Money laundering is a process of converting illegally obtained money into seemingly legitimate funds. This can involve multiple techniques and strategies, including structuring, layering and smurfing. Of these, smurfing is one of the most popular methods of concealing criminal activity.
In this blog post, we explain smurfing in money laundering - what it is, how it works, how to spot it and some of the ways to tackle it.
Smurfing is the process of breaking down large value transactions into smaller sums to avoid scrutiny. This is usually done by splitting large transactions into smaller sums that are below the threshold regulatory requirements for anti-money laundering checks. The term "smurfing" comes from the idea that the technique resembles small packages of money being passed around like little blue Smurfs.
In the US, federal law requires that financial institutions report currency transactions over $10,000, on a Currency Transaction Report (CTR). This threshold limit applies to single transactions conducted by, or on behalf of, one person, as well as multiple currency transactions that aggregate to be over $10,000. The idea is to identify suspicious activity. However, in order to duck under the reporting threshold, criminal gangs split their transactions into a number of smaller ones, and usually spread them across different dates and geographically dispersed accounts. These smaller sums do not raise red flags in the same way that larger transactions would.
Money launderers often use smurfing as part of a larger strategy that includes other techniques such as structuring and layering. Structuring involves making frequent deposits or withdrawals in amounts just below the reporting threshold set by financial institutions, while layering involves transferring funds through multiple accounts and jurisdictions in order to obscure its origin. Smurfing is integrated into the money laundering process in the placement step, where the ill-gotten gains are initially introduced into the legitimate financial system. This process can be quite complex to trace, as smurfs may make deposits under different identities, and several foreign and offshore accounts may be involved.
Even so, if a financial institution has reason to believe that a particular transaction or a set of transactions are suspicious because of their volume, complexity, lack of evidence of legitimate business activity etc, they can file a Suspicious Activity Report. These afford regulators and law enforcers the opportunity to seize the proceeds of crime and arrest offenders, as well as helping expose potential criminal behaviour to investigation. Additionally, banks must ensure they follow Know Your Customer (KYC) guidelines when dealing with customers in order to identify any potential illicit activity.
Technology has made it easier for banks and other financial institutions to detect potential suspicious activity associated with smurfing and other forms of money laundering. For example, artificial intelligence (AI) algorithms can be used to analyse customer data in order to detect any unusual behaviour or patterns that may indicate possible criminal activity. AI enhanced transaction monitoring systems equip compliance teams with a comprehensive and highly configurable view of transactions, empowering them to review alerts and make decisions with speed and accuracy. Additionally, services such as Client Activity Review efficiently brings together transaction data and customer profile data from Know Your Customer (KYC) onboarding systems into a single easy-to-use platform to measure risk and detect suspicious financial behaviour. Such customer behavioural analytics can be used to track the movement of funds across different accounts in order to identify any suspicious activity or attempts at evading detection by law enforcement agencies.
By following regulatory guidelines and leveraging advanced analytics tools for financial crime compliance, organisations can more effectively combat illegal activities perpetrated by criminals seeking anonymity behind seemingly legitimate business dealings.
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Photo by Pawel Czerwinski on Unsplash
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