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What is the difference between structuring and smurfing in money laundering?

Author: Syedur Rahman  12 January 2024
4 min read

Those involved in financial crime will use a variety of ways to disguise their activities and the wealth that they earn from them. Two of the most common techniques they use are smurfing and structuring.

 

Smurfing

What is a smurf?

A smurf, while also the name of a small blue fictional character, is a slang term used to describe a money launderer who hopes to avoid attracting the attention of the authorities by splitting up large transactions into a set of smaller transactions.

They do this so that the amounts involved in the transactions do not arouse suspicion and/or (depending on the country) are below the level that require the bank (or other financial institution) where they are being deposited to report them to the authorities in a suspicious activity report (SAR).

What is smurfing?

Smurfing is the use of low-level financial criminals (who are the smurfs) to move the money that has been gained through crime into the legitimate financial system.

As with the three stages of money laundering, there are three stages of smurfing:

  1. Placement: The high-level criminal will have their money placed in the legitimate financial system through, for example, a smurf using it to buy international currency.
  2. Layering: A series of financial transactions is carried out to obscure the money’s original links to crime. A smurf may, for example, move funds from country to country and use it for various different types of investments.
  3. Integration: This is where the money is returned to the person whose illegal activities generated the funds in the first place - in a way that has to make the funds appear to come from a legitimate source. An example would be a luxury car being bought and then given to that person.

Examples of Smurfing

  • A theoretical example would be a group of smurfs depositing £100,000 that is the proceeds of crime into numerous bank accounts over a number of days in small amounts, so as not to attract the attention of the banks who may then alert the authorities.
  • A real example came to light in 2019, when smurfing was found to be responsible for the £3.6 million that was in 95 separate bank accounts. According to Interpol, the money had been put into the accounts in a number of small transactions.

Structuring

What is structuring?

Structuring is when someone deliberately divides large amounts of money into smaller transactions to avoid anti-money laundering or counter-terrorist financing (AML/CTF) regulations. Structuring is illegal even if the funds involved were earned legitimately.

These smaller amounts are deposited into numerous bank accounts so as not to arouse the suspicion of banks, which could then make a suspicious activity report (SAR) to the authorities. This could then lead to an investigation into the source of the money.

Examples of Structuring

  • A bank customer could deposit £5,000 into a bank account every day for 10 days. By that time he will have deposited a total of £50,000 – an amount that may have led the bank to submit an SAR.
  • A person receiving a large amount of money may divide that money up and place it into a number of different accounts so it is not scrutinised by, for example, the tax authorities.

How is smurfing different from structuring?

While both structuring and smurfing are illegal, the significant difference between them is that smurfing tends to be more complex and involves a network of criminals. The source of funds tends to be concealed more often in smurfing than in structuring.

Smurfing also involves money that was obtained illegally, whereas this is not necessarily the case with structuring. Unlike structuring, smurfing tends to involve money being moved geographically using digital transactions and / or physically moved across borders.

Smurfing and Structuring and AML Regulations

Both smurfing and structuring are techniques that are used to avoid attention from the authorities. In all smurfing cases - and in many structuring cases - the aim is to avoid anti-money laundering (AML) regulations.

Various countries have their own AML regulations.

In the United States, for example, the primary AML legislation is the Bank Secrecy Act. This Act imposes reporting and record-keeping obligations on US financial institutions (including banks, brokerage firms and insurance companies) in order to prevent criminals using their products and services to launder the proceeds of their crime. It requires any transaction over $10,000 to be reported.

Under the Act and related anti-money laundering laws, financial institutions have to establish effective systems for conducting due diligence on customers and monitoring them. They must have procedures in place to ensure they are monitoring and reporting any suspicious activity and develop risk-based anti-money laundering programmes.

In the UK, the Money Laundering Regulations cover the regulated sector, which is the firms that are legally obliged to implement systems to detect and prevent money laundering. These firms, which are regulated by the Financial Conduct Authority (FCA), include banks, dealers in high-value commodities, trust or company service providers, estate agencies and accountants.

In the UK, all regulated businesses are under a legal obligation to notify the National Crime Agency (NCA) by sending it a Suspicious Activity Report (SAR) if any activity is known or suspected to be linked to money laundering or terrorist financing. The NCA analyses the SARs it receives and passes on the relevant information to law enforcement agencies so they can take action.

Smurfing and Structuring Detection and Prevention

As it is important for firms to identify money laundering, they need to be able to both detect and prevent structuring and smurfing.

If, therefore, they spot anything that could be structuring or smurfing they must carry out enhanced due diligence on that customer. But for this to be possible, they have to know the signs to look out for – the “red flags’’ that can indicate such activity.

Such red flags can include:

  • An individual making a number of deposits into an account over a number of days.
  • Multiple cash deposits being made into an account on the same day at various bank branches or ATMs.
  • A number of individuals with similar addresses or other common features all opening accounts within a short period of time.
  • Customers giving vague, inconsistent or unlikely reasons for making transactions or opening accounts.

Detection and prevention can involve using AML software that can help firms identify suspicious activity.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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