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Structuring cash transactions: Example reviews and best practices for banks

Mista Roberts-Howard, CAMS
June 27, 2024
Read Time: 0 min

How does your AML program detect structured cash transactions?

Read this blog to learn the definition of structuring, why it is illegal, and some examples of structuring scenarios that can help banks understand customer behavior and intent.

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Introduction

What is structuring?

Structuring financial transactions is the act of deliberately splitting a large cash transaction into smaller transactions to avoid regulatory reporting—specifically the Currency Transaction Report (CTR). The CTR threshold was set at $10,000 in 1970 with the passage of the Bank Secrecy Act (BSA), requiring banks to report individual cash transactions over $10,000 or those aggregating over $10,000 in a single day. Following the passage of BSA, bad actors began structuring cash transactions to avoid the required reporting.

Structuring cash transactions effectively became illegal in 1987 as a response to the laundering of drug money through financial institutions. However, structuring is illegal regardless of whether the cash reflects illicit proceeds or legitimate funds. Structuring can result in civil and criminal penalties under the BSA. There have been discussions regarding increasing the CTR threshold from $10,000 to $30,000 due to inflation and to reduce the burden on financial institutions; however, this change has not been implemented.

As part of an anti-money laundering (AML) compliance program, financial institutions must perform transaction monitoring to identify structured cash transactions and other indicators of illegal activity. It is common for most of the triggered alerts in transaction monitoring software to reflect potential structured financial transactions. A compliant AML/CFT program will prioritize contextualized, customer-centric monitoring to detect structuring as well.

Example reviews

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.

Keep in mind

Key considerations when reviewing transactions for cash structuring

  • Fees for large cash transactions: Some financial institutions charge fees for large cash transactions, leading customers to perform transactions to avoid those fees rather than intending to structure financial transactions.
  • Insurance coverage and restrictions: Many small businesses aren’t covered by insurance for theft, or their insurance policy states that they are not to keep more than a given amount of cash on hand in the event of a robbery. This will lead them to make more frequent cash deposits under the reporting threshold.
  • Limits on daily cash transactions: Due to limited vault space, many financial institutions limit how much cash a customer can take in a single day. In these instances, a customer may be forced to visit more than one branch in a single day to receive the desired funds or the total in the requested denominations. ATM and weekend withdrawal limits may also send customers to multiple locations.
  • Legitimacy of funds: Customers may still structure financial transactions even if the source of funds is legitimate, so this is not a mitigating factor in and of itself.
  • Misunderstanding regulatory reporting: Some individuals will structure on the advice of well-meaning friends or family who don’t understand and misrepresent the purpose of regulatory reporting. It is perfectly acceptable to educate customers about cash reporting as long as the information is not presented in a way that encourages structuring behaviors.

Conclusion

Contextualize transactions to detect structuring accurately

When reviewing customer activity for structuring cash transactions, it is important to look at the transactions in context with the other activity in the account(s) and the customer profile. Most financial institution customers are law-abiding citizens with no intent to structure cash transactions, and the activity may be based strictly on need or circumstance. Keep financial institution policies and practices in mind, as branch limitations could lead to customers unwittingly performing transactions consistent with structuring activities. At the same time, don’t unquestioningly accept customer explanations that don’t make sense. This can lead to complacency and missed suspicious activity. Just because activity is consistent with historic use of an account doesn’t mean the customer hasn’t been structuring all along.

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About the Author

Mista Roberts-Howard, CAMS

Senior Financial Crimes Investigator
Mista Roberts-Howard is a seasoned risk professional in the financial services industry, specializing in the identification of methodologies used to facilitate money laundering. She has over 20 years of experience in various roles across all three lines of defense in risk management and control. Throughout her career, she has successfully

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