While operating in the financial sphere, businesses often encounter a myriad of intricate financial crimes. Among these, two practices emerge as commonly employed tactics: smurfing vs structuring.
Both of these strategies involve the strategic division of large amounts of money into smaller transactions to evade regulatory scrutiny. While they share some similarities, there are key differences that set them apart.
In this article, we will delve deep into the difference between smurfing and structuring, their implications, and how businesses can safeguard against these practices.
Structuring, also known as micro structuring or smurfing in some contexts, is a method adopted by individuals or organizations to avoid triggering Anti-money Laundering (AML) and/or Counter-Terrorist Financing (CTF) regulations.
It involves the deliberate splitting of large amounts of money into smaller transactions. The purpose of structuring is to keep deposits below the reporting threshold, thereby circumventing the radar of financial institutions and regulatory bodies.
The act of structuring involves intentionally dividing large sums of money into smaller transactions. The primary objective is to keep these transactions under the reporting threshold, ensuring they bypass the scrutiny of financial institutions and regulatory bodies.
Structuring typically involves a single individual making multiple cash deposits or withdrawals that fall just below the reporting threshold. For instance, if a person has $50,000 in cash, they might opt to make ten deposits of $5,000 each instead of depositing the entire amount in one transaction.
This method of structuring allows them to avoid triggering a Currency Transaction Report (CTR) or a Suspicious Activity Report (SAR), which are usually mandatory for large transactions.
To understand structuring in money laundering, let’s consider the below examples:
Despite the funds involved in structuring possibly being legally obtained, structuring itself is illegal in most jurisdictions. Even if the money was legitimately earned, the act of structuring to evade reporting obligations is considered a crime, carrying significant legal consequences.
Smurfing, while similar to structuring, is more complex and involves a network of individuals commonly known as “smurfs”. These are essentially low-level financial criminals used by the primary offender to move illegally obtained funds into the legitimate financial system.
The term “smurf” originated from illegal drug manufacturing circles and refers to a junior money launderer.
In a typical smurfing operation, a large sum of illicit cash is divided into numerous smaller amounts. Each’smurf’ is then given a specific sum to deposit into different bank accounts, possibly under different identities.
This method significantly complicates the trail of illicit funds, making it difficult for financial institutions and law enforcement to establish a link between the smurfs, deposits, and accounts.
To understand the concept of smurfing better, let’s look at some examples:
While smurfing and structuring share many similar characteristics and are often used interchangeably, they are not identical. The main difference between smurfing and structuring lies in their complexity and execution. Structuring typically involves a single individual making multiple deposits just below the reporting threshold.
On the other hand, smurfing is a more sophisticated scheme involving multiple individuals, known as ‘smurfs’, making numerous deposits across various accounts.
Despite their similarities, smurfing and structuring are distinct in their complexity and the nature of the network involved. Smurfing is a more sophisticated operation, involving a network of ‘smurfs’, whereas structuring can be carried out by a single individual. Below is an overview of some of the key differences between the two:
While both smurfing and structuring involve the breaking down of large amounts into smaller transactions, there are key differences between the two techniques:
AML regulations play a crucial role in combating these illicit practices. In certain jurisdictions, such as the US, the Bank Secrecy Act (BSA) requires any transaction over the $10,000 threshold to be reported. This also applies to transactions in foreign currencies. Similar reporting thresholds are in place in Canada, Ireland, Australia, and Sweden.
If a financial institution suspects structuring or smurfing, they are legally obligated to submit a SAR.
In the UK, it’s recommended that firms appoint a nominated officer to whom employees can report any suspicious activity. AML compliance teams can use robust algorithms and AML structuring software to spot suspicious activity.
Preventing financial crimes such as smurfing and structuring is a major focus of Anti-Money Laundering (AML) regulations. These regulations mandate financial institutions to report large transactions and suspicious activities to relevant authorities.
The exact thresholds for reporting vary by jurisdiction, but transactions exceeding $10,000 typically require reporting in many countries, including the United States.
Financial institutions are obligated to report transactions that meet or exceed certain thresholds to regulatory bodies. These reporting requirements are a crucial part of AML regulations. They are designed to help identify suspicious transactions that may indicate attempts at structuring or smurfing.
When a cash transaction exceeds a designated threshold, financial institutions are often required to file a Currency Transaction Report (CTR). CTRs provide detailed information about the parties involved, the nature of the transaction, and its purpose. This reporting mechanism aids in tracking and monitoring potentially suspicious activities, including structuring and smurfing.
Apart from CTRs, financial institutions are also obligated to file Suspicious Activity Reports (SARs) whenever they identify transactions or activities that appear suspicious or indicative of money laundering. SARs alert the appropriate authorities to potential illicit financial behavior, allowing for further investigation and intervention.
In addition to reporting requirements, financial institutions are required to establish robust Know Your Customer (KYC) procedures. KYC procedures involve verifying customers’ identities, assessing their risk profiles, and understanding the nature of their financial activities. KYC procedures serve as the first line of defense against structuring and smurfing, helping to identify individuals or entities engaged in suspicious or illegal transactions.
Identifying and mitigating the risks of structuring and smurfing is critical to protecting a firm’s reputation. AML professionals need to understand the common methods employed by criminals and keep abreast of structuring trends. Compliance teams should be trained in spotting red flag indicators, such as:
Detecting and preventing smurfing and structuring is crucial for preserving the integrity of the financial system. Institutions such as KYC Hub offer robust AML solutions that can help detect and prevent these activities. Here are some strategies that can be employed:
Transaction Monitoring is a key strategy for detecting structuring and smurfing. This involves checking for patterns of multiple deposits just below the reporting threshold, frequent round-number transactions, and sudden changes in account activity.
Automated AML solutions can analyze large volumes of transaction data with high accuracy and speed. These solutions can identify suspicious patterns and trigger alerts, helping to detect and prevent structuring and smurfing. KYC Hub’s AML solutions provide advanced features, including customer screening, transaction monitoring, and risk scoring.
Regular training and awareness programs can equip staff with the knowledge and skills to spot potential signs of structuring and smurfing. It’s crucial that staff understand what these activities look like and what steps to take if they suspect such activities.
Conducting regular risk assessments can help identify potential vulnerabilities in systems and processes. This can help determine where a financial institution may be most at risk from structuring or smurfing.
A robust AML platform can detect different types of money laundering in real-time, sending alerts to financial institutions. KYC Hub’s platform not only provides the latest regulatory and compliance updates but also features advanced algorithms that can help spot suspicious activity, making it an invaluable tool in the fight against financial crime.
AML regulations play a crucial role in detecting and preventing illicit financial activities, including structuring and smurfing. Financial institutions are required to file a CTR for cash transactions exceeding a designated threshold. Furthermore, they are obligated to file Suspicious Activity Reports (SARs) whenever they identify transactions or activities that appear suspicious or indicative of money laundering.
The difference between smurfing and structuring is crucial for financial institutions and businesses to understand. Both practices, while illegal, are commonly employed techniques used by criminals to evade regulatory scrutiny.
By understanding these tactics and leveraging advanced AML solutions, businesses can protect themselves and contribute to the global fight against financial fraud. Ultimately, maintaining vigilance and adopting stringent compliance practices are the keys to curbing these devious financial crimes.