Funnel Accounts – Key Highlights
A funnel account is a bank account that serves as a temporary collection point to receive multiple deposits from various locations. Funnel or conduit accounts are used by money launderers to obscure the origin of dirty money from illicit activities and convert it into usable funds.
Criminals deposit cash or electronic transfers into a common bank account, generally below the thresholds. These funds are quickly transferred to another account, maybe across borders, a practice to hide the transaction trail.
Further, criminals use funnel accounts to layer illicit funds by exploiting the gaps in international oversight or by using multiple bank branches to deposit and transfer funds. FATF guides countries to apply a risk-based approach and expects regulated entities to strengthen their customer due diligence practices to combat ML/FT risks.
Criminals use various methods to obscure the origin through transaction funnelling or layering accounts:
Criminals exploit the above techniques to facilitate human trafficking, fraud rings, smurfing networks, and human smuggling.
Regulated entities must be watchful of the following red flags and risk indicators:
Banks and MSBs are widely exposed to ML/FT risks as criminals often target them by opening accounts to facilitate the widespread transfer of illicit funds. Further, they exploit the vulnerabilities of DNFBPs and VASPs’ services for layering and rapid movement of funds across different jurisdictions and platforms. Regulated entities must understand and implement adequate measures to combat financial crimes.
Non-compliance with AML/CFT laws leads to heavy regulatory penalties, severe reputational damage, increased operational costs, and assistance to ML/FT crimes. Moreover, the small transaction values and complex patterns criminals use through funnel accounts again result in false positives, missed illicit activities and slower investigations. This further results in operational strain to monitoring and investigative teams.
Regulated entities to conquer funnel account risks must conduct enterprise-wide risk assessment and train staff across all locations and channels on current ML/TF typologies to prevent fraud and reduce penalties. Further, they must perform KYC/CDD procedures, ensuring screening, monitoring, and suspicious activity reporting to comply with AML/CFT regulations.
RapidAML anti-money laundering software, with advanced rules and algorithms, examines bank accounts with small and frequent deposits from multiple individuals and locations. The effective transaction monitoring software identifies the unusual patterns of funds consolidation and their rapid transfers to other accounts.
The software also assesses risk and assigns a risk score to customer activity to implement mitigation strategies and AML controls. Additionally, RapidAML monitors every transaction across different platforms for customers to analyse their transaction behaviour and report suspicious transactions for AML/CFT compliance.
Money mule accounts are bank accounts used by criminals to transfer and receive illicit funds, while a funnel account is a type of money mule account that consolidates funds from multiple individuals and locations.
No, even though funnel accounts commonly involve small cash deposits, criminals also use electronic transfers to deposit funds and engage in illicit activities.
Regulators expect banks to use advanced tools such as RapidAML to continuously monitor transactions and customer behaviour to detect funnel accounts.
Yes, as criminals exploit digital platforms to transfer illicit funds and hide the transaction trail, funnel accounts can exist in digital-only or crypto environments.
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