Compliance Blog

Written by Shari R. Pogach, Regulatory Paralegal

Late in May, the Financial Crimes Enforcement Network (FinCEN) issued FIN-2014-A005 advising credit unions that funnel accounts in conjunction with trade-based money laundering are increasingly being used as a way around the restrictions on U.S. cash transactions in Mexico.

 You may ask, what’s a funnel account? 

 â€œFunnel Account:  An individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals.”

How is the funnel account used with trade-based money laundering (TBML)?

FinCEN’s advisory outlines how this typically works:

1. In collusion with a criminal organization, such as a drug trafficking entity, a U.S. or foreign business owner or other individual opens an account at a credit union where cash deposits can easily be received in multiple states, either through the credit union’s branches or shared branches.
2. Acting on behalf of the drug traffickers, multiple individuals deposit the cash proceeds of drug sales into the account at different branches, often in states or locations far distant from the branch where the account was opened.  Deposits are kept below the currency transaction reporting threshold trigger of $10,000.
3. After the account has built up a number of deposits, an intermediary will initiate wire transfers (or issue checks) from the funnel account to a U.S. or foreign-based business to buy goods that are then shipped to other foreign countries for sale.
4. The goods are then sold and the proceeds, in the destination country’s currency, are transferred to the drug trafficking organization with funds that have been laundered through TBML.

When such goods are sold in Mexico, a drug trafficking organization or its intermediary called a “money broker” or “peso broker” will contract with a U.S. or Mexican business owner to open a funnel account.  The peso broker directs the drug operations proceeds into the funnel account.  Payments from this account go to purchasing U.S. and foreign goods.  The goods are then shipped to Mexico and sold for pesos. 

So there you have it.  The drug trafficker has exchanged its U.S. dollar cash proceeds in the United States for Mexican pesos in Mexico through the use of the funnel account and TBML.  The criminal funds have been repatriated with apparently plausible, legitimate business transactions.