Structuring in AML/CFT

Structuring in AML/CFT - Brief Overview

Structuring is a deliberate process of splitting a large sum of money into smaller transactions for threshold evasion.
Common structuring typologies include multiple cash deposits, withdrawals, wire transfers, prepaid instruments, and digital payments.
Key red flags include repeated small transactions, using multiple accounts, and using third parties.
RapidAML helps detect structuring patterns through advanced transaction monitoring, risk assessment, and ongoing due diligence.

Structuring in AML: Definition, Purpose, and Regulatory Context

Structuring in AML/CFT is a deliberate process of breaking down large sums of money into multiple smaller transactions, often used for avoiding the reporting threshold.

Structuring is a foundational money laundering technique across banking, fintech, and cash-intensive businesses, as it makes it difficult to trace the origin of illicit funds and makes it appear as if it comes from a legitimate source.

Global AML/CFT frameworks require financial institutions to report large transactions and suspicious activity. Structuring is often criminalised regardless of the source of funds, because its intent is to bypass the reporting rules, which reduces transparency and leaves financial crime undetected.

Common Structuring Typologies and Transaction Patterns

Common structuring methods and transaction patterns include:

Structuring is typically used in the placement and layering stage, as this method involves the introduction of illicit funds in the financial system and then moves through a complex structure with the help of multiple small transactions, making the origin difficult to trace.
Criminals often use various methods, including multiple cash deposits, withdrawals, wire transfers (money is sent in multiple small transfers), prepaid instruments (repeated small loads), and digital payments to avoid reporting thresholds and monitoring alerts.
Structuring adapts to sector-specific thresholds, including banks, MSBs, casinos, and fintech platforms, by staying just under the reporting thresholds.

Red Flags and Behavioural Indicators of Structuring

Key red flags and behavioural indicators of structuring are as follows:

One of the transactional red flags includes repeated small transactions just below the reporting thresholds in a limited time frame.
Behavioural indicators include reluctance in providing the required documents or unusual and uncooperative behaviour, which indicate a red flag.
Inconsistent customer behaviour and unusual patterns such as repeated transactions just below the reporting threshold, using multiple bank accounts or branches, use of third parties or intermediaries, criminals often use this activity to avoid detection.
Accidental threshold proximity and intentional Structuring signals both differ from each other, as accidental threshold proximity refers to the transactions that occur just below reporting thresholds due to normal routine business activities, whereas intentional structuring signals occur when criminals deliberately try to evade detection by splitting large transactions into smaller amounts, often for reporting avoidance.

Regulatory Expectations and Enforcement Actions Related to Structuring

Regulatory expectations and enforcement actions associated with structuring are as follows:

Regulators expect financial institutions to watch out for structuring activities and report suspicions by filing STR/SAR under AML/CFT rules.
Regulators mainly focus on how well the monitoring system works, how alerts are reviewed, and reported in a timely manner.
Common compliance failures cited in enforcement actions include poor transaction monitoring, delayed reporting, and weak staff training.
If institutions fail to monitor structuring, it can lead to compliance failure, fines, penalties, and reputational damage.

How RapidAML Identifies and Monitors Structuring Risk

RapidAML identifies and monitors structuring risks through its advanced Transaction Monitoring Software, which helps in detecting the structuring patterns across various channels and timeframes.

RapidAML applies behavioural analytics, which is used for tracking unusual transaction patterns, aggregation logic which combines multiple related transactions, and risk scoring. All these together help in detecting the structuring scenarios.

RapidAML interlinks transactions monitoring, Customer Risk Assessment, and ongoing due diligence. It helps flag unusual transaction patterns, assigns risk scores based on customer profiles, and continuously monitors and updates customer profiles to ensure AML compliance.

Structuring FAQs for AML and Compliance Professionals

1. What is structuring, and why is it illegal under AML laws?

Structuring refers to splitting a large sum of money into smaller transactions to avoid reporting thresholds. It is often considered illegal under AML laws because it's a deliberate attempt to move illicit funds and present them as legitimate.

2. How does Structuring differ from normal cash management behaviour?

Structuring differs from normal cash management behaviour because normal cash management behaviour involves frequent transactions due to business purposes without any intent of structuring, whereas structuring involves the deliberate attempt to manipulate transactions to avoid regulatory reporting.

3. What transaction thresholds are commonly targeted in Structuring schemes?

Structuring schemes commonly target reporting thresholds that include cash deposits, withdrawals, wire transfers, prepaid instruments, and digital payments.

4. Can structuring occur in non-cash or digital payment environments?

Yes, structuring can occur in non-cash or digital payment environments via multiple transfers and digital payments.