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