What is the Difference Between Smurfing and Structuring?

In the realm of financial crime, particularly money laundering, the terms "smurfing" and "structuring" are often used interchangeably. However, while they are related, they represent distinct techniques employed by criminals to evade detection by financial institutions and law enforcement. Understanding the difference between smurfing and structuring is crucial for compliance professionals, auditors, and anyone involved in financial oversight.

What is Smurfing?

Smurfing is a money laundering technique where a large sum of money is divided into multiple smaller transactions that are all below the reporting threshold. These smaller transactions are then deposited into various bank accounts, often by multiple individuals (referred to as "smurfs"), to avoid triggering regulatory red flags. The goal of smurfing is to avoid suspicion and scrutiny that would typically accompany larger transactions.

Example: A criminal organisation might have $100,000 in illegal funds. Instead of depositing the entire amount into a single account, which would likely trigger a Currency Transaction Report (CTR) in many jurisdictions, they break it down into 100 separate deposits of $1,000. These deposits are made by different individuals into various accounts, making it difficult for financial institutions to detect the laundering activity.

What is Structuring?

Structuring, on the other hand, involves deliberately organising financial transactions in a way that avoids detection by breaking them down into smaller amounts. While smurfing specifically refers to the use of multiple people to carry out these transactions, structuring can be done by a single person or entity. Structuring is a broader concept that encompasses smurfing as one of its techniques.

Example: A business owner may structure deposits by making several cash deposits of $9,000 into their bank account over a period of time, knowing that the bank is required to report any single transaction exceeding $10,000. By staying just under the reporting threshold, the individual attempts to avoid triggering a Suspicious Activity Report (SAR).

Key Differences

1. Execution: Smurfing often involves multiple individuals making transactions to avoid detection, while structuring can be done by one person or entity.
2. Scope: Structuring is a broader term that includes any method of breaking down transactions to evade reporting requirements. Smurfing is a specific type of structuring where the involvement of multiple people is a key characteristic.
3. Complexity: Smurfing typically involves a higher level of complexity due to the coordination of multiple people, whereas structuring can be simpler, involving only the careful arrangement of transactions by one person.

Why These Techniques Matter in AML

Both smurfing and structuring are significant concerns in anti-money laundering (AML) efforts. Financial institutions are required by law to detect and report suspicious activities, including patterns of transactions that suggest smurfing or structuring. Failure to do so can result in severe penalties and fines, not to mention the reputational damage that comes with being associated with financial crime.

How to Combat Smurfing and Structuring

1. Advanced Monitoring Systems: Financial institutions should employ sophisticated software to detect unusual patterns in transaction data, such as multiple small deposits that cumulatively exceed reporting thresholds.
2. Employee Training: Staff should be trained to recognize signs of smurfing and structuring, such as repeated transactions just below the reporting threshold or unusual deposit activity by multiple individuals.
3. Reporting Suspicious Activity: Any suspicious activity, even if it doesn’t meet the exact criteria for mandatory reporting, should be documented and reported to the appropriate authorities.
4. Know Your Customer (KYC) Protocols: Strong KYC practices can help identify potential money launderers before they can engage in smurfing or structuring.

Conclusion

Understanding the difference between smurfing and structuring is crucial for effectively combating money laundering. While they are related, the distinction lies in the execution and scope of the activities. Financial institutions must remain vigilant, employing robust monitoring and reporting systems to detect and deter these techniques.

Author Sarita Sitaraman