Funnel Accounts and Trade-Based Money Laundering

Typical steps of funnel account activity in conjunction with trade-based money laundering include:

(I) A U.S. or foreign business owner or other individual, colluding with representatives of a criminal organization, opens an account at banks or credit unions whose accounts can readily receive cash deposits in multiple states through their own branches or through shared branches.³

(II) Multiple individuals acting on behalf of representatives of the criminal organization deposit the cash proceeds of narcotics sales into this account at different bank or credit union branches, often in multiple states geographically distant from the branch in which the account was opened or domiciled. The deposits are kept below $10,000 in order for transactors to avoid identification and record keeping requirements.

(III) After a number of deposits have been credited to the account, an intermediary will initiate wire transfers (or issue checks) from the funnel account to a U.S. or foreign-based business for the purchase of goods that are then shipped to foreign countries for sale.

(IV) Once the purchased goods arrive at the destination country, they are sold and the sale proceeds, in the destination country’s currency, are transferred to the drug trafficking or money laundering organization to provide the criminal actors with funds that have been laundered through TBML.⁴

Funnel Accounts and Trade-Based Money Laundering Red Flags

A funnel account associated with TBML might manifest one or more of the following red flags:

• An account opened in one state (typically along the Southwest border) receivesmultiple cash deposits of less than $10,000 by unidentified persons at branches outside of the geographic region where the account is domiciled. The accounts receiving the outof- state deposits can be either individual or business accounts.
• In the case of a business account, the deposits take place in a different geographic region from where the business operates.⁶ For example, the account of a produce company operating locally in Southern California receives small cash deposits, below the currency reporting threshold, at bank branches in Chicago, Indianapolis, and Minneapolis.
• If questioned, the individuals opening or making deposits to funnel accounts may have no detailed knowledge about the stated business activity of the account, the account holder (in the case of a depositor), or the source of the cash. This is because criminal organizations sometimes pay individuals outside their organization, such as students, itinerant workers, or the un/under-employed to open or carry out funnel account transactions.
• In the case of a business account receiving out-of-state deposits, the debits do not appear to be related to the stated business activity of the account holder. For example, checks drawn on the account of a produce company are made payable to a leather goods business, or funds are wired from the produce company’s account to a textile manufacturer in China.⁷
• Checks issued from an account that receives out-of-state cash deposits appear to have different handwriting on the payee and amount lines than the signature line. This may indicate that (i) the checks, originally issued to the account holder, have been pre-signed but the payee and amount lines have been left blank, then (ii) the checks were handed over to a criminal organization, which then (iii) used the checks to pay U.S. or foreign parties by populating the payee and amount fields.
• Wire transfers or checks issued from a funnel account are deposited into, or cleared through, the U.S. correspondent account of a Mexican bank. In addition to exhibiting funnel account activity, in some cases, checks issued from the U.S. account name a Mexican bank as payee and the checks are either deposited into the Mexican bank’s U.S. correspondent account or are cleared through said correspondent account by cash letter.

FinCEN Guidance to U.S. Financial Institutions

Because some red flags of funnel accounts and TBML are, in appro priate circumstances, legitimate financial activities, financial institutions should ev aluate indicators of potential TBML activity in combination with other red flags and the expected transaction activity for the customer implicated before making determinations of suspiciousness. No one activity by itself is a clear indication of trade-based money laundering. Financial institutions are encouraged to use previous FinCEN advisories as a reference when ev aluating potential red flags; FinCEN has published advisories expanding on TBML,⁸ high intensity drug trafficking areas⁹ and theimpact of U.S. currency restrictions in Mexico.¹⁰

As a result of the U.S. currency restrictions in Mexico, illicit actors may utilize one or more different methodologies, including funnel accounts, TBML, or mov ement through other jurisdictions to repatriate illicit proceeds. Additionally, financial institutions should consider and manage the risk associated with receiving deposits from non -customers or unidentified parties. FinCEN continues to evaluate information on money laundering activities involving transnational criminal organizations operating in Mexico and the United States and will report, as appropriate, on emerging methods and schemes used to launder criminal proceeds.

If a financial institution knows, suspects, or has reason to sus pect that a transaction conducted or attempted by, at, or through the financial institution involv es funds derived from illegal activity, attempts to disguise funds derived from illegal activity, is designed to evade regulations promulgated under the Bank Secrecy Act, or lacks a business or apparent lawful purpose, the financial institution may be required to file a SAR.¹¹ While the transactional activity that U.S. financial institutions may experience as a re sult of the Mexican restrictions may not be indicative of criminal activity, U.S. financial institutions should consi der this activity in conjunction with other information, including transaction volumes and source(s) of funds, when determining whether to file a SAR.

Financial institutions should continue to be alert to the variety of methods that may be used to move funds linked to the laundering of criminal proceeds and to report that information as appropriate. FinCEN requests financial institutions to include “MX Restriction” in both the Narrative and the Suspicious Activity Information¹² sections of SARs to indicate a possible connection between the suspicious activity being reported and the enacted U.S. currency restrictions on Mexican financial institutions.

In addition, where the use of funnel accounts and or TBML is suspected in the laundering of criminal proceeds, including specific reference to the terms “Fu nnel Account” and or “TBML” in the Narrative and Suspicious Activity Information sections of SARs is also requested. Financial institutions may include in SARs any or all terms, “M X Restriction,” “Funnel Account” and or “TBML,” as applicable.