Staff Advisory that reminds: (1) futures commission merchants (FCMs) and introducing brokers (IBs) of their obligations to report suspicious activities as required by a regulation issued by the Financial Crimes Enforc...

Summary: Staff Advisory that reminds: (1) futures commission merchants (FCMs) and introducing brokers (IBs) of their obligations to report suspicious activities as required by a regulation issued by the Financial Crimes Enforcement Network under the Bank Secrecy Act; and (2) FCMs, IBs and all other persons registered or required to be registered with the Commission to comply with the economic sanctions programs imposed against countries and groups of individuals that appear at 31 C.F.R. Chapter V. Advisory.

DIVISION OF SWAP DEALER

AND INTERMEDIARY OVERSIGHT

CFTC Staff Advisory No. 16-60

Other Written Communication

July 6, 2016

Division of Swap Dealer and Intermediary Oversight

Audience: Futures Commission Merchants, Introducing

Brokers and all other Persons Registered or Required to

be Registered with the Commodity Futures Trading

Commission

Topic: Compliance with Suspicious Activity Reporting

Requirements and Office of Foreign Assets Control

Economic Sanctions Programs

The Division of Swap Dealer and Intermediary Oversight (DSIO) of the

Commodity Futures Trading Commission (Commission) is issuing this advisory to

remind futures commission merchants (FCMs) and introducing brokers (IBs) of

their obligations to report suspicious activities required by the regulations1 issued

by the Financial Crimes Enforcement Network (FinCEN) under the Bank Secrecy

Act (BSA),2 as described below. DSIO is issuing this advisory also to remind

FCMs, IBs and all other persons registered or required to be registered with the

Commission to comply with the economic sanctions programs imposed against

1 31 CFR Chapter X.

2 The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, 18 U.S.C. 1956, 1957, and 1960 and 31 U.S.C.

5311–5314 and 5316–5332 and notes thereto.

as described below. DSIO is issuing this advisory also to remind

FCMs, IBs and all other persons registered or required to be registered with the

Commission to comply with the economic sanctions programs imposed against

1 31 CFR Chapter X.

2 The BSA is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, 18 U.S.C. 1956, 1957, and 1960 and 31 U.S.C.

5311–5314 and 5316–5332 and notes thereto.

2

countries and groups of individuals administered by the Office of Foreign Assets

Control (OFAC),3 as also described below.

Suspicious Activity Reporting Requirements

The suspicious activity reporting (SAR) regulation4 requires every FCM and

IB that is registered or required to be registered with the Commission to file a SAR

with FinCEN relevant to any possible violation of law or regulation.5 A

transaction requires reporting where it is conducted or attempted by, at, or through

a FCM or IB, it involves or aggregates funds or other assets of at least $5,000, and

the FCM or IB knows, suspects, or has reason to suspect that the transaction (or a

pattern of transactions of which the transaction is a part): (1) involves funds

derived from illegal activity or is intended or conducted in order to hide or disguise

funds or assets derived from illegal activity; (2) is designed to evade the BSA or its

implementing regulations; (3) has no business or apparent lawful purpose or is not

the sort in which the particular customer would normally be expected to engage,

and the FCM or IB knows of no reasonable explanation for the transaction after

examining the available facts, including the background and possible purpose of

the transaction; or (4) involves use of the FCM or IB to facilitate criminal activity.6

SARs are required to be filed no later than 30 calendar days after the date the

suspicious activity is initially detected unless no suspect is identified. In this latter

event, the SAR filing can be delayed for an additional 30 calendar days to identify

a suspect

ing the background and possible purpose of

the transaction; or (4) involves use of the FCM or IB to facilitate criminal activity.6

SARs are required to be filed no later than 30 calendar days after the date the

suspicious activity is initially detected unless no suspect is identified. In this latter

event, the SAR filing can be delayed for an additional 30 calendar days to identify

a suspect. However, in no event can the SAR filing be delayed more than 60

calendar days after the initial detection of suspicious activity.

SARs are vital to law enforcement, intelligence agencies, regulatory

authorities, and FinCEN. They may be used to identify illegal activities, such as

money laundering or terrorist financing, to identify and trace funds and accounts

used to finance illicit activity, and to identify patterns and trends in a particular

industry. Accordingly, FCMs and IBs are reminded of their obligations to comply

with these requirements

3 OFAC sanctions regulations appear at 31 C.F.R. Chapter V.

4 31 CFR § 1026.320.

5 A FCM or IB may also file with FinCEN a report of any suspicious transaction that it believes is relevant to the

possible violation of any law or regulation even if reporting is not required by the regulation. DSIO encourages

FCMs and IBs to file SARs voluntarily even where it doubts that reporting is required.

6 31 CFR § 1026.320(a)(2).

1 C.F.R. Chapter V.

4 31 CFR § 1026.320.

5 A FCM or IB may also file with FinCEN a report of any suspicious transaction that it believes is relevant to the

possible violation of any law or regulation even if reporting is not required by the regulation. DSIO encourages

FCMs and IBs to file SARs voluntarily even where it doubts that reporting is required.

6 31 CFR § 1026.320(a)(2).

3

Office of Foreign Assets Control Requirements

FCMs, IBs and all other persons who are or are required to be registered

with the Commission have obligations to comply with the economic sanctions

programs outlined in OFAC’s regulations.7 OFAC is an office within the U.S.

Department of the Treasury that administers and enforces the sanctions programs.

The programs are primarily against countries and groups of individuals, such as

terrorists and money launderers.

Although each sanctions program is unique, they all generally prohibit U.S.

persons from engaging in transactions with individuals or entities located in

countries that are subject to a sanction program administered by OFAC. The

sanctions also may require U.S. persons to block (i.e., freeze) the property of: (1)

any person that is on OFAC’s list of Specially Designated Nationals and Blocked

Persons (SDN list); and (2) any entity that is 50 percent or more owned, directly or

indirectly, by such person.

Accordingly, FCMs, IBs and all other Commission registrants are reminded

of their obligations to regularly review the economic sanctions programs and SDN

list each time these are updated and screen all new customers, and current

customers periodically, to determine if the customer is located in one of the

sanctioned countries or is on the SDN list.

7 See supra note 3

ectly, by such person.

Accordingly, FCMs, IBs and all other Commission registrants are reminded

of their obligations to regularly review the economic sanctions programs and SDN

list each time these are updated and screen all new customers, and current

customers periodically, to determine if the customer is located in one of the

sanctioned countries or is on the SDN list.

7 See supra note 3. General information regarding OFAC sanctions, including advice on how to receive email

updates to sanctions programs, and a summary description of each particular sanctions program, can be found at

https://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx and

related pages.