Funnel accounts continue to thrive as criminal organizations leverage the tactic to exploit the U.S. banking system and quickly move money across great distances at minimal cost — all while enabling anonymity for the depositors. Used as a method to launder money to exploit branch networks of financial institutions, funnel accounts are defined as “an individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals.”
Criminals are using funnel accounts to launder funds weaved throughout a host of devastating crimes — including human smuggling, human trafficking, and terrorism. In February 2024, the Department of the Treasury released the National Money Laundering Risk Assessment, highlighting numerous implications of funnel accounts and their use by criminal organizations to launder ill-gotten gains.
According to the report, funnel accounts are being used to:
- Exploit geographic structures where money mules deposit cash across several accounts in one area while another member of the organization withdraws the funds in a consolidation region.
- Transfer, or “funnel” cash to make rapid transactions and withdrawals after depositing criminal proceeds.
- Circumvent Currency Transaction Report (CTR) thresholds and other BSA obligations to facilitate money laundering.
- Facilitate Domestic Terrorist Organizations (DTOs) moving funds across international borders.
- Launder proceeds from the drug trade.
- Achieve widescale placement of illicit funds when used in tandem with front companies.
A Major Reputation & Compliance Risk
Harboring the proceeds of all manner of illicit activities and enabling money laundering, funnel accounts pose an enormous reputation and compliance risk for financial institutions. Financial institutions must identify and disrupt these accounts effectively and fulfill regulatory reporting obligations to avoid potentially massive regulatory fines and legal repercussions. An effective Financial Crime Management solution is essential to shut down these accounts at the earliest opportunity and prevent criminals from using your financial institution to move dirty money.
Effective Entity Analysis
Enhanced scrutiny of higher risk entities, as recommended in the Federal Financial Institutions Examination Council (FFIEC) examination manual, is fundamental for effective funnel account detection. A solution that considers profile information related to the individual who is receiving funds, including if they are a non-resident alien, or have a foreign address or identification on file, can help your institution establish appropriate levels of activity risk.
Consider Geography
In addition to an entity’s profile information, your Financial Crime Management solution should consider geographic factors such as the distance between deposit and withdrawal location and proximity to international borders to further assess the potential that the account is being used to funnel illicit funds.
Analyze for Structuring
A financial crime management solution that employs targeted analytics in a cloud environment can accurately identify structuring activities to alert you to customers who may be using funnel accounts to avoid CTR reporting requirements, identify one-time structured events for low-volume accounts, or determine if high-volume entities are under-filing using peer analysis.
Combat Human Trafficking
Human trafficking is a heinous crime — and funnel accounts allow criminals to benefit from commoditizing human beings for profit. Solutions that leverage big data intelligence to analyze and uncover key indicators that a customer is involved in human trafficking activity, either as a victim, perpetrator, or front for a larger criminal organization, can help turn the lives of victims into the lives of a survivor.
As financial crimes grow more sophisticated and regulatory requirements continue to evolve, it is increasingly challenging to detect and disrupt money laundering and associated illicit activities. With over 20 years’ experience fighting financial crime, Verafin can help you stay a step ahead by alerting you to potential funnel accounts and block the flow of illicit funds to DTOs, human traffickers, and drug smuggling organizations.
For more information on how Verafin can help, check out our Feature Sheet.
