NPB FINANCIAL GROUP, LLC

 

ANTI-MONEY LAUNDERING PROGRAM 

            BACKGROUND AND FIRM POLICY

             In light of the terrorist attacks on the United States on September 11, 2001, and the resultant USA PATRIOT Act that was passed into law later that same year, it is the policy of this firm to prohibit and actively prevent money laundering and any activity that facilitates money laundering, or the funding of terrorist or criminal activities.   

            Money laundering is loosely defined as the conversion of money obtained from illegitimate or illegal activities, that is placed into legitimate or legal activities.  For example, money derived from illegal gambling that is subsequently invested in stocks and bonds, would be considered money laundering.  Our government has determined that terrorist activities are often funded with money obtained from illegitimate means, and broker-dealers and investment advisors are being asked to be especially careful when dealing with unfamiliar customers and suspicious sources of money and securities. 

Designation of AML Compliance Officer 

The firm designates Neal E. Nakagiri as its AML Compliance Officer, with full responsibility for the firm’s AML program.  The AML Compliance Officer is qualified by experience, knowledge and education.  The duties will include monitoring the firm’s compliance with AML obligations, overseeing communication and education for associated persons, and preparing and maintaining proper AML records, including the appropriate filing of Suspicious Activity Reports (“SAR-SF’s”).  

The firm will provide relevant contact information about its AML Compliance Officer to the FINRA, including name, title, mailing address, e-mail address, phone and fax numbers.  Any changes will be promptly sent to the FINRA.   

FinCEN requests under Section 314 of the PATRIOT Act 

Pursuant to relevant Treasury Department regulations, we will respond to a Financial Crimes Enforcement Network (FinCEN) request about accounts or transactions by immediately searching our records, at our main office or any U.S. branch office, 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 FinCEN’s request.  Upon receiving such an information request, the AML Compliance Officer will designate one person to be the point of contact (which could be the AML Compliance Officer as well) to deal with the request and any follow-up requests.  Unless otherwise stated in FinCEN’s request, we are required to search current accounts, accounts maintained by a named suspect during the prior twelve (12) months, and transactions conducted by or on behalf of, or with, a named subject during the preceding six (6) months.  If we determine a match, we will report it to FinCEN by completing the subject information form.  This form can be submitted via e-mail to:

            Sys314a@fincen.treas.gov

Or via fax to:

            703-905-3660 

If our search is unable to discover any relevant information, we will not reply to the FinCEN request. 

We will not disclose the fact that FinCEN has requested or obtained information from us, except to the extent necessary to comply with the request.  We will maintain procedures to protect the security and confidentiality of FinCEN requests, in order to comply with Section 501 of the Gramm-Leach-Bliley Act. 

We will direct any questions that we have about the request to the requesting law enforcement agency as designated in the request.

 Unless otherwise stated in the information request, we will not treat the information request as a continuing request for information, and we will not treat the request as a list for customer identification and verification requirements.  We will not use information provided to FinCEN for any purpose other than:

1.      To report as required under Section 314 of the PATRIOT Act,

2.      To determine whether to establish or maintain an account or to engage in a transaction, or

3.      To assist the firm in complying with Section 314 of the PATRIOT Act. 

Sharing information with other Financial Institutions 

We will share information about those suspected of money laundering and terrorist financing with other financial institutions for the purposes of identifying and reporting activities that may involve money laundering or terrorist activities, and to determine whether to establish an account or engage in a transaction.  We will file an initial notice with FinCEN before any sharing occurs and annual notices afterwards.  We will use the notice form found at www.fincen.gov.  Before we share any information with others, 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 to our affiliates and so we will obtain the required notices from any affiliates and follow all required procedures. 

We will use strict procedures to ensure that only relevant information is shared, and to protect the security and confidentiality of the information, including appropriate segregation of the information from our other books and records. 

In addition to sharing information with other financial institutions, we will share information about suspicious activities with our clearing broker-dealer(s) for the purposes of determining whether one of us will file an SAR-SF.  In those cases where we file an SAR-SF for a transaction that has been handled by both our clearing BD and us, we may share a copy of the actual Form, unless it would be inappropriate to do so, such as where the Form concerns the clearing firm or its associated persons. 

            Checking the Office of Foreign Assets Control (“OFAC”) List 

Before opening a new account, we will check the most current OFAC list to ensure that no “blocked persons” can do business with us.  The automated list is available at www.treas.gov/ofac and www.nasdr.com/money.asp.  Blocked persons appearing on the list should not be allowed to open an account, nor conduct any transactions.  We will file a “Blocked Properties Reporting Form” with OFAC, and call the OFAC Hotline at 800-540-6322. 

            Customer Identification and Verification 

 We will collect certain customer identification information pursuant to our Customer Identification Program (“CIP”); utilize risk-based measures to verify the identity of each customer who opens an account; record customer identification information and the verification method and results; provide notice to customers that we will seek identification information; and, compare customer identification information with government-provided lists of suspected terrorists and money launderers. 

Prior to opening a new account, we will obtain the following information:

1.      Name

2.      Date of Birth

3.      Residential or business address

4.      Residential or business address for next of kin or another contact individual

5.      Taxpayer ID number (or other ID number for non-US persons)

If for some reason no taxpayer ID number is available, we will allow a customer to open an account if a taxpayer ID number has been applied for, and is subsequently provided within a reasonable time after the opening of the account. 

Foreign accounts must provide satisfactory evidence of identification, whether for individuals or entities. 

Customers who refuse to provide information 

If a customer refuses to provide identifying information, we will not open an account, or consider closing an existing account.  The AML Compliance Officer will be notified, and will determine whether an appropriate report should be filed with FinCEN. 

Verifying Information 

We will ensure that we have a reasonable basis to believe that we know the identity of our customers, by using risk-based procedures to verify their identities.  We will use both documentary and non-documentary evidence to verify customer identity.  Common examples of appropriate documents for individuals would be government issued ID’s, such as a driver’s license or passport.  Common examples of appropriate documents for entities, would be articles of incorporation, a business license, a partnership agreement or a trust instrument. 

Common examples of non-documentary evidence to show identity that we will use:

1.      Contacting a customer

2.      Independently verifying the customer’s identity through use of a consumer reporting agency, public database or other similar source

3.      Checking references with other financial institutions

4.      Obtaining a financial statement. 

We will use non-documentary methods when the customer is unable to present a proper ID document with a photograph, or when circumstances dictate. 

If we are unable to satisfactorily verify the identity of a customer, we will not open an account, or we will restrict the account until proper verification is done.  We may also close an account and file an appropriate report with the authorities. 

Recordkeeping and retention period 

We will maintain documentation of our verification procedures, including descriptions of any documents that were examined to verify the identity of a customer.  Such records will be maintained for at least five (5) years after the closing of any customer account. 

            On-going comparison with government provided lists of terrorists and other criminals 

From time to time, the government may issue updated lists of terrorists and other criminals.  We will determine whether a customer appears on such updated lists within a reasonable period of time, and we will follow any directives associated with such lists.  We will comply with OFAC rules prohibiting transactions with designated foreign countries and/or designated nationals. 

Notice to Customers 

We will provide notice to customers that we must verify their identities according to federal law.  We will use both oral and written notice when a customer first opens a new account.  The written notice will be: 

“Customer Identification Program Notice

Important information that you need to know about opening an account           

To help the government fight the funding of terrorism and money laundering activities, federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account.

This Notice answers some questions about our Customer Identification Program. 

What types of information will I need to provide? 

            When you open an account with us, we are required to collect the following information from you:

1.      Name

2.      Date of birth

3.      Address (residence or business)

4.      ID number

a.       US citizens—taxpayer ID number

b.      Non-US persons—passport number or other unique identifying document or number 

You may also be asked to show your driver’s license or other identifying documents. 

A corporation, partnership, trust or other legal entity may need to provide other information, such as a principal place of business, local office, employer ID number, articles of incorporation, business license, partnership agreement or a trust agreement. 

Other SEC and FINRA rules may require you to provide additional information, such as net worth, annual income, occupation, employment information, investment experience and risk tolerance. 

What happens if I don’t provide the information requested or my identity can’t be verified? 

            If you are unable to provide to us sufficient information that will allow us to verify your identity, we may not open an account or allow you to conduct business with us. 

We thank you for your understanding and hope that you will support our efforts to deny terrorists and money launderers access to our financial system.” 

Reliance on another financial institution for Identity verification 

We may rely on the performance by another financial institution of some or all of the elements of our CIP under the following circumstances:

1.      When such reliance is reasonable under the circumstances

2.      When the other financial institution is subject to a other anti-money laundering rules and is regulated by a federal functional regulator

3.      When the other financial institution has entered into a contract with us that requires it to certify to us at least annually, that it has implemented its AML program and that it will perform specified requirements of the CIP. 

Foreign correspondent accounts and foreign shell banks 

It is our policy not to do business with foreign correspondent accounts and foreign shell banks.  Any attempt to open such accounts must be reported to the AML Compliance Officer. 

Private banking accounts/foreign officials 

It is our policy not to conduct business with any private banking accounts for non-US persons or entities.  Any attempt to open such accounts must be reported to the AML Compliance Officer. 

            Monitoring accounts for suspicious activity 

We will monitor through the automated means from reports provided to us by Pershing, for unusual size, volume, pattern or type of transactions.  For transactions not processed through Pershing, we will manually monitor a sufficient amount of account activity to permit identification of patterns of unusual size, volume, pattern or type of transactions, geographic factors such as whether jurisdictions designated as “non-cooperative” are involved, or any of the “red flags” identified below. 

Emergency Notification to the government by telephone 

We will immediately contact federal law enforcement when we determine:

1.      An account holder, or a person with whom an account holder is engaged in a transaction, is listed on the OFAC list

2.      An account is owned or controlled by a person or entity listed on the OFAC list

3.      A customer tries to use bribery or coercion to open an account or carry out a suspicious activity

4.      We have reason to believe that a customer is trying to move illicit cash out of the government’s reach

5.      We have reason to believe that a customer is about to use the funds to further an act of terrorism. 

OFAC hotline:  800-540-6322.

Financial Institutions hotline:  866-556-3974 

Red Flags 

Red flags that may indicate possible money laundering or terrorist financing schemes:

1.      The customer exhibits unusual concern about compliance with government reporting requirements and our AML policies, or is reluctant to reveal information regarding business activities, or provides unusual or suspicious ID or business documents

2.      Customer transactions lack business sense or investment strategy, or are inconsistent with a stated business or investment strategy.

3.      Information provided by the customer that identifies a legitimate source of funds is false or incorrect.

4.      The customer refuses to identify a legitimate source of funds.

5.      The customer has a questionable background, or is the subject of news reports indicating possible civil, criminal or regulatory problems.

6.      The customer exhibits a lack of concern regarding risks, commissions or other costs.

7.      The customer appears to be acting for an undisclosed principal, and declines or is reluctant to provide information about that person or entity.

8.      The customer has difficulty describing the nature of his business or lacks general knowledge of his industry.

9.      The customer attempts to make frequent and/or large deposits of currency, deals only in cash, or seeks exemptions from the firm’s policies relating to the deposit of cash.

10.  The customer engages in transactions in cash or cash equivalents that appear to be structured to avoid the $10,000 government reporting requirements.

11.  The customer has multiple accounts under one name, or multiple names, for no apparent reason, with a large number of inter-account or third-party transfers.

12.  The customer is from, or has accounts with, a country identified as a non-cooperative country by the FATF.

13.  The customer’s account has unexplained or sudden extensive wire activity.

14.  The customer’s account shows numerous currency or cashiers checks transactions aggregating to significant sums. 

15.  The customer’s account has a large number of wire transfers to third parties inconsistent with legitimate business purposes.

16.  The customer’s account has wire transfers to or from a country identified as a money laundering or bank secrecy haven.

17.  The customer’s account has large or frequent wire transfers, which are immediately withdrawn by check or credit card without any apparent business purpose.

18.  The customer makes a funds deposit, followed by an immediate request to be wired out or transferred to a third party, without any apparent business purpose.

19.  The customer deposits funds, makes a long-term investment, but then liquidates the position and transfers the proceeds out of the account.

20.  The customer requests excessive journal entries between unrelated accounts without any apparent business reason.

21.  The customer requests a transaction that avoids the firm’s normal documentation requirements.

22.  The customer engages in transactions in penny stocks, Reg S stocks and bearer bonds for no apparent reason.

23.  The customer account shows a high level of activity, but very low levels of securities transactions.

24.  The customer maintains multiple accounts or maintains accounts for family members or corporate entities for no apparent reason.

25.  The customer account has inflows of funds or assets that are beyond the known income or resources of the customer. 

When any associated person of the firm discovers any red flag(s), the AML Compliance Officer will be notified about the situation for investigation and resolution. 

Suspicious transactions 

We will file Form SAR-SP’s as appropriate, when we believe the transaction involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from any illegal activity as part of a plan to violate or evade federal laws or regulations, or to avoid any transaction reporting requirements under federal laws or regulations. 

Our working guideline for such reporting will be $5,000. 

Any filed SAR-SP’s will be maintained, along with any supporting documents.  The Form SAR-SP should be filed within 30 calendar days of any suspected activity. 

All filings of SAR-SP’s will be reported to senior management, with a reminder that such filings are confidential. 

Currency transactions prohibited 

Our firm prohibits the receipt of currency as deposits or for payment of any transactions.  If a customer wants to deposit currency in his account, the customer will be directed to the nearest bank or similar institution, where the currency can be deposited and converted to an acceptable form of deposit, such as a cashier’s check, or other similar instrument.

Currency transaction reports 

As we prohibit the receipt of currency, no currency transaction reports will be filed. 

Foreign Bank and Financial Reports (“FBAR”) 

We will file with FinCEN an 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. 

Transfers of $3,000 or more under the Joint Travel Rule 

When we transfer $3,000 or more, we will record on the transmittal order, the following information:

            Name and address of transmitter and recipient

            Amount of the transmittal

            Identity of the recipient’s financial institution

            Account number of the recipient 

We will also attempt to verify the identity of transmitters and recipients who are not established customers of our firm. 

AML Recordkeeping 

We will hold SAR-SF’s and supporting documents as confidential.  Only law enforcement or securities regulators will be informed about SAR-SF’s.  We will refuse any subpoena requests for SAR-SF’s or related information, and immediately advise FinCEN of any such subpoenas that we receive.

We will share with our clearing broker information about any suspicious transactions in order to determine when a Form SAR-SF should be filed.  As indicated earlier, we will share a copy of the Form SAR-SF with the clearing broker, except if the filing concerns the clearing broker itself or its employees. 

Responsibility for AML records and SAR filings 

Our AML Compliance Officer is responsible for the proper maintenance of AML records and that Form SAR’s are filed as required. 

            Records maintained for five years 

Any SAR-SF’s, FBAR’s and other similar Forms and related documents, will be maintained for at least five years.  Other records may be kept at least six years under certain SEC rules. 

Clearing/Introducing Firm Relationships 

We will work closely with our clearing firm to detect money laundering.  We will exchange information and other data as necessary to comply with AML laws.  We will both file the necessary annual certifications for such information sharing, which can be found at http://www.fincen.gov/fi_infoappb.html.  As a general matter, we have agreed that our clearing firm will monitor customer activity on our behalf, and we will provide our clearing firm with proper customer identification information as required under the law.

We have allocated these functions pursuant to written agreements.  We understand that this allocation does not relieve either of us from our independent obligation to comply with AML laws, except as specifically allowed under the USA PATRIOT Act. 

Training and education programs 

We will develop continuing education for AML policies and procedures as part of our Firm Element CEP.  The AML Compliance Officer will be responsible for determining the scope and content of such continuing education on at least an annual basis.  The CE should include how to identify red flags and other indications of suspected money laundering, what to do with the information; our firm’s record retention policies and the consequences of failing to comply with the USA PATRIOT Act. 

Delivery of the education may include conferences, seminars, e-learning courses, and written materials.  Certain personnel may undergo more specialized training and education as appropriate. 

Program to test AML program 

An independent third party that will be determined will do the testing of our AML program on at least an annual basis.  The results of any such testing will be reported to senior management. 

Monitoring Employee conduct and accounts 

Employee accounts will be subject to similar AML procedures as customer accounts, and be subject to the review of the AML Compliance Officer.

Another member of senior management will review the AML Compliance Officer’s accounts. 

Employees will report any violations of our AML compliance program to the AML Compliance Officer, unless such violations involve the AML Compliance Officer—in which case the employee should report the problem to another member of senior management.  Such reports are confidential, and employees will not suffer retaliation for making them. 

Additional areas of risk 

We have reviewed all material aspects of our business to identify potential money laundering risks that may not be covered in the procedures described above.  We have determined that there are no major additional areas of risk that require any additional or special policies and procedures. 

(11-30-2007)