Rules and Regulations Brought About by the USA Patriot Act

By Steven M. Rice

The number of questions in the rules and regulations category on the Series 7 exam increased greatly when the USA Patriot Act was enacted. Due to the act, each firm must have and follow customer identification programs (CIPs) and anti-money laundering rules.

Practice questions

  1. An investor making several large cash deposits into her brokerage account may indicate that she is engaged in

    A. money laundering

    B. insider trading

    C. front-running

    D. a takeover

    Answer: A. money laundering

    Although the depositing of large amounts of cash in itself isn’t illegal, it may be a sign of the possibility of money laundering.

  2. All of the following are stages of money laundering EXCEPT

    A. placement

    B. intermediation

    C. layering

    D. integration

    Answer: B. intermediation

    The three stages of money laundering are placement, layering, and integration.

    • Placement is when illegally obtained money is placed into a financial institution.

    • Layering is an activity intended to disguise an illegal activity.

    • Integration is when illegal money is mixed with legal money.

  3. Suspicious activity of __________ or more must be reported to FinCEN through the filing of a SAR.

    A. $1,000

    B. $5,000

    C. $10,000

    D. $25,000

    Answer: B. $5,000

    Suspicious activity of $5,000 or more must be reported to FinCEN (U.S. Treasury Financial Crimes Network) through a SAR (suspicious activity report). Suspicious activity includes financial transactions that are illogical and serve no apparent purpose.