What is the Difference Between Smurfing and Structuring?

Smurfing and structuring may seem similar, and people sometimes use them interchangeably. However, they have different meanings and apply in specific situations when it comes to financial transactions.

Both smurfing and structuring are against the law and can lead to serious legal consequences because they are linked to money laundering and efforts to evade financial rules. So, what is smurfing in money laundering, and how does it differ from structuring in money laundering?

What Is Smurfing and When Does It Occur?

Smurfing, a technique commonly used in the placement stage of money laundering, involves breaking down a large sum of illicit money into multiple smaller transactions to evade detection by financial institutions and regulators. These transactions are carefully structured to stay below reporting thresholds, making it harder for authorities to track the money’s origin.

Individuals who carry out these transactions are known as "smurfs." They deposit small amounts of cash into different bank accounts or conduct multiple transactions at different times and locations. This method helps conceal the connection to the main launderer behind the scheme.

For example, if a country requires banks to report transactions over $10,000, a smurf might deposit $9,500 at multiple banks to avoid triggering AML reporting requirements.

When Does Smurfing Occur?

Understanding smurfing occurs in what stage of money laundering can provide insight into the methods criminals use to disguise the origins of illegal funds.

Cash smurfing occurs during the placement stage of money laundering, and it typically happens when:

• Avoiding Transaction Limits

• Using Multiple Banks or Accounts

• Timing Transactions Strategically

• Structuring Transactions in Cash-Heavy Businesses
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Smurfing Examples

One of the key challenges in smurfing in AML is identifying patterns in transaction behavior, as criminals often use multiple people to spread out deposits across various accounts. Below are three examples of smurfing in AML:

1. Cash Divide:

If someone has, let’s say, $15,000. Instead of depositing it all at once in a bank, they ask a few friends to each deposit $5,000 in different banks. This way, it's not one big amount that might attract attention.

2. Shopping Trick:

Another cash smurfing example is when a group of people with illegal money buys expensive things, like TVs or jewelry. Instead of making one big purchase, they make many small purchases at different stores. This helps hide the fact that they're spending a lot of money.

3. Cuckoo Smurfing:

Let's say someone in the UAE owes money to someone in the KSA. Instead of sending the money directly, they get a friend in the KSA to pay the debt using their own legal money. The friend doesn't know it's part of something illegal, and it seems like a regular transaction. And this is called cuckoo smurfing.

What is Structuring?

Structuring is a trick people use with money. They break down big transactions into smaller parts to avoid rules and reporting. To avoid regulatory detection and Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) reporting requirements, money launderers employ this "placement" method to make multiple deposits while staying below cash reporting thresholds.

If someone keeps making small deposits just under the limit set by the rules, it can raise suspicions and red flags. Structuring is not only against the law, but it also signals possible illegal activities.

Is Structuring Illegal?

Yes, structuring is illegal. In most countries, including the United States, structuring is prohibited under the Bank Secrecy Act (BSA). Even if no illicit activity is directly involved in the transaction itself, structuring with the intent to evade reporting thresholds (typically $10,000) is illegal and considered an attempt to disguise the origin of funds.

Why is Structuring Illegal?

Structuring is illegal because it constitutes a deliberate effort to circumvent financial reporting obligations that are in place to detect and prevent money laundering, terrorist financing, and other illegal activities.  

By breaking large transactions into smaller amounts, structuring obstructs the transparency necessary for regulatory bodies and financial institutions to track and identify suspicious financial flows. This evasion of detection enables criminal activities, including fraud and money laundering, and undermines the integrity of the financial system, making it more difficult for authorities to investigate and combat illicit financial operations.

Examples of Structuring

Structuring is breaking down a large amount into smaller parts to hide it from the bank or authorities. So an example of structuring would be: if someone has $30,000, instead of putting it all in the bank at once, they might do it slowly, like $10,000 each time, so it doesn't raise any alarms. Here are some examples of structuring:

• Withdrawal of Cash in Smaller Amounts

• Staggering Large Payments to Vendors

• Breaking Down Loan Repayments into Smaller Amounts  

• Paying for Services in Installments Below the Threshold

But the question is, what is the difference between smurfing and structuring?

What is the Difference Between Smurfing and Structuring?

While both smurfing and structuring entail breaking down large sums into smaller transactions and are often used interchangeably, their key differences lie in their purpose and execution. Smurfing aims to hide the true nature and source of funds, involving multiple individuals and being more challenging to detect. On the other hand, structuring is focused on avoiding reporting requirements, often managed by a single individual and detected through monitoring patterns near the reporting threshold.

Structuring and Smurfing in AML Compliance

Anti-Money Laundering (AML) regulations focus on preventing financial crimes such as smurfing and structuring. Below is an overview of how this happens:

1. Reporting Thresholds

AML regulations globally establish reporting thresholds to identify potential instances of structuring and smurfing.

In the US and other countries like Canada, Ireland, Australia, and Sweden, transactions exceeding $10,000 (including foreign currencies) must be reported.

2. Suspicious Activity Reporting (SAR)

Financial institutions are legally bound to submit Suspicious Activity Reports (SARs) if they suspect structuring.

3. Key Components of AML Regulations

AML regulations worldwide focus on:

• Reporting Requirements: Mandating reporting of transactions surpassing specified thresholds to identify potential structuring or smurfing attempts.
• Currency Transaction Reports (CTRs): Obligating financial institutions to file CTRs for cash transactions above designated thresholds, aiding in monitoring suspicious activities.
• Suspicious Activity Reports (SARs): Requiring the submission of SARs upon identifying transactions indicative of money laundering, triggering a further investigation.
• Know Your Customer (KYC) Procedures: Establishing strong KYC procedures for verifying customer identities and assessing risk profiles, forming a frontline defense against illicit financial activities.
  

4. Penalties and Enforcement

Regulatory agencies and law enforcement impose significant penalties, including fines, imprisonment, asset forfeiture, and reputational damage. Learn more about The Top AML Fines and Penalties You Should Avoid in 2024. 

Detecting and Preventing Smurfing and Structuring

Detecting and preventing smurfing and structuring is an ongoing process; as long as the customer is making transactions, there is a possibility they might be smurfing or structuring money. Below are ways that can help you detect and prevent these illegal actions:

1. Watchful Transactions

• Look for patterns like small deposits and sudden changes in accounts.
  

2. Automated AML Tools

• Utilize AML tools like FOCAL, which provides screening, monitoring, and risk scoring. FOCAL enables you to quickly analyze large transactions for suspicious patterns.
  

3. Training Staff

• Regular training helps staff spot signs of smurfing and structuring.
• Ensures staff know what to do when they suspect something.
• Training helps teams spot red flags for structuring and smurfing in AML.

1. Red Flags include

•    Small deposits just below $10,000.
•    Daily deposits exceeding limits.
•    Same-day cash deposits at different places.
•    Multiple sign-ups with common details.
•    Customers give unclear reasons for transactions.
  

4. Risk Check

• Regular assessments find weak points and help identify areas prone to structuring or smurfing.
  

5. Understanding Criminal Methods

• AML professionals stay informed about criminal methods.

Conclusion

In conclusion, both smurfing and structuring involve breaking down large sums into smaller transactions, but they differ in their purpose and how they are done. Smurfing tries to hide the true nature of funds and involves many people, making it harder to notice. On the flip side, structuring aims to avoid reporting requirements and is usually done by one person, often detected by monitoring transactions near the reporting limit.

In simpler terms, smurfing is more complex and involves a group of people, while structuring is simpler and usually done by an individual. Both are used to handle money in ways that can be against the rules. A comprehensive AML platform, like FOCAL, works in real-time, alerting institutions. Using advanced algorithms, FOCAL fights financial crime effectively.

FAQs

Q1. What is smurfing in money laundering?

Smurfing involves breaking down large sums of money into smaller transactions to avoid detection, often used for illegal purposes.

Q2. What is structuring in money laundering?

Structuring in money laundering involves manipulating transactions to avoid reporting thresholds.

Q3. What is structuring in banking?

Structuring in banking refers to the deliberate design of financial transactions to avoid triggering regulatory thresholds or reporting requirements, often associated with money laundering.

Q4. What legal consequences come with smurfing and structuring?

Engaging in smurfing or structuring can lead to significant legal penalties, including fines, imprisonment, asset forfeiture, and reputational damage.

Q5. What are common signs or red flags indicating potential smurfing activities?

Red flags may include making multiple small deposits just below reporting thresholds, frequent round-number transactions, and abrupt changes in account activity.

Q6. How do financial institutions contribute to preventing smurfing and structuring?

Financial institutions implement measures such as reporting requirements, transaction monitoring, and filing Suspicious Activity Reports (SARs) to identify and prevent smurfing and structuring.

Q7. What industries are at higher risk for smurfing and structuring?

Industries with high cash flow, like casinos, money services businesses, and certain types of retail, are often considered at higher risk for smurfing and structuring.