How To Prevent Structuring Money Laundering In Financial Institutions?

Are you concerned with money laundering that takes place through your financial institution? Benjamin Franklin said it right that an ounce of prevention is worth a ton of cure. Eradication of structuring as a method of disguising proceeds of criminal activity means being proactive in cracking down the composed exercise. Ponzi schemes, structuring, also known as smurfing, is one of the most preferred and commonly used laundering techniques employed by the launderers. It aims to break massive amounts of money into small parts so that every part of it goes beyond the reporting levels while appearing to be a normal business transaction. This is an important issue that a financial institution has to detect and prohibit such activities.  In this article, we will discuss measures that financial institutions can employ to preclude Structuring Money Laundering.

Methods Employed in Approaching Transactions

For their operations, money launderers use structuring techniques. The most common method of money laundering is smurfing. They divide money into small amounts and deposit them in various accounts to avoid any alarm at the banks or government systems. An example of structuring is putting a series of cash deposits under the limit, which would make the authorities report the matter for no identifiable source of the money. The US Treasury Department said in 2023 that over $1.5 billion of the money got washed through structuring and smurfing techniques.

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Necessity of Identifying Structuring Activities

Structuring detection is of special concern for a financial institution. The process concerning the concealment of black funds engaged by money launderers includes structuring, which is a peculiar method. Failure to identify Structuring in money laundering may lead to a situation where criminals will be secretly introducing dirty money into the clean system. It may cause fines and legal issues or defame your institution. For this reason, AML experts should look for structuring behavior. In the year 2023, financial institutions around the world faced penalties crossing $ 3 billion for different violations of money laundering. Because of this, the formulation of structuring detection has become important.

The AML Regulations relating to Structuring

There are severe provisions as regards money laundering under the structuring laws. All cash transactions that are done over a certain threshold must be disclosed to the bank. Structuring in AML is the effort why this is being avoided by splitting it into several smaller lots made by the money launderers. This structuring is unlawful, and AML rules will make banks look for and report all structures of structuring endeavors. According to the report of the Financial Crimes Enforcement Network, more than 70,000 SARs on structures were filed in 2023 US only.

Warning Signs of Structuring Activity

The following are some general ‘signs’ which signal structuring and money laundering. They are cash deposits that often take a longer time to be above the reportable threshold. This is an instance of making cash deposits in several branches within the same day and sudden spikes in account activities. Whenever you come across any of such patterns, it is an indication that you need to look more carefully for possible structuring. According to FinCEN records, in 2023, about 70,000 SARs concerned possible structuring and money laundering.

Incorporate adequate Customer Due Diligence

To eliminate many of the things that are money laundering and structuring, extend courtesy and get acquainted with your clients. KYC is a technique of getting to know your customers more efficiently, as addressed by customer due diligence. This will require getting a lot of information on the customers. For anti-money laundering, you will have to get details like a source of funds and what constitutes normal business transactions. You can identify anything that looks out of the ordinary and that can indicate structuring or another money laundering method. 

From 2024, any transactions suspected or under a certain amount of $10,000 have been required to be reported by financial institutions to meet their anti-money laundering standards.

Monitor Transactions As A Key to Structuring Patterns

Give more attention to the money your customers are spending. Watch for the structuring regime to make multiple deposits into one or other accounts below the threshold limit. Another suspicious sign is if the activity of the account escalates or if there are transfers connected from one account to another in several accounts. If you establish such patterns, a particular customer may be attempting to disguise the source of his funds. Research indicates that 30% of financial institutions state that the explanations for the sustained alert attention and scrutiny of customer accounts relate to the rise in suspicious transaction activity.

Report Authorities About Suspicious Activities

Legal regulations exist demanding that any financial institution report suspicious activities to the authorities. This assists the police in combating economic crimes because It is important to bring down your red flags to ensure you give them a good report. A 2023 report provided some information identifying such financial institutions. These institutions are required to report activities that they find suspicious under the Bank Secrecy Act within one month.