Confidential Reporting of AML Non-Compliance
Employees will promptly report any potential violations of Low Priced CBD’s AML compliance program to the AML Compliance Person, unless the violations implicate the AML Compliance Person, in which case the employee shall report to the president. Such reports will be confidential, and the employee will suffer no retaliation for making them.
Rules: 31 C.F.R. § 1023.210; FINRA Rule 3310.
19. Additional Risk Areas
Low Priced CBD has reviewed all areas of its business to identify potential money laundering risks that may not be covered in the procedures described above and have found none.
20. Senior Manager Approval
Senior management has approved this AML compliance program in writing as reasonably designed to achieve and monitor our firm’s ongoing compliance with the requirements of the BSA and the implementing regulations under it. This approval is indicated by signatures below.
Rules: 31 C.F.R. § 1023.210; FINRA Rule 3310.
Signed: David Beeson
Date: September 1, 2018