
Money Laundering is an rising issue on a global scale, which is affecting financial institutions, economies and national security as well. A technique utilized by criminals to mask the source of their illicit funds is smurfing.
Smurfing, also known as structuring, is where large sums of fraudulent sums of cash are dissected into smaller transactions. These transactions are spread across multiple sources: accounts, individuals or financial institutions, to avoid being identified by authorities. The evident purpose of smurfing is to remain in a covert standpoint, to avoid becoming apparent in the system, which is governed by anti-money laundering (AML) laws.
Interestingly, the term “smurfing” is obtained from the behaviour of the Smurfs – the small, blue cartoon characters who work in groups on bigger tasks. It is essentially an association with the small, multiple deposits made to hide a larger crime.
So How Does Smurfing Work?
In Smurfing, an organized network of individuals (smurfs) focus on executing the larger scheme:
- Dissection of Large Sums: larger amounts of illicit funds are broken into smaller counterparts that are below the reporting thresholds.
- Depositing Funds: the counterparts are deposited into multiple bank accounts, either through wire transfers or direct cash deposits.
- Avoiding Suspicion: by keeping the transactions small, the smurfs are able to evade AML detection by relevant authorities.
- Integrate within: as the transactions become masked, the funds can be withdrawn or moved to offshore accounts or even used to make legitimate transactions such as purchasing a property.
The simplicity of this process is a reason behind the favourance of utilizing smurfing by criminals. In addition, the small transactions avoid detection by financial institutions allowing for low visibility for the launderers. Also, the scalability of this process, through utilizing multiple accounts, across different locations allows for a network of individuals (smurfs) to be involved, allowing for better masking.
The role of the smurfs do not just end on depositing the illicit funds across multiple branches, they also open bank accounts with fake identities – to streamline the flow of cash, and they are also expected to execute wire transfers or purchase monetary instruments, like prepaid debit cards.
Essentially, through smurfing, a launderer can break the amount of $500,000 into 500 transactions of $1000 each, deterring the conspicuousness of the illicit fund.
Common Examples of Smurfing
Tax Evasion: organizations can avoid taxes by smurfing, so as to conceal their earnings and avoid paying a larger income tax.
Drug Trade: cartels use surfing to funnel their proceeds from drug sales into the financial system without alerting the authorities.
Human Trafficking: traffickers smurf the payments to hide any form of profit generated through their unlawful schemes.
An example can be the Black Market Peso Exchange (BMPE), where drug traffickers laundered money by breaking down their cash deposits and using it to procure goods and services in different cities.
Regulations Regarding Smurfing
Due to the increased presence of money laundering schemes, governing bodies have implemented anti-money laundering regulations to detect and prevent smurfing, such as:
- Transaction Reporting: financial institutions are required to report transactions exceeding a certain amount.
- Know Your Customer (KYC) Policies: banks are expected to verify the identity of account holders to validate their legitimacy.
- Suspicious Activity Reports (SARs): any activity that seems suspicious are to be instantly flagged and reported.
- Data Monitoring Systems: through advanced algorithms, transaction patterns are to be monitored by banks to observe any discernible patterns.
How to Recognize Smurfing
- Frequent Small Transactions: multiple small deposits are made within a short period.
- Reluctance to Provide Personal Information: individuals that are not open to share information details about themselves is suspicious behaviour.
- Multiple Bank Accounts: the usage of numerous accounts to move or deposit funds.
It is crucial for individuals and organizations to be cautious about the financial movement within their businesses. Money Laundering can exist in various forms, such as Smurfing, and it is essential that there is a constant awareness and update regarding information and tools on how to recognize and prevent such schemes.