Transaction Analysis and Tracing of Funds
Transaction Analysis and Tracing of Funds
This domain tests whether you can reconstruct a flow of funds, separate source of funds from source of wealth, and articulate a layering narrative that a reader can follow and challenge.
Core rules
- Source of funds is the origin of the specific money in the transaction. Source of wealth is how the customer accumulated their overall wealth. Both must be evidenced, and they are not interchangeable.
- Build a flow: opening balance, credits, debits, closing balance, reconciled to statements. Note value dates and time zones, which often explain "simultaneous" movements.
- Gross is not net. Turnover is not income. Net the flows to see what the customer retained, and check whether retained value matches the stated purpose.
- Layering signatures: rapid pass-through, circular flows returning as shareholder loans, commingling of business and personal funds, third-party and mule accounts, structuring below reporting thresholds, back-to-back wires, trade mispricing.
- Counterparty analysis: who are they, are they related parties, do the same counterparties appear across several customers, which would indicate a network.
- Crypto: cluster heuristics, exchange deposit addresses, mixers and bridges. Record transaction hashes, block heights and timestamps.
- Document every assumption, including exchange rates and cut-off dates. An unexamined assumption undermines the whole analysis.
Worked example
A customer receives $120,000 across fourteen transfers from nine unrelated individuals, consolidates it and wires $115,000 to a company in a higher-risk jurisdiction. Three weeks later the same company returns $100,000 described as a loan. The funds return to the same beneficial owner. That circularity, combined with unrelated senders and the loan label, has no ordinary commercial explanation; the retained $5,000 is the fee. The narrative should describe each leg with dates, amounts, counterparties and the inference drawn, not simply assert layering.
Traps that cost marks
- Presenting turnover as the customer's income.
- Tracing the outbound leg and ignoring the return leg of a round trip.
- Treating an invoice as proof of legitimacy without checking goods, price and parties.
- Unstamped, undated screenshots and extracts that cannot be tied to a source system.