Smurfing is a term used to refer to the process by which a money mule launders money by splitting large sums into smaller bits below the reporting threshold to avoid being flagged or reported to the authorities. “What is smurfing in money laundering” is an important question for financial institutions to help them understand and establish effective measures to detect the curtail the activity.
Money laundering is a very common strategy used by criminals to mask proceeds from illegal activities. Smurfing is one of the most employed types of money laundering due to its simplicity and hard-to-detect nature. It is also sometimes referred to as structuring although they are not exactly the same.
To adequately guard against smurfing, financial institutions need to understand how it works which we discussed thoroughly in this article.
What is a Smurf?
A smurf is a money mule or agent that launders money by smurfing. Essentially, this means splitting large sums into smaller bits below the reporting threshold to avoid being detected by regulatory authorities. It is an illegal activity that could attract serious consequences including jail terms.
As a global standard, banks and financial institutions are generally required to report transactions exceeding $10,000 or if they deem them suspicious. Reports are to be made to respective governing and regulatory bodies. However, this sum could vary based on the exact jurisdiction in question as it could be more or less.
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How does Smurfing work?
Carried out by money mules, smurfing is a type of money laundering that is perpetrated by individuals called smurfs. Typically, the act follows the process below:
- The smurf receives illegally obtained funds from criminal activities
- The smurf proceeds to break down the funds, physically or digitally, into smaller amounts below the reporting, declaring or alert threshold
- This process could be carried out alone or in collaboration with others to launder the funds. When it is a team work, each individual separates with a bit part of the smaller sums
- On successful individual laundering, the sums are then consolidated into a single account depending on what it is to be used for
- The funds are finally transferred to the criminal mastermind
How does a Smurf Work?
The smurfing process occurs in three stages just like money laundering - placement, layering and integration. In the placement stage, the criminals relieve themselves of a large sum of money from illegal proceedings by injecting it into the financial system. For example, the smurf may deposit the money directly into a series of bank accounts or smuggle it in a suitcase to another country to trade forex or gamble huge sums of money.
At the layering stage, the money is run through a series of legal financial transactions to separate and mask it from its source. Essentially, this is done to hide the audit trail and possibly erase any link between the original crime and the money.
In the final stage, integration, the money is returned back to the criminal and made to appear through legit sources not to draw any attention. For example, it could be used to purchase jewellery, artwork, real estate assets or more. These assets are then handed over to the criminal.
What is Structuring?
Structuring is an act that takes place during the smurfing process. Essentially, it is the process of breaking down transactions into smaller sums to avoid AML/CFT transaction reporting requirements and alerting regulating bodies. It is a process that falls under the smurfing umbrella and allows criminals to move huge sums without getting flagged. The process itself of breaking down hugs sums to bits before a transfer is illegal and such individuals would face sanctions.
Structuring can also backfire if a carefully observing institution notices a trend of several deposits just below the reporting threshold. Such activity could still be reported as suspicious to the appropriate authorities.
What is the Difference Between Smurfing and Structuring?
Smurfing is the act by which a money launderer attempts to circumvent regulatory attention by splitting a large sum of money into smaller transactions into distinct accounts. Structuring, on the other hand, is the actual process where the money is divided into smaller bits. Essentially, structuring is a process that falls under smurfing which is the larger illegal act.
Tracking Smurfing with AML Automation Software
Identifying and curtailing smurfing process largely depends on your type of organisation and the industry sector your business falls in.
Taking financial institutions as an example, proper KYC strategies and implementation of Anti-money laundering structures and transaction monitoring algorithms is the best way to detect the act.
Today, there are fraud detecting machines that automate AML checks and flag suspicious transactions in minutes. Therefore, instead of making use of manual reviews of workflows that are prone to human errors and labour intensive to implement, advanced solutions like data enrichment, social media background crawling and biometric authentication are a far better alternative. With technology, risk scores can be assigned per transaction or user.