Background on Micro-structuring Using FinCEN Statistics
An analysis of FinCEN statistics shows that over 80% of SARs filed in 2018 falls into either “Transaction(s) below BSA Recordkeeping Threshold” or “Transaction(s) Below CTR Thresholds.” Structuring transactions to evade Currency Transaction Report (CTR) reporting or certain BSA recording keeping threshold as defined in 31 CFR 1010.100(xx) can result in civil and criminal penalties under the Bank Secrecy Act.
Micro-structuring is a structuring scheme that is difficult for traditional AML rule-based systems to detect. A famous case of micro structuring is the 2006 New York City Criminal Case mentioned by Banking New York. Luis Saavedra and Carlos Roca alleged to have been the masterminds of an army of micro-structurers whose objective was to make cash deposits into more than 100 New York-based bank accounts. According to the article, the deposits, which amounted to more than $100,000 per day, were made in such small increments (usually just a few hundred to a maximum of $2,000) that they were very difficult for banks and/or law enforcement to detect. Once deposited in the Queens and Manhattan bank accounts, their Colombian-based co-conspirators were able to withdraw the roughly $2 million per month in pesos almost immediately through the ATM network to further the ends of the drug trafficking organization. This micro-structuring scheme was a variation on one of the most basic money laundering forms: smurfing. The 2006 New York Criminal Case is just one adaptation. These mini-smurfs try to defeat the transaction-monitoring systems by making the deposits so small they “fly under the radar” of the detection rules embedded in the AML vendor software.
Micro-structuring placement and it’s subsequent layering and integration of funds in a traditional rule-based AML system would require the financial institution to:
- Reset the dollar thresholds to look for repetitive cash deposits in the $500 to $3,000 transaction band.
- Create rules that look for cash deposits in any amount followed closely by outbound wire transfers or multiple ATM cash withdrawals to jurisdictions that pose a high risk for money laundering/drug trafficking.
- Have a visual link analysis that look for hidden relationships amongst account holders and the movement of funds
The point here is that if micro-structuring is hard to be detected in placement stage (introduction of funds into the financial systems), the combination of non-cash multi-payment channel in the layering stage (hiding the original source of funds with multiple small transactions) makes it almost impossible to detect with conventional AML rule-based systems.
Prevent, Detect, and Investigate Money Laundering with Guardian Analytics AML solutions
Guardian Analytics AML solutions brings powerful new capabilities to detect and aid in the investigation of these complex money laundering schemes. Guardian Analytics AML solutions provides configurable KYC forms to prevent micro-structuring at the start, region-specific micro-structuring detection through flexible Smart Rules, and a Multi-channel Graph Link Analysis to detect the hidden relationship and movement of funds. Below is a step by step tutorial on how Guardian Analytics AML solutions can prevent micro-structuring, detect micro-structuring, and investigate micro-structuring.
Guardian Analytics AML solutions helps prevent micro-structuring by allowing you to configure the KYC template to target specific individuals. For example, if a trend was noticed that foreign students around the age of 20 to 22 are creating fake accounts at a bank to micro-structure cash between $500 to $3000 and layer money using outgoing wires and ACHs, questions relating to foreign students and expected activities can be added at real-time to the KYC form to address these issues. These questions in the KYC form will produce a real-time risk score to make sure the individuals must be approved by the BSA/AML department before they can be onboarded preventing at the start attempts to micro-structure.
As micro-structuring is geared towards the lower dollar amount thresholds, most traditional structuring rules will not be triggered. The dollar amount threshold is not set to the low range between $500 to $3000 because it will generate far too many false positives. That’s why Smart Rules provide configurable parameters for region, value, days, transaction type, and transaction direction and allow users to conduct “what-if” simulations before any rule changes become effective. Guardian Analytics AML solutions can also detect wire and velocity rules at a regional level. Together, these valuable capabilities reduce false positives by more than 60%, making it easier and less labor intensive to accurately identify complex micro-structuring schemes, and detection also happens much faster.
Once the scheme is detected, the investigation process begins. Guardian Analytics AML solutions provides Multi-channel Graph Link Analysis which can connect all the relationships and transactions involved in a case with just a few clicks. Multi-channel Link Analysis provides a holistic view of the entire relationship including ownership, related alerts and/or cases, and fund movement.
The Link Analysis is conducted in the context of the customer view and includes relevant web searches and negative news searches conducted through third-party providers. The Link Analysis also takes into account the context of all related transactions and highlights unusual transactions. It includes a Transaction History Chart that shows the volume and value of all transactions to help quickly identify anomalous behavior. In the case of micro-structuring, outgoing wires, ACHs and internal transfers are the transactions to look for.
In addition to streamlining the investigative process, using Guardian Analytics AML solutions analysis can simplify and accelerate the filing submission process, when required. Once an analyst determines that a filing is required, a simple one-click submission automates what is otherwise a time-consuming and often lengthy process. With Guardian Analytics AML solutions, the suspicious activity report (“SAR”) form is pre-filled and the system completes a validation step to ensure there are no warnings or errors from FinCEN. It is also easy to drag and drop related attachments to the filing. The system provides the ability for a manager to add comments to a particular field and return the form to the analyst for correction, if required. Once the filing is submitted, the system receives an automatic response from FinCEN updating the filing.
Guardian Analytics AML solutions help financial institutions prevent, detect, and investigate money laundering by providing your financial crimes teams with:
- Configurable KYC forms to help prevent micro-structuring
- Flexible Smart Rules to identify micro-structuring placement
- Multi-channel Graph Link Analysis to uncover the layering
- Smart Rules and Multi-channel Graph Link Analysis to discover the integration
These capabilities combined with the pre-filled SAR forms and one-click filing make Guardian Analytics AML solutions the right choice for accurately and cost-effectively identifying micro-structuring.