Concentration Account

A concentration account is a deposit account used to aggregate funds from several locations into one centralized account. Institutions use concentration accounts to process and settle internal bank transactions.

Banks may employ concentration accounts for fund transfers, private banking transactions, trust and custody accounts, and international transactions. Fund transfers generally occur among checking accounts and savings accounts or from a savings to an IRA account; however, these could occur on a larger scale than individual, retail transfers when employing concentration accounts. Private banking generally encompasses a range of transactions for high net worth individuals. Governed by the Employee Retirement Income Security Act (ERISA), trust and custody accounts are forms of IRA accounts, which entail multiple deposits. For international transactions, concentration accounts help facilitate the complex movement of funds over the course of a day.

Money laundering is the process of concealing the movement of large amounts of money, obtained from criminal activity, such as drug trafficking or terrorist projects. Organized criminals know that dealing in cash is highly inefficient and risky. Money laundering creates the appearance that these funds originated from a legitimate source.

U.S. authorities heavily scrutinize concentration accounts due to the possibility of money laundering in these vessels. For example, it may be difficult to trace the a money trail if funds are being collected in one central source, but customer-specific information is separate. In concentration accounts, transactions from multiple customers may be grouped together. The USA Patriot Act required banks to establish clearer policies for detecting and reporting suspicious transactions. It also prohibited customers from moving own their funds into, out of, or through the concentration accounts.

Money laundering generally has three steps: placement, layering and integration. Placement refers to the act of introducing "dirty money" (or money obtained by criminal means) into the financial system. Layering is the act of concealing the source these funds via complex transactions and bookkeeping tricks. Integration involves acquiring placed monies via legitimate means.

Another system of pooled funds at banks are bank reserves. Bank reserves allow banks to have sufficient cash to meet any unexpected and large withdrawal requests. Bank reserves include required reserves and excess reserves. Excess reserves are any funds held in excess of the amount of required reserves. National authorities that regulate banks now force most major financial institutions to hold a certain amount of required reserves with central banks.