Physical certificates are documents that represent ownership of securities, such as stocks or bonds, that are issued by a company or a government. Physical certificates present a money laundering risk to broker-dealers for two reasons:

The trade information on a physical certificate can be easily altered, such as the name of the owner, the date of issuance, or the number of shares. This can facilitate the concealment or falsification of the origin, ownership, or value of the securities, and enable the laundering of illicit funds through the purchase or sale of the securities.

Physical certificates may be provided to nominees for deposit or settled in off-market transactions, such as private placements, bearer bonds, or direct transfers. This can bypass the normal reporting or recordkeeping requirements of the broker-dealer, and avoid the scrutiny or verification of the identity, source of funds, or beneficial ownership of the securities.

Two Reasons Physical Certificates Pose Money Laundering Risks to Broker …

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