There are two main types of money laundering businesses that need to be aware of: Smurfing and Structuring. Although they are similar, there are a few crucial differences to be aware of.
This post will take you through the concepts of these techniques while highlighting what you need to look out for.
Smurfing
What is Smurfing?
Simply put, Smurfing is dividing a large sum of money into smaller transactions. In this instance, criminals aim to avoid detection by splitting the earnings among several accounts so they don’t have to report the transaction.
For example, an individual, or group of individuals, deposits £9,000 into bank account A, £9,000 into bank account B, and £9,000 into bank account C, rather than a single deposit of £27,000 into a single bank account.
The aim is to conceal the source of the funds, especially if the source is illicit.
What is a Smurf?
The Smurf is the individual, or group of individuals, who take part in Smurfing. These are the people who break down the large transaction into smaller ones so they are not subject to reporting requirements.
How does Smurfing work?
There are three main stages of Smurfing:
- Placement - this is where the large sum is broken down and placed into different accounts. Often, these are standard accounts or real-money gaming platforms.
- Layering - the money is moved between different accounts in an attempt to obscure the audit trail.
- Integration - the funds are incorporated into the legitimate financial system, for example, through buying art or real estate. Thus creating the illusion that the funds are legitimate.
Detecting Smurfing can be challenging, so your AML procedures need to be able to recognise patterns of suspicious activity.
Structuring
Smurfing is a form of Structuring, therefore they are closely linked. Both methods are used to break down a large transaction so it falls below the reporting requirements.
However, in Structuring, the individual involved isn’t concerned with concealing the origin of the funds.
Typically, Structuring involves only a single account. For example, making three £9,000 deposits into a single account to avoid reporting requirements, rather than a single £27,000 transaction.
Structuring can be seen as a criminal offence even if the source of the funds is legal because it’s likely the individual is carrying it out for tax-avoidance purposes.
One such example of Structuring could be a high-ranking official attempting to conceal a large bribe.
How to detect and prevent Smurfing and Structuring
Smurfing and Structuring have a set of red flags you need to be aware of:
- An individual making a number of deposits into an account over a number of days
- Multiple cash deposits being made into the same account on the same day from different locations
- Accounts that have similar addresses, or other common features, that are opened within a short amount of time
- When questioned, the individuals give vague, inconsistent, or unlikely answers to the source of the funds or why they opened the accounts