ANTI-MONEY LAUNDERING PROGRAM MEMBER FINRA/SIPC. M Holdings Securities, Inc. Broker/Dealer Anti-Money Laundering Program Effective October 1, 2013

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1 M Holdings Securities, Inc. Broker/Dealer Anti-Money Laundering Program Effective October 1, 2013

2 Table of Contents Firm Policy and Procedures... 4 AML Compliance Officer Designation and Duties and Independent Audit... 5 Safe Harbor Protections... 6 OFAC Policy... 6 Customer Identification and Verification... 6 Principal Responsibilities... 6 Relevant Definitions... 7 Required Customer Identification Information... 8 Persons applying for a Taxpayer Identification Number... 8 Transferred Accounts... 8 Risk Based Identity Verification Procedures... 8 Documentary Method... 8 Non-Documentary Method... 9 Identity Verification - Record Retention Additional Risk-Based Verification Measures Lack of Verification and Customers Who Refuse to Provide Information Using Government Provided Lists of Terrorists and Other Criminals Other Resources Notice To Customers Additional Inquiries for Verification and Monitoring Purposes Business Contacts Monitoring Accounts For Suspicious Activity Emergency Notification to the Government by Telephone Red Flags Responding to Red Flags and Suspicious Activity Reporting Cash or Cash-Like Transactions Currency Monetary Instruments Transportation of Currency or Monetary Instruments across the U.S. border Training Programs Monitoring Associated Person Conduct and Accounts Confidential Reporting of AML Non-Compliance Joint and Travel Rules Other Recordkeeping Requirements Extensions of Credit of More Than $10, Transfers of Currency or Other Monetary Instruments, Funds, Checks, Investment Securities of $10,000 or More to Outside the United States... 20

3 Clearing/Introducing Firm Relationships Foreign Shell Banks Detection of Foreign Shell Bank Accounts Safe Harbor For Accounts with Foreign Banks Providing information on foreign bank accounts to law enforcement Closing foreign bank accounts at U.S. Government request Foreign Financial Institutions Detection of Foreign Financial Institution Accounts Special and Enhanced Due Diligence Foreign Bank and Financial Accounts Reports Private Banking Accounts Senior Foreign Political Figures Filing a Form SAR-SF SAR-SF Maintenance and Confidentiality FinCEN Requests Under Patriot Act Section Sharing Information With Other Financial Institutions Requests By Law Enforcement and FinCEN Senior Management Approval Attachment A... 30

4 Firm Policy and Procedures Title III of the USA PATRIOT Act (the Patriot Act ), referred to as the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, focuses on strengthening existing anti-money laundering provisions. The Patriot Act imposes certain obligations on broker/dealers through anti-money laundering provisions and amendments to the Bank Secrecy Act. It is the policy of the firm to prohibit and actively prevent money laundering and any activity facilitating money laundering or the funding of terrorist or criminal activities. Money laundering is generally defined as engaging in acts designed to conceal or disguise the true origins of criminally derived proceeds so the unlawful 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 the origin or intended use of the funds, which will later be used for criminal purposes. These procedures set out the requirements of M Holdings Securities Inc. ( M Securities, firm, or we ) when dealing with customer accounts and certain financial transactions. These procedures also define key elements of the M Securities Anti-Money Laundering Program ( AML Program ) and the legal and regulatory obligations to which all Associated Persons are subject. Under the Patriot Act, M Securities is required to establish and has established this AML Program, which includes, at a minimum: the development of internal policies, procedures, and controls reasonably expected to identify customers with whom M Securities deals, detect suspicious activity and assure compliance with U.S. anti-money laundering laws; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test programs. Throughout this AML Program document there are various prohibited activities mentioned. It is M Securities policy that if prohibited activities are detected a fact and circumstances approach will be used to review each specific situation in appropriately addressing a prohibited act. All Associated Persons both registered and non-registered must be familiar with the firm s anti-money laundering procedures and are expected to comply with them. Whenever the term Associated Persons is used in the AML Program, it will include all employees of M Securities and both registered and non-registered individuals who are involved in any way in M Securities broker/dealer and investment advisory business. Whenever the term Registered Representative is used in the AML Program, it will include all Registered Representatives and Investment Advisor Representatives. In addition to sanctions that M Securities may impose on employees who fail to comply with this AML Program, a violation of U.S. money laundering laws or regulations may be punishable by criminal and civil penalties. These penalties may be imposed on M Securities, its employees, and Associated Persons. Penalties for money laundering violations are severe and may include lengthy imprisonment, fines and forfeiture of assets. All records associated with the creation and those derived from the implementation of this program will be maintained for a minimum of six (6) years, starting from the date indicated in applicable regulations, if any. Page 4 of 30

5 AML Compliance Officer Designation and Duties and Independent Audit M Securities designates its AML Compliance Officer, as listed in Attachment A, with full responsibility for the firm s AML Program. The duties of the AML Compliance Officer will include monitoring the firm s compliance with AML obligations, overseeing communication and training for all Associated Persons both registered and non-registered. The AML Compliance Officer will also ensure proper AML records are maintained for the appropriate regulatory retention period. The AML Compliance Officer will designate one or more AML Compliance Specialists ( Compliance Specialists or Compliance Specialist ), as listed in Attachment A. The duties of the Compliance Specialist will be to carry out the directives of the AML Compliance Officer, as they relate to the policies and procedures detailed in the AML Program Document, including implementation and changes to the AML Program. When warranted, the AML Compliance Officer, in consultation with a Compliance Specialist will ensure Suspicious Activity Reports ( SAR-SFs ) are filed, as appropriate. The AML Compliance Officer will handle all subpoenas or other requests for SAR-SFs. The AML Compliance Officer will establish and implement procedures and special measures with respect to the U.S. Treasury s designations of types of accounts, jurisdictions, financial institutions, or classes of international transactions as being of primary money laundering concern. In his or her discretion, the AML Compliance Officer may consult with the M Securities Anti-Money Laundering Committee ( AML Committee ) for assistance in performing the duties and responsibilities assigned to that position. Any temporary or permanent delegation of such duties shall be made in a dated writing that will be retained for a minimum of six (6) years. The Compliance Specialists will conduct quarterly random testing of AML processes and report findings to the AML Compliance Officer, with any findings to be discussed with the AML Committee. The review will include but not be limited to: Records retention of customer ID and Equifax verification Receipt of AML Program Acknowledgement Form from new Associated Persons Compliance Officer follow-up on AML issues noted during branch audit process CIP data collection on Client Account Forms ( CAF ) Review of findings related to AML reports, including exception reports, used by M Securities Supervisory Principal review / approval as it relates to AML section of CAF AML Compliance Officer notification of red-flags Timely SAR-SF filing M Securities will provide FINRA with contact information for the AML Compliance Officer, including name, title, mailing address, address, telephone number and facsimile number. The firm will promptly notify FINRA of any change to this information. The firm will engage an independent audit of the adequacy of the firm s AML Program on at least an annual basis. The Committee will then consider the findings of the audit report, review the current AML Program to ensure its adequacy, and suggest changes, as necessary, to the AML Compliance Officer. All changes to the AML Program must be reviewed and approved in writing by the AML Compliance Officer and the M Securities President. The AML Compliance Officer will retain written evidence of such review and sign off. Documents related to the audit, copies of executed AML Program Documents, as well as documentation related to all actions taken with respect to AML review of customers or accounts, will be retained in the AML files under the direction of the AML Compliance Officer. Page 5 of 30

6 Safe Harbor Protections Federal law (31 U.S.C. 5318(g)(3)) provides complete protection from civil liability for all reports of suspicious transactions made to appropriate authorities, including supporting documentation, regardless of whether such reports are filed pursuant to that report s instructions or are filed on a voluntary basis. Specifically, the law provides that a financial institution, and its directors, officers, employees, and agents, that make a disclosure of any possible violation of law or regulation of the United States, including in connection with the preparation of SAR-SFs, shall not be liable to any person under any law or regulation of the United States, any constitution, law, or regulation of any State or political subdivision of any State, or under any contract or other legally enforceable agreement (including any arbitration agreement), for such disclosure or for any failure to provide notice of such disclosure to the person who is the subject of such disclosure or any person identified in the disclosure. OFAC Policy M Securities will not conduct business with any individual, entity, or vendor listed on the Office of Foreign Assets Control ( OFAC ) list as a Specially Designated National, Blocked Person, or Terrorist/Global Terrorist. In addition, the firm will not conduct business with individuals, entities, or vendors domiciled or conducting business from countries or regions restricted by OFAC, or any embargoed country or region. This list is posted at See below for specific OFAC procedures. Customer Identification and Verification Section 326 of the Patriot Act requires broker/dealers to implement reasonable procedures regarding the identity of the customer, which include: Verifying the identity of any person seeking to open an account, to the extent reasonable and practicable. Maintaining records of the information used to verify the person s identity. Determining whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to brokers or dealers by any government agency. Principal Responsibilities Registered Representatives To fully comply with anti-money laundering regulations, Registered Representatives of M Securities must: Prior to opening an account, verify the customer s identity using an un-expired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver s license or a passport if the customer is an individual. If the customer is not an individual the Representative should use documents evidencing the existence of the entity, such as: o Corporate Accounts: Articles of Incorporation (certified) or government issued business license o Partnership Accounts: Partnership Agreement o Trust Accounts: Trust Agreement o 401(k)/PSP Plans: Trust Document or Plan Document See the M Securities Document Requirement Checklists for more information about specific paperwork requirements to open an account with M Securities. Complete the appropriate M Securities client account form. Copies of photo identification used for verification purposes are not required to be maintained in the customer file because the Registered Representative must note the pertinent data on the appropriate M Securities client account form. Page 6 of 30

7 Copies of the documents obtained during the verification process, if the customer is not an individual, must be maintained with the customer file. OSJ Supervisory Principals Before approving any client account application, the Supervisory/Associate Principal must confirm the appropriate identity verification has been conducted by the Registered Representative and a copy of all documentation is included in the file. The Supervisory/Associate Principal must not approve the account until he or she is satisfied the documentation verifies the customer s identity. Relevant Definitions Account: A formal relationship with a broker/dealer established to effect transactions in securities, including, but not limited to, the purchase or sale of securities, securities loaned and borrowed activity, and the holding of securities or other assets for safekeeping or as collateral. There are two exclusions from the definition of account : (a) an account the broker/dealer acquires through an acquisition, merger, purchase of assets, or assumption of liabilities; and (b) an account opened for the purpose of participating in an employee benefit plan established under the Employee Retirement Income Security Act of 1974 ( ERISA ). Customer: (a) a person who opens a new account; and (b) an individual who opens a new account for an individual who lacks legal capacity or for an entity that is not a legal person. Under this definition, customer does not refer to persons who fill out account opening paperwork or who provide information necessary to set up an account, if such persons are not the account holder. Persons with trading authority are excluded from the definition of customer. However, M Securities reserves the right to take extra steps to verify the identity of those with trading authority by applying the same identification process outlined in these guidelines. The following additional entities are excluded from the definition of customer under Section 326 of the Patriot Act: A person who has an existing account with the broker/dealer, provided the broker/dealer has a reasonable belief it knows the true identity of the person. A financial institution regulated by a Federal functional regulator. Banks regulated by a state bank regulator. A department or agency of the United States, of any state, or of any political subdivision of any State. Any entity established under the laws of the United States, of any state, or of any political subdivision of any state, or under an interstate compact between two or more states, that exercises governmental authority on behalf of the United States or any such state or political subdivision. Any entity, other than a bank, whose common stock or analogous equity interests are listed on the New York Stock Exchange or the American Stock Exchange or whose common stock or analogous equity interests have been designated as a NASDAQ National Market Security listed on The NASDAQ Stock Market (except stock or interests listed under the separate NASDAQ Small-Cap Issues heading), provided that, for purposes of this provision, a person that is a financial institution, other than a bank, is an exempt person only to the extent of its domestic operations. U.S. Person: A United States citizen or a person other than an individual (such as a corporation, partnership, or trust) that is established or organized under the laws of a State or the United States. Non-U.S. Person: A person who is not a U.S. Person. Page 7 of 30

8 Required Customer Identification Information The minimum identifying information that must be obtained from each customer prior to opening an account is: A name; A date of birth, for an individual; An address, which will be: For an individual, a residential or business street address; For an individual who does not have a residential or business street address, an Army Post Office ( APO ) or Fleet Post Office ( FPO ) box number, or the residential or business street address of a next of kin or another contact individual; For a person other than an individual (such as a corporation, partnership, or trust), a principal place of business, local office, or other physical location. An identification number: For a U.S. person, a taxpayer identification number; Or, for a Non-U.S. person, one or more of the following: a taxpayer identification number; a passport number and country of issuance; an alien identification card number; or the number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard. M Securities will maintain this minimum customer identification information for six (6) years after the account is closed. Persons applying for a Taxpayer Identification Number M Securities will allow an account to be opened for a customer (both individual and/or business) who has applied for, but has not received, a taxpayer identification number, provided the customer can provide written documentation evidencing that a taxpayer identification number was applied for prior to opening an account with M Securities. If a customer is unable to provide proper written evidence of application for a taxpayer identification number, the account will not be opened until such taxpayer identification number has been received and proper identity verification has been provided. Transferred Accounts M Securities is required to identify and verify the identity of any customer account transferring to our broker/dealer if initiated by the customer (Examples: Automated Customer Account Transfer ( ACAT ), and change of broker/dealer at a fund company or insurance carrier. For accounts acquired through an acquisition, merger, purchase of assets, or assumption of liabilities and thus excluded from Customer Identification and Verification requirements (Example: Negative Consent Block Transfers), M Securities may, based on specified risk factors, conduct Customer Identification and Verification irrespective of the fact that such account transfer was not customer initiated. Such risk factors may include, but are not limited to: (i) transferred account holders who are Non-U.S. persons or (ii) the former broker/dealer is unable to provide evidence of prior Customer Identification and Verification due diligence. In all cases, M Securities will use Equifax, a non-documentary method of customer identification, as described in the Non-Documentary section of the Program. Risk Based Identity Verification Procedures M Securities will verify the identity of each customer within ten business days after M Securities is notified of the account (unless an extension is approved by the AML Compliance Officer) to ensure we have a reasonable belief we know the true identity of our customers. Identity will be verified using documentary or non-documentary methods, or both. The level of verification will be based on the customer s potential risk factors, as determined by the AML Compliance Officer. In verifying customer identity, we will analyze any logical inconsistencies in the information we obtain. We will document a description of the methods and results of the verification process as discussed below. Documentary Method All Registered Representatives must verify the identity of their customers by reviewing documentary methods, as outlined below: For an individual, an un-expired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver s license or passport; and Page 8 of 30

9 For a person other than an individual documents showing the existence of the entity, such as, o Corporate Accounts: Articles of Incorporation (certified) or government issued business license o Partnership Accounts: Partnership Agreement o Trust Accounts: Trust Agreement o 401(k)/PSP Plans: Trust Document or Plan Document The Registered Representative must retain a copy of the documentary evidence used to conduct identity verification, with the exception of U. S. or state government issued photo ID. Documenting the review of photo ID, by noting the pertinent information (including identification number, issuing government, place of issuance, and the dates of issuance and expiration) on the client account form or customer file, satisfies the retention requirements under these procedures. Retaining a copy of the U.S. or state government-issued photo ID for the customer file is encouraged. M Securities will retain this information for six (6) years after the records of the information are made. Non-Documentary Method In addition to the documentary method used by the Registered Representative, M Securities uses non-documentary methods of customer identification by utilizing a third party vendor, Equifax, for all accounts. For all persons other than an individual, we may utilize an Equifax review of identity for the authorized individual or trustee(s) of an account if we are unable to verify the identity of the account through documentary methods. OFAC Alert, through Equifax, automates the U.S. Department of Treasury s Office of Foreign Assets Control ( OFAC ) screening process required of financial institutions. OFAC Alert compares new or existing account information to Compliance Data Center s ( CDC ) comprehensive database of Specially Designated Nationals ( SDNs ) and Blocked Persons. Verification of customer identity through the use of non-documentary evidence is mandatory in the following situations: (1) when the customer does not, or is unable to, present an un-expired identification card with a photograph or other safeguard; (2) when the documents the customer presents for identification verification are unfamiliar to the firm; (3) when the customer and firm do not have face-to-face contact; and (4) when there are other circumstances increasing the risk the firm will be unable to verify the true identity of the customer through documentary means. Under these circumstances, M Securities considers any of the following to be acceptable forms of non-documentary methods of identity verification: Compare information obtained from the customer against databases, such as Equifax and other in-house or customer databases. Contact the customer after the account has been opened (although we will not rely solely on customer contact as a means for verification). Obtain financial statements from the customer. Compare information obtained from customer with information available from a trusted third-party source (such as a credit report). Check references with other financial institutions. Any other non-documentary means deemed appropriate. M Securities will perform Equifax OFAC Alert verification for all accounts, but reserves the option to use additional nondocumentary methods of identity verification, if appropriate. M Securities will conduct non-documentary identity verification no later than ten (10) business business days after the account has been established in its customer/commission database. However, we recognize there may be situations where identity needs to be confirmed earlier than ten (10) business days. All Associated Persons of M Securities must reasonably believe they know the identity of the customers they are working with, both new and existing. If an Associated Person has any indication, prior to establishing or processing a transaction for the customer and prior to M Securities conducting the Equifax identity verification, that there is a concern about the true identity of a customer, a Compliance Specialist at M Securities should be contacted immediately in order to check the customer s identity with Equifax OFAC Alert. If an Associated Person has such a concern, no new account should be established or transaction processed until the identity of the customer has been appropriately verified through the various methods described for documentary and/or non-documentary verification. Page 9 of 30

10 Identity Verification - Record Retention We will retain the following for six (6) years after the information has been obtained: A description of any document used for verification purposes, including (if available) any identification number on the document, the issuing government and place of issuance, and the dates of issuance and expiration; A description of the methods and results of any non-documentary verification efforts; and A description of the resolution of any substantive discrepancies uncovered during the verification process. Additional Risk-Based Verification Measures The following additional information is required for the following account types based on M Securities risk assessment of the account types: Non-U.S. Person Accounts (Individuals): M Securities will require identity verification through documentary methods, along with non-documentary methods, if appropriate. We may inquire more fully depending on a number of factors, such as the country of origin of the account holder or persons authorized to trade. We will not conduct business with any individuals or entities subject to or domiciled or conducting business from countries or regions subject to OFAC restrictions, or any country or region embargoed by the U.S. Domestic Operating or Commercial Entities: M Securities will collect information sufficient to determine the corporate or business entity s identity, and the authority of its business representative to act on its behalf using documentary methods required by these procedures. If a corporate or business entity is generally considered in a higher risk industry for money laundering, as identified in the following list, M Securities will conduct a facts and circumstances review of the account to determine the anticipated products to be purchased by the entity. Additionally, the nature and volume of activity anticipated for the account will be reviewed to determine if the activity is generally consistent with information provided regarding the purpose and expected account activity and to identify any suspicious transactions. Accountants Amusement Parks Art Dealers Attorneys Automatic teller machine merchant wholesalers Auctions Automobile Clubs with Traveler s checks services Beauty/Styling Salons Bingo/Gambling Facilities Card Clubs Casinos Charity, foundations Charter transport on boats, buses or airplanes Credit Repair services Check Cashing Businesses Convenience stores and delis Discotheques Doctors Embassies and other foreign missions Flower importers Foreign banks (since we don t allow) Foreign money exchangers Gas stations Hotels/motels Investment Advisors Jewelry Stores Leather Importers Liquor Stores Mail order houses Money Exchanges Mortgage and non-mortgage loan brokers Off track betting agencies Pager and mobile phone stores Parking lots and parking garages Pawn shops Pharmacies and drug stores, beauty supply stores Precious metal and stones merchant wholesalers Real Estate companies/brokers Restaurants/ Bars Sales and exchange of money orders and/or traveler s checks Sales and purchases of motor vehicles Stock Brokers, securities dealers Taxi and limousine companies and services Telegraph companies Title study companies Tobacco stores Vending machine operators Video Sales/Rentals Wire transfer of funds businesses Page 10 of 30

11 Domestic Trusts: M Securities will identify the trustee, the activity the trust authorizes, and the authority of the trust s representatives to act on its behalf. This will be done through a copy of the trust document or a trustee certification accompanied by copies of the following pages from the Trust Document: title page(s) containing the name and date of the Trust, the Trustor(s) and the Trustee(s); pages setting forth Trustees investment powers; and signature page(s). Non-U.S. Entities: Accounts with foreign entities are prohibited. The AML Compliance Officer may approve (in writing with a description of the reason for the exception) a non-financial institution foreign entity account to be opened or maintained after the appropriate level of due diligence has been performed. By using documentary methods, M Securities will identify the account holder and other persons or entities authorized to trade for the account and will conduct separate identification and verification procedures on these individuals. We will consider the entity s licensing jurisdiction and operating jurisdiction and other factors to determine what additional identifying information is necessary and available. In determining whether it is necessary to identify the investors, shareholders, partners, and beneficiaries of non-u.s. entities, we will consider the regulatory regime of the institution by its licensing jurisdiction and operating jurisdiction. Institutional Accounts and Other Intermediary Relationships: While our AML procedures cover institutional customers, M Securities recognizes certain types of institutional accounts are different from retail accounts. Institutional accounts often are opened for financially sophisticated customers who trade frequently, in volume, and usually through an intermediary, some of whose AML policies and procedures are sufficient and verifiable. When dealing with an institutional customer, we will consider whether it has an AML Program and the quality of that program, the length and nature of our experience with the institution, and the history of the institution. If AML compliance will be based on the policy and procedures of the intermediary, we will require a contract between M Securities and the intermediary to certify the intermediary has an established AML Program in place and is fully compliant with AML regulatory requirements. High Risk and Non-Cooperative Jurisdictions: M Securities has a policy not to conduct business with customers in high risk and non-cooperative jurisdictions. These jurisdictions include those (a) determined by the U.S. Government to be a primary money laundering risk; (b) deemed to be non-cooperative by Financial Action Task Force; (c) are subject to a FinCEN advisory; and (d) characterized as an offshore banking or secrecy haven. Senior Foreign Political Figures: M Securities will conduct heightened scrutiny of accounts requested or maintained by, or on behalf of, senior foreign political figures to detect and report transactions that involve the proceeds of foreign corruption. The term senior foreign political figures is defined and the appropriate levels of due diligence described herein. An account for a Senior Foreign Political Figure requires pre-approval by the AML Committee (in writing with a description of the rationale). At least annually, the AML Compliance Officer will conduct a review of transactions for any accounts suspected or known to belong to or benefit a Senior Foreign Political Figure. Accounts that are reviewed will be determined from the information provided on the client account form used to open the account with M Securities. Providers will be contacted for transaction data to be reviewed by the AML Compliance Officer, as necessary. Prohibited Accounts: In accordance with current regulation and the likelihood that certain account structures may encourage money laundering, unless otherwise permitted by this AML Program, the firm prohibits the following account types: Fictitious accounts in a name other than that of the true legal owner (nominee accounts). Limited exceptions may be made in the case of celebrities or other customers with a legitimate security requirement, but the AML Compliance Officer must grant such exceptions in writing and the firm will retain confidential records of beneficial ownership; Accounts where the legal owner cannot be determined; Private banking accounts for a senior foreign political figure ; Correspondent accounts with unregulated, foreign shell banks ; Accounts for foreign entities; Individuals or entities subject to or domiciled or conducting business from countries or regions subject to OFAC restrictions, or any country or region embargoed by the U.S. Page 11 of 30

12 Lack of Verification and Customers Who Refuse to Provide Information 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 restrict the types of transactions or dollar amount of transactions pending verification. If M Securities cannot form a reasonable belief that it knows the true identity of a customer, M Securities will not open, or will suspend or close, an account for that customer. If a potential or existing customer either refuses to provide the information described above when requested, appears to have intentionally provided false or misleading information or provided such information fraudulently, the AML Compliance Officer must be notified and the account will not be opened and, if for an existing customer, may be closed or suspended, at the discretion of the AML Compliance Officer, until such time as the Customer Identification Program ( CIP ) requirements are satisfied. In either case, the AML Compliance Officer will determine whether the situation should be reported to FinCEN. Using Government Provided Lists of Terrorists and Other Criminals M Securities requires the identity verification of any person seeking to open an account, to the extent reasonable and practicable, including the determination of whether a person appears on any lists of known or suspected terrorists or terrorist organizations provided to brokers or dealers by any government agency and designated as such by the U.S. Treasury in consultation with the SEC. M Securities also requires the determination of any person seeking to open an account that such person is not from, or engaging in transactions with people or entities from, embargoed countries and regions listed on the OFAC Web Site at The U.S. Treasury s Office of Foreign Assets Control List ( OFAC List ) of Specially Designated Nationals and Blocked Persons is provided to all Associated Persons of M Securities as a resource that should be utilized in conjunction with identity verification procedures through a link from the M Securities website. The OFAC List may be found at and is also available through an automated search tool at M Securities may access these lists through various software programs to ensure speed and accuracy. On an ongoing basis, M Securities will review our existing customer list against the OFAC List as specific changes are made by the U.S. Treasury. M Securities will receive OFAC List changes by from the U.S. Treasury, with copies of the s sent to the Operations department in charge of processing and the designated Compliance Specialist(s). Evidence of review showing who conducted the review, the date of the review, and any matching records will be maintained in the Operations department. Matching records will also be researched and retained according to these written procedures. Any changes to the frequency of reviews or current process will be proposed by the AML Committee the AML Compliance Officer and, subject to the required approvals, a revised AML Program will be implemented and written procedures updated to reflect such changes. In the event that we determine a customer, or someone with or for whom the customer is transacting, is on the OFAC List, or is from or engaging in transactions with a person or entity located in an embargoed country or region, we will reject the transaction and/or block the customer's assets and file an Office Of Foreign Assets Control Report of Blocked Transactions Form and/or Office Of Foreign Assets Control Report of Rejected Transactions Form with OFAC. We will also call the OFAC Hotline at Other Resources SDN List- The OFAC Web site contains checklists and information for securities firms to follow in checking the OFAC list. You can subscribe to receive updates at FINRA provides a search engine to automate OFAC list searches at Reporting Rejected and Blocked Transactions and Blocked Property to OFAC-- Foreign Terrorist Organizations (FTO s) Page 12 of 30

13 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. We will use the following methods as ways of providing notification to customers prior to opening an account: Registered Representative Responsibility: Verbal notification by the Registered Representative at the time the customer is signing the M Securities required documentation to establish an account. M Securities signage displayed in the lobby of all M Securities branch offices will provide disclosure of identity verification performed on all customers and the request of appropriate information in order to complete the verification process. M Securities client account documentation provides written disclosure to customers as they are reviewing and completing all required documents to establish an account. This documentation should be completed prior to opening an account and transacting business with a customer. M Securities Portland Office Responsibility: M Securities will provide an Anti-Money Laundering Disclosure to customers explaining our identity verification policy on its client account forms. Additional Inquiries for Verification and Monitoring Purposes We will require the following additional information when we open an account: Registered Representative Responsibility: Inquire about the source of the customer s assets and income so we can determine if the inflow and outflow of money and securities is consistent with the customer s financial status, as outlined in the M Securities documentation required to open an account. Gain an understanding of what a customer s likely trading patterns will be, so deviations from the patterns can be detected in the future. M Securities requires all registered individuals to know their customers to the extent required to assist in the detection of activity that is not consistent with the patterns and objectives of the customer s investment goals. OSJ Supervisory Principal Responsibility: Before approving any client account the Supervisory Principal/Associate Principal must confirm that the source of income and pertinent AML questions on the client account form have been completed. M Securities reserves the right, if we are unable to make a reasonable verification of identity, to not allow an account to be opened. In addition, we reserve the right to take steps to close an existing account if we do not have a reasonable comfort level of identity verification for the customer s account. Any determination to not allow an account to be opened, or to close an existing account, will be referred to the AML Compliance Officer, who may consult with the AML Committee prior to making a final decision. Business Contacts A Business Contact is an entity which has a contractual obligation to pay fees to M Securities for services rendered, such as an Insurance Carrier. M Securities will maintain copies of each such contract for six (6) years after the business relationship is terminated. Prior to establishing a new Business Contact, M Securities will check the Business Contact name against the U.S. Treasury s OFAC List of Specially Designated Nationals and Blocked Persons. The OFAC List may be found at and is also available through an automated search tool on M Securities may access these lists through various software programs to ensure speed and accuracy. Periodically, M Securities will review its existing Business Contact list against Page 13 of 30

14 the OFAC List when specific changes are made by the U.S. Treasury. The AML Compliance Officer will receive OFAC List changes by from the U.S. Treasury. The AML Compliance Officer will maintain written evidence showing who conducted the review, the date of the review and any matching records. Matching records will also be researched and retained according to these written procedures. The AML Committee, during the periodic review of this AML Program, will consider whether a more frequent review of the OFAC List against the existing Business Contact list is necessary. If so, changes to the process will be proposed to the AML Compliance Officer and, subject to required approvals, a revised AML Program will be implemented and written procedures updated to reflect such changes. In the event that we determine a Business Contact is on the OFAC List, we will refuse to establish a new relationship or accept fees from an existing Business Contact, and file an Office Of Foreign Assets Control Report of Blocked Transactions Form and/or Office of Foreign Assets Control Report of Rejected Transactions Form with OFAC within ten (10) days. We will also call the OFAC Hotline at Monitoring Accounts For Suspicious Activity A key obligation under the Act is the affirmative duty of broker/dealers to formally report suspicious accounts or activity. The AML Compliance Officer will create and file all required suspicious activity reports ( SARs ) with the Financial Crimes Enforcement Network ( FinCEN ), and may request assistance from the Compliance Specialists in preparing these reports. We will periodically 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 herein. We will look at transactions, including trading and wire transfers, in the context of other account activity to determine if a transaction lacks financial sense or is suspicious because it is an unusual transaction or strategy for the customer. The AML Compliance Officer will also determine, for accounts that involve greater risk, what additional monitoring may be necessary. The AML Compliance Officer, who may consult with the Compliance Specialists, Vice President, Operations, and the Vice President, Business Development, will be responsible for this monitoring, will document when and how it is carried out, and will report suspicious activities to the appropriate authorities. Among the information we will use to determine whether to file a Form SAR-SF are trading reports that include transaction size, location, type, number, and nature of the activity. The AML Compliance Officer will conduct an appropriate investigation before a SAR is filed, and may delegate some or all of the investigation to a Compliance Specialist. Higher risk accounts, such as those of foreign entities and senior foreign political officials, will be reviewed, as needed, to verify that the nature and the volume of activity is generally consistent with information regarding the purpose and expected account activity, and to identify any suspicious transactions. Emergency Notification to the Government by Telephone When conducting due diligence or opening an account, we will immediately call Federal law enforcement when necessary, and especially in these emergencies: a Vendor is listed on or located in a country or region listed on the OFAC List, a legal or named beneficial account holder is listed on or located in a country or region listed on the OFAC List, a customer tries to use bribery, coercion, or similar means to open an account or carry out a suspicious activity, we have reason to believe the customer is trying to move illicit cash out of the government s reach, or we have reason to believe the customer is about to use the funds to further an act of terrorism. The AML Compliance Officer will first call: OFAC Hotline The other contact numbers that may be used are: Financial Institutions Hotline Page 14 of 30

15 Local U.S. Attorney s Office Local FBI Office Local SEC Los Angeles Office Red Flags Any of the following may be an indication of suspicious activity that suggests money laundering. Anyone associated with M Securities (Registered Representatives, OSJ Supervisory Principals, non-registered Associated Persons, and employees of M Securities) should immediately stop processing any new account or transaction and contact the AML Compliance Officer should any of the following appear. The customer exhibits unusual concern regarding: Compliance with government reporting requirements and M Securities AML policies particularly with respect to his or her identity, type of business and assets. The customer; Is reluctant or refuses to provide complete information about the nature and purpose of business, anticipated account activity, officers and directors, or business location. The customer furnishes unusual or suspicious identification documents that cannot be readily verified.. The customer wishes to engage in transactions: Lacking business sense or apparent investment strategy. Are inconsistent with the customer s stated business strategy. With no concern for investment objective of performance. The customer refuses to identify or fails to indicate a legitimate source of funds or information is false, misleading, or substantially incorrect. The customer (or a person publicly associated with the customer) has a questionable background or differs from expectations based on business activity or the customer is the subject of news reports indicating possible criminal, civil, or regulatory violations. The customer exhibits a lack of concern regarding risks, commissions, or other transaction costs. The customer appears to be acting as an agent for an undisclosed principal, but declines or is reluctant, without legitimate commercial reasons, to provide information or is otherwise evasive regarding the person or entity. The customer has difficulty describing the nature of his or her business or lacks general knowledge of his or her industry. The customer attempts to make frequent or large deposits of currency, insists on dealing only in cash equivalents, or asks for exemptions from the firm s policies relating to the deposit of cash and cash equivalents. The customer engages in transactions involving cash or cash equivalents or other monetary instruments that appear to be structured to avoid the $10,000 government reporting requirements, especially if the cash or monetary instruments are in an amount just below reporting or recording thresholds. For no apparent reason, the customer has multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers. The customer is from, or has accounts in, a country identified as a non-cooperative country or territory by the Financial Action Task Force ( FATF ). The list of these countries can be found at under the Other OFAC Sanctions Programs link. Page 15 of 30

16 The customer s account has unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity. The customer s account shows numerous currency or cashier s check transactions aggregating to significant sums. The customer s account has wire transfers that have no apparent business purpose to or from a country identified as a money laundering risk or a bank secrecy haven. The list of these countries can be found at under the Other OFAC Sanctions Programs link. The customer s account indicates large or frequent wire transfers, immediately withdrawn by check or debit card without any apparent business purpose. The customer makes a funds deposit followed by an immediate request that the money be wired out or transferred to a third party, or to another firm, without any apparent business purpose. The customer makes a funds deposit for the purpose of purchasing a long-term investment followed shortly thereafter by a request to liquidate the position and transfer of the proceeds out of the account. The customer engages in excessive journal entries between unrelated accounts without any apparent business purpose. The customer requests that a transaction be processed in such a manner to avoid the firm s normal documentation requirements. The customer, for no apparent reason or in conjunction with other red flags, engages in transactions involving certain types of securities, such as penny stocks, Regulation S ( Reg S ) stocks, and bearer bonds, which although legitimate, have been used in connection with fraudulent schemes and money laundering activity. The customer s account shows an unexplained high level of account activity with very low levels of securities transactions. The customer maintains multiple accounts, or maintains accounts in the names of family members or corporate entities, for no apparent business purpose or other purpose. The customer s account has inflows of funds or other assets well beyond the known income or resources of the customer. The customer funds an insurance policy or annuity but cancels within the free look period which, although could be legitimate, may signal a method of laundering funds if accompanied with other suspicious activity. Responding to Red Flags and Suspicious Activity If you encounter a red flag, you must: Immediately cease processing the transaction, whether it is for a new account or an existing one. Advise the AML Compliance Officer regarding the suspicious activity. Refrain from discussing the matter with anyone other than the AML Compliance Officer or another member of the AML Committee, including the customer. The AML Compliance Officer will review the suspicious account/activity and will advise the Associated Person when, and if, the transaction can be processed. Until receiving written approval from the AML Compliance Officer to process the transaction, no further action may be taken regarding the activity. Page 16 of 30