A transit bank account — also called a pass-through account — is a bank account used to quickly and easily tunnel money. Except it’s not as quick and easy anymore as it used to be. Banks are under increased pressure to comply with AML/CFT regulations and while some look the other way, it’s only to a certain degree.
The term ZBA (Zero Balance Account) is sometimes used to describe a transit account. In reality, ZBAs are a completely different story and are usually used in an acquiring and merchant account context, where one party opens the account and another sweeps (clears) it daily.
Here we will go through how to use an offshore bank account as a transit account without getting your bank account closed for suspected money laundering.
SAR stands for Suspicious Activity Report. Sometimes the older term STR — for Suspicious Transaction Report — is used.
SARs are what banks file with their FIU (Financial Intelligent Unit), which goes by different names in different jurisdictions, if the bank thinks that someone is behaving in a suspicious manner which may involve money laundering, funding of terrorism, or any other illegal activity.
Banks aren’t the only people to file SARs. All financial services companies are obligated to file SARs, as well as for example online gambling merchants, which are often targeted by fraudsters and money launderers.
An SAR contains the name of the client and persons involved (plus any other personal details available), a description of the suspicious activity, an indication of sums involved, and contact details of the entity filing the SAR. A truly compliant company will have what’s called an MLRO (Money Laundering Reporting Officer), who is responsible for filing the SAR.
The SAR is received by the FIU which will decide whether to throw it in the trash, file it for future reference, or take it to the relevant police or tax authorities or conduct its own investigation. The latter varies hugely between jurisdictions and how developed their AML capabilities are.
FIUs are supposed to keep record of SARs received and how many were followed up. If you browse around your local FIU’s website – and any other FIU that may affect you – you might be able to get an indication of how good their SAR procedures are. A list of some offshore FIUs are available under Links above.
As you can imagine, constantly receiving incoming wires into a bank account and then moving the funds out — typically to another offshore jurisdiction — will trigger an SAR. This brings us to the next item on the agenda.
Keeping the Bank Happy
SARs are bad for you. You want to avoid them. The time from an SAR being filed to an account being frozen, either on instruction from the FIU or proactively by the bank, can in some cases be minutes. Knowing this doesn’t help much, though, since SARs are highly confidential and the account holder is not made aware of it. I’m just laying out some context here.
The way to avoid SARs is to keep the bank happy. You keep the bank happy by doing what banks love the most: give them money.
A transit account today is a bank account into which funds are received and instead of transferring it all out, you keep a healthy deposit sitting in the bank account.
There are many ways of doing this. What is described below is just one way.
When you open a transit account, try to estimate the average weekly sum of all incoming transactions. Let’s say it’s 25,000 USD. This is going to be your minimum balance in the account.
For the first two weeks, do not make any outbound transfers. Not even small ones. If you trust the bank and if this is a long-term relationship, consider locking some funds in a term deposit. You won’t get much interest but the bank likes term deposits.
After two weeks, you have 50,000 USD sitting in the account. From now on, you can transfer out about 110% of your weekly incoming total until your balance reaches 25,000.
You have now shown the bank that this account has stable transactions coming in and out every week of more or less the same amount. From now on, you can transfer our between 90% – 115% of the incoming amount, as long as you always maintain a minimum of 25,000 USD.
Be as a regular and predictable as you can, meaning that if you make your first outgoing wire on a Wednesday, you make all future outgoing wires on Wednesdays. If you have to do it earlier one week, switch to using that day for a couple of weeks. This builds up a pattern in your behaviour and as long as you stay within the same parameters, the bank will not find your activity suspicious and hence not file an SAR.
And in the end, that’s all we want here. An account through which we can shift money smoothly without alarming the bank and having an SAR filed.