What is the Difference Between Structuring and Smurfing?
Financial crimes, come in a variety of shapes and sizes particularly smurfing and structuring are frequent in the financial service sector. They, depending on whether they are local or international. Smurfing and structuring are two of the most prevailing forms of financial crimes in banking and cross-border payment violations. Both phrases are frequently used interchangeably and are similar in several ways.
What is Structuring?
Structuring is the act of arranging a financial transaction in an obscure way, so as to avoid detection of a large amount of money being transacted which would trigger the bank to file a CTR or SAR i.e., in order to avoid the regulations and AML/CTF transaction reporting requirements.
Structuring does not have to include illegally sourced money or money laundering – it can be legal money.
Structuring involves intentionally (and for the purpose of avoiding detection/reporting) splitting an amount of money rather than depositing it all in one transaction. Although it is a common money laundering tactic, perpetrators also use the technique to evade taxes on legally acquired money and to hide where they generate their money from.
Let’s say that someone has $90,000 in cash. If they want to avoid reporting requirements, they can split this into 10 transactions of $9,000. This is an example of structuring. Remember, structuring transactions in this way is illegal.
Structuring is relatively basic because all the money usually goes into the same account or a small number of accounts that are under the same name. As a result, it can backfire if a watchful bank observes a trend of deposits that are all just below the reportable level.
Definition of a Smurf
A smurf is a money launderer who steals or launders money to avoid regulatory inspection by splitting large transaction into small transactions that each fall below the reporting brink.. This money is deposited by the launderer in the various bank accounts. Smurfing is a criminal offense with significant repercussions.
What is Smurfing?
Smurfing is a financial term that refers to the practice of evading regulatory attention by separating a large quantity of money into several smaller transactions, which are often separated into multiple distinct accounts.
Smurfing involves depositing illegally gained money into multiple geographically dispersed accounts, following a series of transactions and techniques so as to avoid detection.
Like many forms of money laundering, smurfing takes place in three distinct phases: placement, layering and integration.
- Placement: Smurfing is a popular placement method. Cash obtained illegally is distributed among ‘deposit experts’ or ‘smurfs,’ who make several deposits into many accounts (sometimes under different identities) at a variety of financial institutions. A smurf may take cash physically from one country in order to place it in the legal financial system by purchasing foreign currency, gambling, or other means.
- Layering: The smurf moves funds digitally from one country to another, to avoid reporting requirements, criminal organizations seek to hide their assets by breaking their funds into several smaller deposits or acquiring investments to break the audit trail. Suspicion is frequently avoided since it is difficult to establish a link between the smurfs, deposits, and accounts. The source of the funds is also often concealed via bookkeeping tricks and complex transactions.
- Integration: The smurf purchases valuables, including property, artwork, precious metals or cars, which are passed to the criminal. As the funds appear to come from a legitimate source, they can often evade detection by authorities this way.
The movement of illegally acquired money, use of ‘smurfs’, and the three techniques mentioned above are what differentiates Smurfing from Structuring. Smurfing is purely illegal and attracts serious consequences.
Protect Your Business from Smurfing
Smurfing has become a widespread problem across the globe. Understanding smurfing techniques and adopting a robust framework for detecting money laundering within your business is your best defense.
- Since smurfing usually involves offshore transactions or cross-border payments, criminals may look to leverage money transfer operators to pass their money. They can do this by running a number of remittance transactions through an operator to a single beneficiary or multiple beneficiaries.
- Make sure that you adopt stringent Know-Your-Customer (KYC) guidelines in line with your industry’s best practices to verify the identity, suitability and risks involved with your clients before they are onboarded, as well as during your evolving relationship.
- If necessary, implement anti-money laundering tools and detection algorithms to assist you with your AML effort. These advanced solutions eliminate the expense and the proliferation of human errors associated with manual review workflows and assign risk scores to help teams make more accurate risk assessments.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)Associate Partner
Ahmad Alagbari Chartered Accountants