FinCEN issued an advisory (the “Advisory”) to update financial institutions on the increased use of “funnel accounts” as part of trade-based money laundering (“TBML”) by criminals in the aftermath of the 2010 through 2012 restrictions on U.S. currency transactions in Mexico. FinCEN defined a funnel account 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that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals.”
In June 2010, Mexico issued regulations limiting deposits of U.S. cash in Mexican banks, and in 2011 and 2012 Mexico expanded those restrictions to cover deposits made at exchange houses (casas de cambio) and at brokerage firms (casas de bolsa). FinCEN states in the Advisory that law enforcement information and suspicious activity reports lead to the conclusion that, at this time, Mexico-related criminals: (1) continue to use funnel accounts to move the proceeds of criminal activities; and (2) are using funnel accounts to finance the purchase of goods as part of TBML activity.
The Advisory next describes four typical steps in criminal use of funnel accounts in conjunction with TBML:
- A U.S. or foreign business or individual, colluding with criminal actors, opens an account at a bank whose accounts can receive cash deposits at branches in multiple states.
- Multiple individuals (acting for a criminal organization) deposit the cash proceeds of, e.g., narcotics sales, into the account at different branches of the bank. The deposit at each branch is less than $10,000.
- After a number of deposits have been credited to the account, an intermediary initiates wire transfers (or issues checks) from the funnel account to a U.S. business for the purchase of goods that are then shipped overseas for sale.
- After the sale of these goods overseas, the sale proceeds are transferred to the criminal organization and are funds that have been laundered through TBML.
The Advisory next provides a description of various red flags for use for a funnel account in conjunction with TBML. FinCEN does not offer any bright line tests for compliance in the Advisory and cautions financial institutions that some red flags for funnel accounts and TBML “are, in appropriate circumstances, legitimate financial activities…” and, accordingly, when evaluating whether activities are suspicious, financial institutions need to consider all of the available facts and circumstances and review applicable FinCEN guidance. Moreover, FinCEN requests that financial institutions include the term “MX Restriction” in both the Narrative and Suspicious Activity Information sections of suspicious activity reports (“SARs”) when there is a possible connection between the suspicious activity being reported and the U.S. currency restrictions on Mexican financial institutions. Financial institutions should also include the terms “Funnel Account” and/or “TBML” in SARs where the suspicious activity involves such an account or scheme.
Finally, the Advisory provides a graph that illustrates the manner in which illicit proceeds, through funnel accounts may fuel the purchase of goods as part of a TBML scheme.