What is the difference between smurfing & structuring?

In the intricate world of financial crimes, there are numerous techniques employed by individuals and criminal organizations to obscure their illicit activities. Among these techniques, two common practices stand out: smurfing and structuring. 

What is structuring?

Structuring occurs when someone intentionally splits large amounts of money into smaller transactions to avoid AML and/or counter-terrorist financing (CTF) regulations. Structuring is illegal. While the money being moved might have been legally obtained, structuring is still illegal, even if the funds were legitimately earned.

With structuring, the criminal deliberately makes deposits under the reporting threshold. They may also use multiple accounts to ensure transactions stay under the radar and avoid a suspicious activity report (SAR).

Examples of structuring

Examples of structuring may include:

• A bank customer depositing several transactions under $10,000 each over a period of several days.
• A gambling customer cashing in their casino winnings across two portions that together would breach the $10,000 threshold.

Criminals can use structuring to hide how their money was earned or obtained. In some cases, structuring is used by individuals to avoid tax obligations. This may occur if high-ranking officials or other persons with a significant sphere of influence receive a monetary bribe or kickback. To avoid paying tax on these additional funds, they may make several small deposits across multiple accounts to avoid regulatory scrutiny.

What is smurfing?

Smurfing is a form of structuring that involves illegally obtained funds and the use of low-level financial criminals, known as ‘smurfs’. The term smurf is thought to have originated from illegal drug manufacturing and, in this context, refers to a junior money launderer or runner.

Criminals use smurfs to move illegally obtained funds into the legitimate financial system. There are three stages of smurfing – from the money being smuggled internationally to it making its way back to the criminal in the form of goods or property. The three stages of smurfing are known as placement, layering, and integration. These mimic the three stages of money laundering.

Examples of smurfing

• A group of smurfs depositing $10,000 worth of illegally-obtained money into multiple bank accounts over the course of a week. 
• Cuckoo smurfing: In cuckoo smurfing, an organized syndicate works with a corrupt remittance service provider abroad. The service provider receives legitimate instructions from a customer to make a payment, which is hijacked using illegally obtained funds. Generally, the customer is not aware that the funds are involved in illegal activity and/or money laundering, but in some cases, the individual is aware and turns a blind eye. 

What is the difference between smurfing and structuring

Both structuring and smurfing are illegal. Overall, the core difference between smurfing and structuring is that smurfing is more complex and involves a network of criminals.

An overview of the differences between structuring and smurfing:

AML regulations surrounding structuring and smurfing

In the US, the Bank Secrecy Act requires any transaction over the $10,000 threshold needs to be reported . This applies to transactions in foreign currencies as well. Reporting thresholds are similar in Canada, Ireland, Australia, and Sweden.

If a financial institution suspects structuring, they are legally required to submit a SAR. In the UK, the Government recommends that firms appoint a nominated officer – employees can then report suspicious activity to this person. Teams should be trained in structuring AML and smurfing AML best practices.

Detecting and preventing structuring and smurfing

Firms’ reputations can be damaged by undetected structuring and smurfing so it’s important for AML professionals to understand common methods employed by criminals and keep abreast of structuring trends. When AML teams spot suspicious activity that could indicate structuring, they need to be ready to perform enhanced customer due diligence (EDD). It’s essential that compliance teams are trained in spotting red flag indicators. 

 Structuring and smurfing red flags may include:

• An individual making multiple deposits over a series of days – with the deposits being just under $10,000 threshold (or equivalent).
• The total amount deposited in small daily transactions exceeds the maximum allowed.
• Multiple cash deposits made on the same day across multiple branches, ATMs, or crypto ATMs.
• Several individuals with common addresses, nationalities or devices signing up for accounts within a short period of time.
• Customers giving ambiguous, inconsistent, or improbable reasons for transactions or opening accounts.

There are several tools that AML and CTF compliance teams can use to detect and prevent structuring and smurfing. AML structuring software with robust algorithms can help firms spot suspicious activity – customer screening and transaction monitoring are key. Find out more about how ComplyAdvantage can help protect firms with tools such as our custom rule-builder to detect certain crime types and customizable alert thresholds.