FinCEN recently issued an advisory report on the increase of funnel accounts and Trade-Based Money Laundering (“TBML”) schemes originating from drug trafficking organizations in Mexico. A copy of the advisory can be found here. Typically, funnel account activity occurs when a representative of an illicit organization opens a bank account that is capable of receiving deposits in multiple states. Then, individuals deposit cash proceeds from illegal activities into this account from regions geographically distinct from the region in which the bank account was opened. These deposits are made in sums of money less than $10,000. Next, a money broker purchases goods with the money deposited and ships the goods to a partner business in a foreign state. The partner business then sells the goods and provides the illicit organization with the clean money. As a final step, the illicit organization exchanges U.S. dollar cash proceeds for Mexican pesos in Mexico.
In the advisory, FinCEN indicated a number of red flags that may suggest to financial institutions that a funnel account and TBML activities are occurring. Some red flags include:
- multiple cash deposits of sums less than $10,000;
- deposits from a different region from where the account was opened or where the business operates;
- individuals that make the deposits possessing little knowledge about the business itself, the account holder, or the source of the cash;
- deposits that are unrelated to the stated business activity of the account holder;
- check deposits that display more than one handwriting on the same check; and
- checks and wire transfers that are deposited into the U.S. correspondent of a Mexican bank.
Additionally, these accounts typically appear to be opened in the southwestern United States and other areas with large Mexican population concentrations such as Illinois and Florida.
FinCEN does not provide any bright line tests and suggests that banks use these red flags as guidelines rather than rules. Accordingly, financial institutions should examine their AML/KYC compliance procedures to ensure that they have instituted procedures that can detect this activity.