Funnel Account

A funnel account is a bank account, usually at a bank with a wide branch network, that receives a stream of cash deposits made in one region, often by different people and in amounts kept below reporting thresholds, while the money is withdrawn or transferred out rapidly in another region or country. The account works like a funnel: many small inflows from scattered places, one large outflow. It is a well-known method in money laundering, especially for drug proceeds.

The term became prominent in the United States after FinCEN issued advisory FIN-2014-A005 in May 2014, which linked funnel accounts to trade-based money laundering by Mexican drug cartels. A funnel account is not the same as a legitimate concentration account, which a business uses openly to pool its own funds; the difference lies in who deposits, where, and why the money is moved on so quickly.

Imagine a tip jar that has a hole in the bottom leading to another city. Different people in different towns each drop a few notes into identical jars, and all the jars drain into one bucket far away. No single drop looks like much, so nobody notices.

Criminals use a big bank the same way. Couriers deposit modest amounts of cash at branches in several states, each below the level that would trigger a report. The account owner, sitting near the border or abroad, empties the account almost as fast as it fills. To the bank, each deposit seems ordinary; the pattern only shows when the whole account is viewed at once.

1. Open. An account is opened in an individual's or a front business's name, sometimes by a money mule network participant.
2. Deposit. Cash collected from drug sales or other crime is paid in at many branches, often in different states, by people with no clear link to the account holder. Deposits are commonly split to avoid a currency transaction report (CTR), which is structuring.
3. Withdraw or wire. Funds are taken out in cash near the border, or wired, sometimes to pay for goods that are shipped abroad and sold for local currency.

FinCEN's 2014 advisory noted that the funnel pattern grew after Mexico restricted US-dollar cash deposits at its banks in 2010, which made it harder for traffickers to bank bulk cash in Mexico. Criminals shifted to depositing cash inside the US and moving value south through trade, rather than relying only on a cash courier. FinCEN later reported a sharp rise in SARs mentioning funnel accounts after the advisory.

Not every account with out-of-area cash deposits is a funnel. Students whose parents pay in money from home, seasonal workers and small firms with staff in several towns can produce similar patterns. Investigators therefore look at the combination of signals and at whether the activity fits the customer's profile, rather than at any single deposit. Because the depositors are usually not the account holder, the bank often has little information about them, which is part of what makes the method attractive to launderers.

Typical indicators include:

• Geographic spread. Cash deposits in places where the customer has no apparent business or residence, a classic geographic risk indicator.
• Many depositors. Different people paying in cash to the same account, sometimes the same day at different branches.
• Rapid outflow. Balances drained within a day or two by cash withdrawal, cheques or wires, leaving little at rest.
• Amounts below thresholds. Repeated deposits just under $10,000, the US CTR limit, or broken into round sums.
• Trade links. Outgoing payments to exporters of goods such as clothing or electronics, unrelated to the customer's stated business.

Under the Bank Secrecy Act (BSA), US banks must file CTRs for cash over $10,000 and a suspicious activity report (SAR) when they suspect funnel activity. Detection usually relies on a dedicated transaction monitoring scenario that counts deposit locations and depositors per account over a rolling period. Many banks have also restricted third-party cash deposits, requiring the depositor to be the account holder or to show identification.

Good customer due diligence (CDD) helps: an account whose stated purpose is a local salary should not be taking cash in three states. FinCEN has also used geographic targeting orders to lower cash reporting thresholds in specific areas linked to cartel money laundering. Outside the US, the same pattern appears wherever national banks let cash be deposited anywhere into any account, and it is covered in anti-money laundering (AML) typology work by FATF-style bodies.

• FinCEN Advisory FIN-2014-A005
• Financial Action Task Force (FATF)