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Dissecting Structuring in Money Laundering
Dissecting Structuring in Money Laundering
Structuring is a common method adopted by money launderers to make their ‘dirty’ or illicitly gained funds appear ‘clean’ or legitimately obtained. This infographic aims to dissect the meaning and methods of structuring. The red flags that indicate the occurrence of money laundering through structuring, as well as the ways to curb structuring have also been discussed.
Meaning of Structuring
Structuring is a technique commonly used to launder money. This method involves breaking up large amounts of illicitly gained money into smaller sums to make them appear less suspicious and avoid detection under the Prevention of Money Laundering Act 2002, Prevention of Money Laundering Rules (Maintenance Of Records) Rules 2005, IFSCA (Anti Money Laundering, Counter Terrorist-Financing and Know Your Customer) Guidelines, 2022 for units operating in GIFT City, Gandhinagar. The primary aim of structuring is to obscure the source of the illegally obtained funds and place them into the legitimate financial system of India.
Common Techniques in Structuring
- A money launderer breaks or divides a large sum of illicitly gained money into smaller sums and deposits it into multiple banks to avoid the reporting thresholds of the banks.
- A money launderer places large amounts of illegally gained money into the banking system by breaking them into very small sums and makes numerous deposits, often by third parties or money mules with no apparent connection to the account holder. This is called micro-structuring.
Red Flag Indicators of Structuring
Transactions, customer behaviour and other circumstances that seem abnormal may indicate structuring. These red-flag indicators include:
- Small deposits/transactions below reporting thresholds: Multiple small deposits or transfers have been made, which are just under the reporting thresholds put in place under AML/CFT laws.
- Transactions don’t match customer profile: If a customer’s transactions are not consistent with their financial profile, this is a red flag. The transaction behaviour should align with the customer’s income, business operations, or financial history.
- Unusual or uncooperative customer behaviour: Unusual or uncooperative customer behaviour such as nervousness and reluctance to cooperate with the staff of the entity in which the business relationship is established.
- Ambiguous source of funds: If the source of funds for a transaction is unclear or cannot be verified, it may indicate money laundering. Hesitation to provide information regarding the source of funds or source of wealth and the purpose of transactions are red flags.
- High transaction volume: A customer engaging in a high number of transactions but having low starting and ending daily balances is a red flag.
- Usage of offshore banks: Transactions involving transferring or routing funds through offshore banks located in high-risk jurisdictions are a red flag.
- Complex transaction chains: When funds are routed through complex transaction chains involving numerous accounts or different financial instruments, it is a red flag.
- Multiple Deposits via Different Bank Branches: Multiple deposits are made in the same bank, but the funds are deposited through different branches of the bank; this is a red flag.
Detection of structuring is essential to mitigate the underlying money laundering risk that it carries.
Measures to Curb Structuring
- Conducting Rigorous Customer Due Diligence (CDD): Under Indian AML/CFT laws, conducting CDD, including the Know Your Customer (KYC) process, is an obligation for entities regulated under the AML/CFT laws. Comprehensive KYC and CDD procedures help verify customer identity and the money laundering risks associated with them. This can help businesses adopt mitigation measures according to the risk levels associated with the customer.
- Using efficient transaction monitoring software: With evolving technology, transaction monitoring has become automated, quicker and efficient. Using efficient monitoring software can help businesses detect unusual transactions and take corrective measures promptly.
- Staff training: Entities regulated under India’s AML/CFT laws should train their staff to better recognise and detect the red flags indicating structuring. AML/CFT training for staff arms them with the essential skills to mitigate money laundering, terrorism financing or proliferation financing risks.
- Reporting Suspicious Activities and Transactions: Under India’s AML/CFT regulations, reporting to the Financial Intelligence Unit India (FIU IND) regarding cash transactions above Rs. 10 Lakh Cash Transaction Report (CTR) and Suspicious Transactions Reports (STR) through the FINGate 2.0 is compulsory. Entities regulated under the AML/CFT laws of India must ensure that all transactions that are suspicious or indicate structuring are reported.
Structuring is a sophisticated and deceptive method used by money launderers to obscure the origins of illegally obtained money. To combat money laundering, it is essential for entities regulated under India’s AML/CFT laws to implement robust AML/CFT measures. By adopting these measures, entities can enhance their defence against structuring methods of money laundering.
We are committed to assisting proper enforcement of AML and CFT regulations to regulated entities in India by designing a personalised AML framework – policies, internal controls, and procedures – and ensuring effective implementation of the same.
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