Have you ever wondered how some criminals hide where their dirty money comes from? They do this by a method known as smurfing.
Smurfing allows them to launder their illicitly derived cash surreptitiously. Most countries assert that such behavior is illegal.
Susan Roberts said, “Smurfing provides a cover for those who want to disguise where their funds originated.”
Smurfing is a method whereby the dirty money owned by criminals is made clean. The criminals achieve this feat by breaking up major money transactions into smaller, tiny ones.
This makes it hard for regulators to trace the origin of the cash. Most places hold that smurfing is illegal since it facilitates some coverage of illicit activities. In this article, we will discuss how AML smurfing is considered illegal and why smurfing meaning is important.
Smurfing in Bank Transactions
Smurfs are criminals who do AML smurfing or “smurfing” at banks. This means that they break up big deposits of ill-gotten cash into lots under $10,000.
Smurfers spread their money over different accounts on different days. Under anti-money laundering (AML) laws, banks have to report deposits over that amount to regulators.
This structuring or smurfing in money laundering makes it harder for banks and investigators to determine whether smurfing or money laundering might be taking place.
According to some studies, online banking has increased smurfing activity lately and makes this even tougher to detect.
Bonus: Learn more about AML smurfing risks and how effective monitoring can help financial institutions stay penalty-free on our Compliance Resources page.
Structure Deposits to Dodge Reporting
Some individuals clean filthy money by structuring how they deposit it into the bank.
They break a huge stack of cash into amounts under $10,000 and deposit it in numerous little transactions. This is a smurfing technique aimed at avoiding the reporting rules of banks.
If banks report on every deposit over $10,000, authorities could perhaps trace where the cash came from. Deals that chopped up the money trail made it harder for finance regulators to follow.
Help Criminals Launder Dirty Cash Anonymous
Smurfing money laundering schemes can further assist other criminals. Drug traffickers, racketeers, and scam artists can recruit accomplices to stash dirty proceeds in many bank accounts.
Then, the money can be transferred anonymously. Unless the financial sector is vigilant for this definition of smurfing, the wrongdoers might get away with laundering ill-gotten cash.
Unmasking smurfs and keeping dirty funds from flowing unseen into the banking system are some of the prime reasons for strong AML practices. Smurfing managed to hide billions of funds worldwide in 2023.
Large Deals Must Banks Report
The bank has regulations if the deposits are large. If someone attempts to insert $10,000 or more in cash into their account in one day, the bank must report it.
This helps the financial police see if the money is coming from illegal activities such as laundering.
But smugglers found they could slip under the wire by splitting deals among many accounts into portions less than $10,000 each. This way, banks need help to ID smurfing cash flows.
Break Deposits to Elude Currency Rules
Some money launderers attempt to evade the reporting requirement to transfer large amounts of funds and spread them over many transactions.
This technique of “structuring” is designed to assist dirty funds in evading regulators who are on the lookout for AML offenses of smurfing.
Without due care, thieves can succeed in transferring the fruits of their crime around banks anonymously.
Hard to Detect Smurfing Schemes
Smurfing divides illegal gains into small fragments disbursed over various accounts and periods.
Operations may take a lot of work to trace for finance authorities. AML smurfing schemes are prepared to blend with the average customer transactions.
Compliance officers need to relate corresponding deals to ensure that money laundering through smurfing is noticed.
That is why financial institutions need to scrutinize closely for signs of structuring that could indicate an underground money flow.
In 2023, more than 20% of the cases reported by financial crime units worldwide included money laundering through smurfing, pointing out that the practice is greatly used.
Harsh Penalties For Smurfing Networks
Smurfing injects illegal proceeds into bank accounts in a small amount across different accounts and periods, so the scheme might be very difficult for finance authorities to detect.
AML Smurfs try to fit into the norm of everyday transactions. Only compliance officers connecting the relevant deals will smurfed money laundering go undetected.
That is why financial institutions must watch closely for signs of structuring that might highlight an illicit flow of money. In 2023, it contributed 20% to money laundering worldwide flagged cases.
Crack Down on Smurfing Loopholes
The regulators are also strengthening their policies to shut loopholes in smurfing laundering.
This method has been used by criminals to shift criminal proceeds and profits anonymously through the finance system of legitimacy.
They demand banks to consider the fact that smurfed activity, such as split cash exchanges, is created so as not to cross reporting thresholds.
In 2023, fines issued for anti-money laundering activities worldwide crossed $5 billion, which reflects increased scrutiny of these activities.
Better compliance means fewer dirty funds are successfully laundered undetected with the use of smurfing money laundering tactics.
Our guide to transaction monitoring best practices details effective strategies to identify potential smurfing operations before they are successful at secretly moving dirty funds.