Tontine in AML/CFT

Solutions

Tontine in AML- Key Takeaways

A tontine is a financial agreement among people where they pool money together, and the final payout is awarded to the last person who survives.
Key risks linked with tontine include anonymity of contributors, cash-based contributions, and weak recordkeeping.
The common misuse typologies are rotation payouts, guise of community savings, and cross-border links.
Citadel365 helps in identifying and monitoring tontine-related risks through automation.

What Is a Tontine?

Tontine refers to a joint financial agreement among people in which they pool a certain amount of money, which is awarded entirely to the participant who survives to the end.

Tontines are considered high-risk for the AML/CFT framework, due to the following reasons:

Collective ownership: In a tontine, the funds are pooled together by multiple people, making it difficult to guess whose money is whose, and people can easily mix dirty money with legitimate money.
Informal governance: Tontines often operate in an informal setup without formal legal regulations, and due to weaker or no controls, it allows fraud in financing illegal funds.
Limited transparency: Tontines typically do not maintain any records of payouts, withdrawals, or contributions of funds, which makes it easy to hide or mix the illicit money.

Although tontines are a niche structure and known to a limited group of individuals, regulators and supervisors still consider them as a high-risk from a money laundering and terrorist financing perspective.

AML Risks Associated with Tontine Structures

The core AML risks linked with tontine structures are as follows:

The risks include anonymity of contributors, as it is often unclear who has invested which funds; tontines are cash-based contributions which enable people to mix illicit money, and weak recordkeeping, making detection difficult and hindering the tracing of the origin of funds.
Tontines can be misused for the money laundering placement and layering stages, as contributors often introduce the illicit funds into the pool, and by mixing them into legitimate funds, they layer them and obscure the origin of the illicit funds.
Tontines operate in informal financial systems and are often an unregulated form of investment activity, which increases the chances of money laundering and other financial crimes.

Common Misuse Typologies Involving Tontines

The common misuse typologies involving tontines include:

Tontines are often looked at as a community savings scheme, which makes people believe them to be a safe and trustworthy source of investment, but criminals can take advantage of this by adding illegal money as contributions.
In a tontine, the payouts are rotated among different members over time, which makes it difficult to know the beneficial ownership and source of funds.
Tontines operate across borders and in community-based setups, which enables the collection of funds informally instead of using banks, which leads to moving money without implementing AML checks, making it more attractive for money laundering.

Regulatory Expectations and Legal Treatment of Tontines

Regulatory and legal expectations for tontines are as follows:

Different jurisdictions have different ways of treating tontines based on their legal and financial framework. Many jurisdictions have restricted or prohibited tontines due to their vulnerabilities to money laundering and ethical concerns.
Regulators expect CDD, transaction monitoring, and reporting of suspicion by filing SAR/STR when tontines interact with regulated entities or financial institutions under AML/CFT obligations.
Regulators expect and require tontines, when involved with the formal financial system, to identify the customer, determine the beneficial ownership, and monitor the transactions to ensure traceability where required.

Monitoring Tontine-Related Risk with Citadel365

Citadel365 supports the identification and monitoring of risk associated with tontines when funds enter the regulatory system.

It enables Customer Onboarding workflows, which capture detailed customer profiles linked to pooled or collective investment activities (tontines).

Citadel365 enables transaction monitoring to detect suspicious activity and patterns such as unusual pooling (large irregular deposits), rotations (rotating funds among different members over time), or survivor-based payouts (final payouts to the last surviving members).

Citadel365 supports Case Management and maintains audit trails, ensuring proper documentation for regulatory investigations and decision-making.

Risk Mitigation and Control Considerations

A few risk mitigation and control considerations methods related to tontines include:

Implementation of enhanced due diligence for customers linked to the tontine activity helps in identifying high-risk customers and transactions to prevent ML/TF risks.
Enabling transaction monitoring to track tontine-related activity helps in verifying the source of funds and ensures continuous review of customer behaviour and transactions.
When tontine activities interact with regulated institutions, they should apply strong AML checks such as transaction monitoring, customer due diligence, and reporting of suspicious activities to reduce the exposure to money laundering and other financial crime.