The Role of Electronic Funds Transfer in Money Laundering

An Electronic Funds Transfer (EFT) is a process that moves money between bank accounts without the need for bank staff to manually handle the transaction. Common examples of EFTs include wire transfers, online payments, ATM withdrawals, and direct deposits.

For Anti-Money Laundering (AML) and financial crime prevention, EFTs are particularly risky because they allow money to be moved quickly across accounts, often internationally. Criminals may use EFTs to hide illegal activities, like money laundering or fraud.

To prevent this, financial institutions must ensure that information about who is sending and receiving the money is accurate and properly recorded. Laws, such as the FATF Recommendation 16 on wire transfers, require that the originator and recipient details be included with the transfer to ensure transparency.

In addition, regulations like the U.S. Bank Secrecy Act (BSA) and the EU Funds Transfer Regulation require financial institutions to monitor these transfers carefully for signs of suspicious activity. If anything unusual is detected, such as large transfers or transfers to high-risk countries, the institution must report it.

Example:

In 2020, XYZ Credit Union noticed strange activity in the account of a company called "FastFreight Logistics." Within two weeks, the account sent 35 international EFTs totaling nearly $1 million to companies in risky countries . The amounts were always just under $30,000, which meant they didn’t automatically trigger any alerts.

After reviewing the account, the bank found that FastFreight Logistics was not a real business but a shell company, set up to move illicit money across borders.

The bank then froze the account and reported the suspicious activity to FinCEN. Authorities later discovered that the funds were linked to an international drug trafficking organization.

This example shows how EFTs can be misused in money laundering schemes, which is why financial institutions must be careful to monitor transactions closely.