Transaction Chaining in AML

Transaction Chaining in AML- Key Highlights

Transaction chaining links the related transactions to trace the fund movement across accounts, entities and jurisdictions.
Common typologies include multi-hop transactions, mules, circular fund flows, layering and crypto-to-fiat hops.
Red flags such as repeated small transfers, sequential movements, inconsistent customer behaviour, and transactions.
RapidAML supports transaction chain analysis with advanced analytics, screening and regulatory reporting.

Definition of Transaction Chaining in AML/CFT

Transaction chaining in AML is defined as the process of identifying and analysing the financial transactions that are interlinked with each other, or follow a sequence, revealing how funds are moved through various accounts, entities or jurisdictions.

Transaction chaining plays a crucial role in tracing money laundering, terrorist financing, and network fraud by uncovering complicated layering structures to obscure the destination and origin of illicit funds.

It goes beyond simple transaction monitoring, as it connects multiple transactions together and focuses on relationships and patterns rather than a particular event.

Key AML/CFT Typologies in Transaction Chains

The key AML/CFT typologies and red flags that indicate risks are as follows:

Multi-hop transactions, a method of moving the funds through various accounts, digital wallets or financial institutions to hide the origin of illicit funds.
Usage of money mules, which helps to receive the money in their bank account from a third party and transfer it to another.
Routing money in circular fund flows, through various accounts and entities, and eventually returning it to the account, often to conceal its origin.
Layering the funds via multiple accounts, transferring through high-risk corridors, and using the shell entities to hide the money trail.
Using crypto-to-fiat hops, by converting the cryptocurrency into regular money (fiat) by moving it to multiple accounts and making the trace harder.

Key AML/CFT Red Flags in Transaction Chains

Regulatory Expectations for Detecting Transaction Chains

Regulators like FATF, national FIUs and banking supervisors expect the financial institutions to: -

Keep a track and monitor the flow of funds to ensure the origin does not present ML/TF risk.
Identify the ultimate beneficial owners, and look beyond the immediate counterparties to find the actual owners
Analyse the transaction or network patterns to detect any suspicion and layering schemes used to hide the origin of illicit funds.
Report the activities that look suspicious by filing STR/SAR, and perform the risk-based monitoring on higher risks.
With the help of data integration, make sure all the transactions are analysed effectively in a single view.
Perform sanctions linkage to verify whether a customer or transaction is not linked to sanctioned individuals or entities.
Fund-flow reconstruction is the ability to trace the entire route of money from its origin to its final destination during the time of investigations.

How RapidAML Software Helps Identify & Analyse Transaction Chains

RapidAML uses advanced analytics and network visualisation to detect the transaction chain, showing the connections between the entities and to detect unusual patterns. It's behaviour-based risk scoring that assigns risk based on transactions, and helps in identifying suspicious activity. RapidAML checks all the transactions and accounts against Sanctions and PEP with proper Screening. It uncovers risks with multi-hop detection patterns, automates alerts to flag the complex layering structures, and links cross-channel transactions across different payment methods.

RapidAML also helps investigators in reconstructing transaction paths to trace the route of funds from their origin to destination, document findings and support Regulatory Reporting, such as preparing the SARs/STRs with the proof of the complete transaction chain.

Frequently Asked Questions About Transaction Chaining (FAQs)

1. How does transaction chaining differ from transaction monitoring?

Transaction chaining connects various transactions and mainly focuses on patterns, connections and fund flows, whereas transaction monitoring looks for individual suspicious transactions and focuses on a single event.

2. What technologies best support chain analysis?

The technologies which support chain analysis are as follows: graph-based analytics and network visualisation, behaviour-based risk scoring, screening, and transaction monitoring.

3. Can transaction chains be detected in real time?

Yes, transaction chains can be detected in real-time using tools and analytics.

4. Which industries or products are most vulnerable to complex transaction chaining?

The most vulnerable industries or products to transaction chaining are those that enable rapid, multi-party or cross-border transactions.