Financial institutions are the main contributor to an economy’s GDP as they regulate the major monetary operations of a country. Despite that, this sector is the central target of imposter’s illicit money laundering activities. Therefore, an approximate money laundering risk index of 5.6 was recorded in Honduras in 2023. Interestingly enough, the imposters don’t deposit all the proceeds at once.
Instead, they disintegrate the funds and spread them across various accounts through structuring in AML. Money laundering structuring is a manipulative practice that requires extensive investigation to regulate financial operations. This blog aims to address the major concerns associated with structuring in AML and the strategies to regulate the financial framework.
What Exactly is Structuring in Money Laundering? A Brief Assessment
Structuring in AML is one of the major crimes recognized under the anti-money laundering regulatory framework. This is the practice of breaking down the large monetary proceeds acquired through unauthorized channels into smaller amounts to reduce the detection of illegal transactional activities.
The consequences of structuring in AML are associated with imprisonment of upto 5 years under the regulatory guidelines. The financial institutions are, therefore, assisted in incorporating effective anti-money laundering screening and identification checks. This allows examiners to effectively identify and detect illicit transactional activities that are deemed risky according to the FATF regulatory guidelines.
Structuring in AML is an illegal practice as its aim is to convert illicit funds into legitimate ones, which exploits the overall measurement and assessment of streamlined financial activities. To reduce these excessive reputational and financial threats, the organizations are required to incorporate effective AML screening solutions and watchlist monitoring operations to detect the risk and transactional patterns of all the potential money launderers and high-profile entities.
A Guideline to the Process of Structuring in Anti-Money Laundering
All the monetary proceeds gained through illicit channels and transactional ways are deemed illegal. These activities are usually facilitated through the structuring process, which is examined below:
- Structuring in the AML process begins with the accumulation of funds through illicit financial operations, such as drug trafficking and smuggling.
- These funds are later disintegrated into smaller portions to comply with the threshold limits determined by the AML regulatory bodies.
- In the next step, these smaller funds are deposited and transferred into legitimate bank accounts through money mules and other third parties.
- Once the funds are cleaned through this process, the imposters later reintroduce these funds into the banks as authorized monetary proceeds.
The Fine Line Between Structuring and Smurfing – Understand the Difference
Structuring in AML is very similar to the smurfing operations. However, there are a few minor differences that draw a fine line between the two. The ultimate objective of structuring in AML is to avoid the reporting and financial requirements. On the contrary, smurfing aims to disguise the origin of laundered funds to support illicit operations.
Money laundering smurfing is conducted through multiple individuals and bank accounts to complicate the overall assessment of financial operations. Whereas, structuring is usually conducted through single entities. Lastly, structuring and smurfing are both considered illegal by the higher regulatory bodies, but smurfing is far more difficult to identify due to its complicated nature and financial pattern.
Use Cases and Examples of Structuring in Money Laundering Operations
Structuring in AML appears in various forms due to its global coverage and illicit transactional patterns. Oftentimes, the money launderers are involved in multiple small transactional activities that are just under the threshold limits. They use the smaller funds to purchase high-value and expensive items.
Another critical structuring money laundering example appears when the imposters write multiple under-threshold level checks in a small time frame. This shows that the imposters are trying to launder funds from one place to another in the form of banking transactions. Additionally, money launderers usually exploit the real-estate sector by purchasing high-value property assets to clean the black money.
Techniques and Strategies Used to Identify Structuring in AML
Structuring in AML can exploit the financial framework due to its disruptive and non-recognizable nature. Therefore, businesses are assisted in integrating AI-powered screening checks to understand and combat the influence of illicit transactional activities. Businesses must conduct a thorough behavioral and pattern analysis of all the transactions conducted through the financial institutions. This allows financial institutions to understand whether the financial institutions are being used for legitimate or illicit operations.
Summing It Up
Structuring in AML is an emerging financial crime that exploits the financial integrity of various countries. Using these techniques, the imposters exploit the financial institutions through their illicit transactional activities. Money laundering structuring complicates the assessment of all the financial operations and international trading activities, which ultimately leads to excessive money laundering instances. Thereby, financial institutions are required to screen all the financial and transactional activities of potential clients during the onboarding process to understand their previous financial and risk profiles.