Ant-Money Laundering Policy

Anti-Money Laundering (AML) Policy

Compliance & Supervisory Procedures

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1. Firm Policy

It is the policy of Vermilion LLC (the “Firm”) 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.

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. § 103.120(c); FINRA Rule 3310.

2. AML Compliance Person Designation and Duties

The Firm has designated Evan Sommerfeld as its Anti-Money Laundering Program Compliance Person (AML Compliance Person), with full responsibility for the Firm’s AML program. Evan Sommerfeld has a working knowledge of the BSA and its implementing regulations and is qualified by experience, knowledge and training. The duties of the AML Compliance Person will include monitoring the Firm’s compliance with AML obligations, overseeing communication and training for employees. The AML Compliance Person will also ensure that the Firm keeps and maintains all of the required AML records and will ensure that Suspicious Activity Reports (SAR-SFs) are filed with the Financial Crimes Enforcement Network (FinCEN) when appropriate. The AML Compliance Person is vested with full responsibility and authority to enforce the Firm’s AML program.

The Firm will provide FINRA with contact information for the AML Compliance Person, including: (1) name; (2) title; (3) mailing address; (4) email address; (5) telephone number; and (6) facsimile number through the FINRA Contact System (FCS). The Firm will promptly notify FINRA of any change in this information through FCS and will review, and if necessary update, this information within 15 business days after the end of each calendar year. The annual review of FCS information will be conducted by Evan Sommerfeld and will be completed with all necessary updates being provided no later than 15 business days following the end of each calendar year. In addition, if there is any change to the information, Evan Sommerfeld will update the information promptly, but in any event not later than 30 days following the change.

The Firm will submit its AML Compliance Person information through FINRA’s FCS webpage.

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 Web site. We understand that we have 14 days (unless otherwise specified by FinCEN) 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. (See also Section 2 above regarding updating of contact information for the AML Compliance Person.). 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, [Name] 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), [Name] will structure our search accordingly.

If Evan Sommerfeld searches our records and does not find a matching account or transaction, then Evan Sommerfeld 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 con-Firming that our Firm has searched the 314(a) subject information against our records.

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. Evan Sommerfeld 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.

b. National Security Letters

National Security Letters (NSLs) are written investigative demands that may be issued by the local Federal Bureau of Investigation and other federal government authorities conducting counterintelligence and counterterrorism investigations to obtain, among other things, financial records of broker-dealers. NSLs are highly confidential. No officer, employee or agent of the Firm can disclose to any person that a government authority or the FBI has sought or obtained access to records. If the Firm files a Suspicious Activity Report (SAR-SF) after receiving a NSL, the SAR-SF should not contain any reference to the receipt or existence of the NSL.

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-SF). 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-SF in accordance with the SAR-SF 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 [describe procedure]. If we file a SAR-SF after receiving a grand jury subpoena, the SAR-SF will not contain any reference to the receipt or existence of the subpoena. The SAR-SF 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. Evan Sommerfeld will ensure that the Firm files with FinCEN an initial notice before any sharing occurs and annual notices thereafter. We will use the notice form found at FinCEN’s Web site. 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 the Firm’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.

Rule: 31 C.F.R. § 103.110.

e. Joint Filing of SARs by Broker-Dealers and Other Financial Institutions

We will 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-SF.

We will share information about particular suspicious transactions with our clearing broker for purposes of determining whether we and our clearing broker will file jointly a SAR-SF. In cases in which we file a joint SAR-SF for a transaction that has been handled both by us and by the clearing broker, we may share with the clearing broker a copy of the filed SAR-SF.

If we determine it is appropriate to jointly file a SAR-SF, we understand that we cannot disclose that we have filed a SAR-SF to any financial institution except the financial institution that is filing jointly. If we determine it is not appropriate to file jointly (e.g., because the SAR-SF concerns the other broker-dealer or one of its employees), we understand that we cannot disclose that we have filed a SAR-SF to any other financial institution or insurance company.

Rules: 31 C.F.R. §103.19; 31 C.F.R. § 103.38; 31 C.F.R. § 103.110.

f. Sharing SAR-SFs With Parent Companies

Before we share SAR-SFs with any affiliated companies, we will have in place written confidentiality agreements or written arrangements that protect the confidentiality of the SAR-SFs through appropriate internal controls.

4. Checking the Office of Foreign Assets Control Listings

Before opening an account, and on an ongoing basis, Evan Sommerfeld 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. (See the OFAC web site for the SDN list and listings of current sanctions and embargoes). 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. See also FINRA’s OFAC Search Tool that screens names against the SDN list. Evan Sommerfeld 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 customers (including activity that passes through the Firm such as wires) and the review of customer transactions that involve physical security certificates or application-based investments (e.g., mutual funds).

5. Customer Identification Program (CIP)

We have and follow reasonable procedures to document and verify the identity of customers who open new accounts.

We do not open or maintain “customer accounts” within the meaning of 31 CFR 103.122(a)(1)(i), in that we do not establish formal relationships with “customers” for the purpose of effecting transactions in securities. If in the future the Firm 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.

Rule: 31 C.F.R. §103.122.

a. Required Customer Information

Prior to opening an account, Evan Sommerfeld 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 (for an individual)
  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 (for an individual who does not have a residential or business street address), or a principal place of business, local office, or other physical location (for a person other than an individual); and
  4. an identification number, which will be a taxpayer identification number (for U.S. persons), 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 (for non-U.S. persons).

In the event that a customer has applied for, but has not received, a taxpayer identification number, we will 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. §103.122(b)(2)(i)(A) & § 103.122(b)(2)(i)(B).

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-SF.

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. Evan Sommerfeld 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 both documentary means and non-documentary means or both. 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 (if provided), 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 (e.g., whether the information is logical or contains inconsistencies).

Appropriate documents for verifying the identity of customers include the following:

  1. 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
  2. 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 use non-documentary methods of verification when:

  1. the customer is unable to present an unexpired government-issued identification document with a photograph or other similar safeguard;
  2. the Firm is unfamiliar with the documents the customer presents for identification verification;
  3. the customer and Firm do not have face-to-face contact; and
  4. there are other circumstances that increase the risk that the Firm will be unable to verify the true identity of the customer through documentary means.

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 the Firm’s AML Compliance Person, file a SAR-SF 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.

Rule: 31 C.F.R. §103.122(b).

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 customer’s identity fail; and (4) determine whether it is necessary to file a SAR-SF in accordance with applicable laws and regulations.

Rule: 31 C.F.R. §103.122(b)(2)(iii).

e. Recordkeeping

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. §103.122(b)(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. §103.122(b)(4).

g. Notice to Customers

We will provide notice to customers that the Firm is requesting information from them to verify their identities, as required by federal law.
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.

Rule: 31 C.F.R. §103.122(b)(5).

h. Reliance on Another Financial Institution for Identity Verification

We may, under the following circumstances, rely on the performance by another financial institution (including an affiliate) 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 (or its agent will perform) specified requirements of the customer identification program.

Rule: 31 C.F.R. § 103.122(b)(6).

6. General Customer Due Diligence

It is important to our AML and SAR-SF reporting program that we obtain sufficient information about each customer to allow us to evaluate the risk presented by that customer and to detect and report suspicious activity. When we open an account for a customer, the due diligence we perform may be in addition to customer information obtained for purposes of our CIP.

For each account we will take steps to obtain sufficient customer information to comply with our suspicious activity reporting requirements. Such information should include:

  • the customer’s business;
  • the customer’s anticipated account activity (both volume and type);
  • the source of the customer’s funds.

For accounts that we have deemed to be higher risk, we will obtain the following information:

  • the purpose of the account;
  • the source of funds and wealth;
  • the beneficial owners of the accounts;
  • the customer’s (or beneficial owner’s) occupation or type of business;
  • financial statements;
  • banking references;
  • domicile (where the customer’s business is organized);
  • description of customer’s primary trade area and whether international transactions are expected to be routine;
  • description of the business operations and anticipated volume of trading;
  • explanations for any changes in account activity.

We will also ensure that the customer information remains accurate.

7. Correspondent Accounts for Foreign Shell Banks

Our Firm does not establish, maintain, administer or manage correspondent accounts for foreign banks,

Rule: 31 C.F.R. § 103.185.

8. Due Diligence and Enhanced Due Diligence Requirements 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.

Rules: 31 C.F.R. §§ 103.175, 103.176.

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.

Rules: 31 C.F.R. §§ 103.175, 103.178.

10. Compliance with FinCEN’s Issuance of Special Measiures 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, if FinCEN issues a final rule imposing a special measure against one 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. §§ 103.186, 103.187, 103.188, 103.192, 103.193.

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. (Red flags are identified in Section 11.b. below.). 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 reviews of activity that our monitoring system detects. We will document our monitoring and reviews. 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-SF is filed. Relevant information can include, but not be limited to, the following: [describe].

Rules: 31 C.F.R. §103.19; FINRA Rule 3310(a).

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) to report transactions relating to terrorist activity, local U.S. Attorney’s office and the local FBI office. If we notify the appropriate law enforcement authority of any such activity, we must still file a timely SAR-SF.

Although we are not required to, in cases where we have filed a SAR-SF 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-SF or notify an appropriate law enforcement authority.

Rule: 31 C.F.R. §103.19.

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 the Firm’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.
  • Unusual concern with the Firm’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.

Activity Inconsistent With Business

  • Transactions patterns show a sudden change inconsistent with normal activities.
  • 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 account activity with very low levels of securities transactions.
  • Law enforcement subpoenas.
  • Payments to third-party without apparent connection to customer.

c. Responding to Red Flags and Suspicious Activity

When an employee of the Firm detects any red flag, or other activity that may be suspicious, he or she will notify the AML Compliance Person. Under the direction of the AML Compliance Person, the Firm 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-SF.

12. Suspicious Transactions and BSA Reporting

a. Filing a SAR-SF

We will file SAR-SFs 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 (either individually or in the aggregate) 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 the Firm to facilitate criminal activity.

We will also file a SAR-SF 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 the SEC in cases where a SAR-SF 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-SF reporting the violation.

We may file a voluntary SAR-SF 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 SAR-SFs 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-SF.

We will report suspicious transactions by completing a SAR-SF, 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-SF. If no suspect is identified on the date of initial detection, we may delay filing the SAR-SF 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-SF 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-SF or the information contained in the SAR-SF 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-SF or to provide any information that would disclose that a SAR-SF was prepared or filed. We will notify FinCEN of any such request and our response.

Rules: 31 C.F.R. §103.19; FINRA Rule 3310(a).

b. Foreign Bank and Financial Accounts Reports

We will file a FBAR with the IRS 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 FBAR Form provided on the IRS’s website.

Rule: 31 C.F.R. §103.24.

c. 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. § 103.29. See also 31 C.F.R. 103.22(b).

13. AML Recordkeeping

a. Responsibility for Required AML Records and SAR-SF Filing

Our AML Compliance Person and his or her designee will be responsible for ensuring that AML records are maintained properly and that SAR-SFs are filed as required.

In addition, as part of our AML program, our Firm will create and maintain SAR-SFs, CTRs, CMIRs, FBAR, and relevant documentation on customer identity and verification (See Section 5 above) and funds transmittals. We will maintain SAR-SFs and their accompanying documentation for at least 5 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. § 103.38, 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-SF Maintenance and Confidentiality

We will hold SAR-SFs 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-SF. We will refuse any subpoena requests for SAR-SFs or for information that would disclose that a SAR-SF 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-SF filings and copies of supporting documentation from other Firm books and records to avoid disclosing SAR-SF filings. Our AML Compliance Person will handle all subpoenas or other requests for SAR-SFs. 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.

Rules: 31 C.F.R. §103.19(e); 67 Fed. Reg. 44048, 44054 (July 1, 2002).

c. Additional Records

We shall retain either the original 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 (or intended to result and later canceled if such a record is normally made) 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 (which includes broker-dealers) 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. § 103.33, 103.35(b).

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 comply [with our contractual obligations and] with AML laws. Both our Firm and our clearing Firm have filed (and kept updated) the necessary annual certifications for such information sharing, which can be found on FinCEN’s Web site. 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 103.110; FINRA Rule 3310, NASD 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 (including how, when and to whom to escalate unusual customer activity or other red flags for analysis and, where appropriate, the filing of SAR-SFs); (3) what employees’ roles are in the Firm’s compliance efforts and how to perform them; (4) the Firm’s record retention policy; and (5) the disciplinary consequences (including civil and criminal penalties) for non-compliance with the BSA.

We will contract for training. Delivery of the training may include educational pamphlets, videos, intranet systems, in-person lectures and explanatory memos. 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.

Rule: FINRA Rule 3310.

16. Program to Independently Test AML Program

a. Staffing

The testing of our AML program will be performed at least every two calendar years by personnel of our Firm, none of whom are the AML Compliance Person nor do they perform the AML functions being tested nor do they report to any such persons. Their qualifications include a working knowledge of applicable requirements under the BSA and its implementing regulations. To ensure that they remain independent, we will separate their functions from other AML activities. Independent testing will be performed more frequently if circumstances warrant.

Rules: 31 C.F.R. § 103.120; 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. § 103.120; 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.

Rules: 31 C.F.R. § 103.19, 103.120; FINRA Rule 3310.

18. Confidential Reporting of AML Non-Compliance

Employees will promptly report any potential violations of the Firm’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 managing director. Such reports will be confidential, and the employee will suffer no retaliation for making them.

Rules: 31 C.F.R. § 103.120; FINRA Rule 3310.

19. Additional Risk Areas

The Firm has reviewed all areas of its business to identify potential money laundering risks that may not be covered in the procedures described above.

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.

Rules: 31 C.F.R. § 103.120; FINRA Rule 3310.

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