Funnel Accounts
Funnel Accounts – Key Highlights
- A funnel account is a bank account that is used to receive money in small cash deposits from multiple sources, which are quickly moved to another account.
- Criminals use these structured deposit accounts to engage in money laundering and terrorist financing activities.
- Financial institutions must keep a watch on cash funnelling or funnel account activity to combat financial crime.
- Citadel365 provides a centralised platform to ensure secure customer onboarding, monitor transactions and generate cases for investigation to identify distributed deposit schemes and mitigate funnel account risks.
What Are Funnel Accounts in an AML/CFT Context
Funnel accounts are bank accounts that are used to receive deposits from other accounts in different locations. These accounts are used by criminals to hide the origin of illicit proceeds with rapid transfers or withdrawals.
This technique exploits bank account networks to engage in money laundering, terrorist financing and other financial crimes. Funnel accounts are high risk and a known money laundering typology used to facilitate the placement of illicit funds into the financial system and then to layer them to hide the source and ownership.
How Funnel Accounts Enable Money Laundering
Funnel accounts are a money laundering technique in which criminals break up illicit cash into small amounts and deposit them into a single bank account from multiple locations. The consolidated amount is then moved quickly to another account, across borders to hide the transaction trail and reduce traceability of funds.
Funnel accounts are a temporary collection point, a form of money mule activity used to facilitate criminal networks to disguise the illicit origin of funds, to launder proceeds from human smuggling, drug trafficking, and fraud.
Red Flags and Suspicious Indicators of Funnel Account Activity
Key red flags that indicate suspicious funnel account activity are as follows:
- Multiple small cash deposits from different locations/geographies into a single bank account (smurfing networks).
- Frequent structured cash deposits just below reporting thresholds at ATMs or multiple branches.
- Funds quickly moved out of an account after deposits from multiple accounts were made.
- Transactions from locations or jurisdictions that don’t match the customer location or business operations.
Regulatory Expectations for Detecting Funnel Accounts
AML/CFT requirements for detecting funnel account activity involve implementing risk-based controls to combat financial crime. Regulators expect financial institutions to monitor deposit patterns and geographic inconsistencies to identify disguises of illicit cash in the legitimate financial system.
Financial institutions should identify structuring patterns, such as multiple cash deposits in small amounts below thresholds that often lack a legitimate business purpose. Furthermore, financial institutions must document customer records and behaviours, maintain audit trails, and escalate procedures for suspicious funnel accounts to prevent further layering and comply with reporting requirements.
Detecting Funnel Account Activity with Citadel365
Citadel365 provides a consolidated solution that integrates AML compliance processes to support the identification of funnel account risks. Its customer onboarding software automates workflows by capturing customer location, business activity and expected transaction behaviour to identify structuring patterns.
Further, the customer risk assessment software calculates risk scores and develops risk profiles, analysing captured information. Citadel365’s transaction monitoring software detects unusual patterns such as rapid fund movement, structuring, and dispersed deposits used to manage funnel account risks.
Moreover, its case management software streamlines investigation workflows by allowing users to manage, prioritise and resolve cases more quickly. Additionally, the comprehensive audit trails automatically capture compliance activities with proper time stamps to support regulatory review and STR/SAR reporting.
Strengthening Controls Against Funnel Account Risks
Financial institutions should strengthen their controls against funnel account risks by implementing effective AML controls, which include:
Customer Due Diligence: FIs must evaluate the geographic region where the customer operates and must set a baseline for normal activity by determining expected deposit behaviour.
Risk Assessment: Incorporate unusual transaction pattern risks and location into risk scoring to automatically change the risk scores and identify suspicious activity.
Ongoing Monitoring: Track transaction patterns, which include deposit locations, fund movement patterns and frequency, to detect suspicious activity.
Governance & Reporting: Maintain all records, including customer information, business policies, customer activity, and transaction monitoring logs in a centralised platform to support regulatory inspections and enforcement.
Funnel Accounts FAQs for AML Professionals
Funnel accounts are bank accounts used by money launderers to receive illicit funds from multiple accounts in different locations and quickly transfer or withdraw them to another account.
Funnel accounts are considered high risk because they are used to launder illicit cash from proceeds such as human trafficking or smuggling by aggregating multiple deposits into a single account, thereby bypassing reporting thresholds.
Red flags such as multiple deposit sources, inconsistency with business profile, frequent cash deposits, and deposits from multiple unexplained locations indicate funnel account activity.
Regulators expect financial institutions to adopt a risk-based approach and technology solutions to implement customer due diligence and monitor transactions to identify specific red flags that indicate funnel accounts.
Yes, technology such as Citadel365 improves the detection of funnel account schemes with automated onboarding, transaction monitoring, and risk assessment that ease the identification of funnel account red flags.