Customer Identification Program (CIP)

The Customer Identification Program (CIP) is required under the USA PATRIOT Act to prevent money laundering and terrorist financing. Every broker-dealer must have a CIP as part of their Anti-Money Laundering (AML) compliance program.

USA PATRIOT Act Background

The USA PATRIOT Act (2001) requires financial institutions to:

• Verify customer identity
• Maintain identification records
• Check customers against government terrorist lists
• Report suspicious activities

CIP Requirements

Four Required Pieces of Information

Before opening an account, firms must collect:

Key Point: All FOUR pieces of information are required. This is a fundamental CIP requirement frequently tested on the exam.

For U.S. Persons

• Social Security Number (SSN) or
• Taxpayer Identification Number (TIN)

For Non-U.S. Persons

• Passport number and country of issuance, OR
• Alien identification card number, OR
• Other government-issued ID with nationality

Identity Verification

Firms must verify customer identity through reasonable procedures:

Documentary Verification

Using documents to verify identity:

• Unexpired government-issued ID with photograph (driver's license, passport)
• For entities: Articles of incorporation, business license, partnership agreement

Non-Documentary Verification

When documents are unavailable:

• Contacting the customer
• Comparing information with databases
• Checking references
• Obtaining financial statements

Note: Firms can use documentary, non-documentary, or BOTH methods depending on their risk assessment.

OFAC Screening

Firms must check customers against government terrorist lists:

Office of Foreign Assets Control (OFAC)

Critical Distinction: OFAC violations require IMMEDIATE asset blocking. This is different from SAR filing, which does not require blocking.

Customer Notice

Firms must provide adequate notice that they will request information to verify identity:

Required Notice Must State:

• The firm is requesting information to verify identity
• What information will be required
• This is required by federal law

The notice can be provided orally, in writing, or posted in the firm's office.

Recordkeeping Requirements

What to Retain

CIP vs. KYC vs. AML

CIP is part of the broader AML program. KYC (Rule 2090) adds ongoing knowledge requirements beyond initial verification.

Section 352 AML Program Requirements

Every broker-dealer must have an AML program with:

1. Internal policies and procedures - Written AML policies
2. Compliance officer - Designated AML officer
3. Employee training - Ongoing AML training program
4. Independent audit - Testing of AML program

Exceptions and Special Circumstances

When CIP May Be Delayed

• Certain institutional accounts
• Employee benefit plans
• When another financial institution has verified identity

Red Flags Requiring Enhanced Due Diligence

• Customer provides false information
• Unable to verify identity through normal means
• Customer's behavior suggests money laundering
• High-risk jurisdictions

Key Exam Points

1. Four pieces of information - Name, DOB, Address, ID Number
2. SSN required for U.S. persons
3. Passport/government ID acceptable for non-U.S. persons
4. OFAC check required - SDN list, immediate blocking if match
5. Customer notice required - Can be oral, written, or posted
6. 5-year retention - Records kept 5 years after account closed
7. Part of AML program - CIP is a component of broader AML compliance