Best practices for mitigating structuring risk in your AML program
When reviewing alerts, it is essential for AML analysts to not only identify a pattern but also look for indicators of intent to structure cash transactions. Many instances of activity may appear to be structured initially, but after considering what is known of the customer and the additional account activity, the transactions can be cleared in most cases. When analysts don’t consider these behavioral factors and take the alerting transactions at face value, it may result in unnecessary Suspicious Activity Report (SAR) filings and create more work over time. On the other hand, it is tempting to mitigate the potential structuring activity when at least one transaction is identified during a review period that results in a CTR filing. It is still important to look at the activity patterns and possible intent to structure cash transactions reflected in the alerting activity. Some customers may occasionally perform a transaction over the reporting threshold to avoid scrutiny.
The following are examples of four different reviews of activity related to structuring cash transactions and their disposition.
A small convenience store makes daily cash deposits, some of which approach but do not surpass the reporting threshold. Given the nature of the business, these deposits simply reflect daily business proceeds, with larger transactions occurring on Mondays after weekend business. The account is further credited with credit/debit card processing, and the incoming funds are used for everyday business expenses such as vendor and tax payments. As long as there are no red flags in the additional activity, this could generally be interpreted as reasonable activity for the customer.
A large produce company performs $9,000 cash withdrawals daily, stating the funds are for payroll as laborers are paid daily in cash during harvest season. Every couple of months, they perform a much larger withdrawal ($15,000 to $40,000), claiming the funds are for purchasing equipment. The cash is all sourced from incoming wires from an external account held by the client. Although the larger transactions are reported, most of the funds withdrawn are not. During a three-month review period, the customer withdrew $627,000, with only $56,000 included in two CTR filings. Given the pattern of regular withdrawals just below the reporting threshold and the unknown ultimate source of funds, this customer requires further investigation.
A self-employed residential roofer withdrew $8,000 on a Friday and another $5,000 the following Tuesday. The withdrawals were funded with a $15,000 check from Jane Doe referencing “roof.” Other activities included incoming checks from ABC Homes LLC, credit card, loan and tax payments, and debit card purchases. A review of the debit card activity placed the customer near Jane Doe’s neighborhood on Saturday and Wednesday following the alerting withdrawals. Other activity found purchases with a home improvement center near a residential development owned by ABC Homes LLC on the remaining days of the week. The cash withdrawals did not reflect an ongoing pattern of large cash and appeared to be isolated. It is reasonable to assume the customer took the funds to purchase materials and pay for day labor for Jane Doe’s roof. Although the activity may initially indicate structured cash transactions, upon further review, the customer took the funds as needed to complete the roofing project at Jane Doe’s home and the customer's actions can be considered reasonable.
A customer owning a small “buy here/pay here” used car lot established an unsecured line of credit to purchase inventory. Every few weeks, the customer makes a cash payment to the line of credit just under the reporting threshold. Regular, smaller cash deposits are made to the customer’s business checking account. Conversation with the customer found they deposit daily proceeds from car payments to the checking account. When a vehicle is sold outright for cash, they immediately make a larger payment to the line of credit with the proceeds. A review of the customer's website found used cars with prices ranging from $6,500 to $9,500. The customer’s explanation is deemed reasonable as it is commensurate with the account activity and internet research.
