Money laundering is an international problem, and criminals conceal illicit funds by employing certain strategies. One of these methods is Smurfing techniques. In 2023, approximately 38 trillion dollars were estimated to be laundered globally. It is becoming a very big issue for most organizations, especially financial institutions. Smurfing entails breaking large amounts of illicit cash into small amounts to avoid being detected, which poses a great challenge to the authorities. Money laundering impacts economies and the decline of the financial systems since criminals are capable of channeling their ill-gotten wealth without being detected.
Governments and financial institutions are checking such activities by changing laws and setting up new systems, but criminals are not idle. They are inventing new ways and techniques. Among these is Smurfing, which prevents easy detection and apprehension of illegal transactions. This article will discuss how exactly Smurfing takes place, the difficulties with fighting this method of money laundering, and the international perspective of Smurfing.
What is Smurfing?
Smurfing techniques include having individuals split a large amount of money into smaller amounts in a bid to avoid raising suspicion. Criminals place these amounts in various personal bank accounts to make their wicked deeds harder to track. Most countries have established reporting limits for large transactions like the $10,000 limit, which is the case in the U.S. By ensuring that deposits are formulated and conducted below these prescriptions, criminals evade them. In their 2023 global study of AML Smurfing, the United Nations Office on Drugs and Crime (UNODC) found that money laundering suspects preferred transactions to fall between $5,000 to $9,999 less likely to attract law enforcers.
Bonus: Learn more about Smurfing techniques, detailed steps of conducting Smurfing, and how the process hampers money laundering in the subsequent sections.
How Does Smurfing Work?
Smurfing techniques aim to avoid identification by splitting large volumes into small volumes that can spare attention from the authorities. Such actions hinder the ability of authorities and financial institutions to recognize the proceeds of crime.
Breaking Down Large Transactions
The essence of Smurfing techniques is to split the amount of money that has to be laundered into smaller amounts. This helps avoid exposure to financial institutions. For instance, instead of wiring $50,000 in one transfer, a culprit could make five transfers worth $9,500 each. This enables them to work outside the $10,000 reporting limit that the banks and other regulators had placed. According to the records, in 2022, more than half of the money laundering cases were conducted through amounts that were split below the reporting threshold.
Use of Multiple Accounts and Individuals
The criminals can employ many people or “smurfs” to deposit the lower amounts in many accounts. As with the people they deal with, they can divide the money between different people and financial institutions, which makes it almost impossible to track. In 2022, approximately 70% of the cases of money laundering in the global financial system entailed multiple bank accounts and institutions.
Smurfing and Structuring
Smurfing and structuring are very related to one another. Structuring refers to arranging the money deposits in a manner that may not arouse suspicion. In the United States, there is the Bank Secrecy Act, whereby banks are obliged to disclose transactions that exceed $10,000. That is why offenders carefully maintain their deposits below this threshold. In 2021, global financial authorities released information that over 60 percent of SARs involved transactions that fell below the threshold legal limits. Some of the Smurfs could make several deposits at different banks to avoid notice being attracted.
Smurfing in Money Laundering
Smurfing in money laundering is just one way of concealing illicit funds, as pointed out earlier. They then transfer the funds to other different accounts or invest in assets such as real estate once the money has been deposited. In 2023, more than $300 billion was spent on buying properties, usually through structured transactions. These transactions cause a lot of problems for authorities in trying to return the money to its source, which is unlawful.
International Smurfing
International Smurfing is a process of transferring money across different countries. These entities use international banks and different currencies to conceal it. According to the FATF data, in 2022, over $500 billion has been through international monetary transactions consisting of international Smurfing as well. Cross-border fund transfer enables criminals to exploit some nations with low AML law standards. This cuts the ability of global regulators to shreds when it comes to identifying and halting unlawful business.
Challenges for AML Efforts
Financial institutions are enhancing their mechanisms of usage detection of Smurfing tricks, though identifying this kind of procedure is rather difficult. It is common knowledge among world banks, which filed over 2 million SARs in 2022, that smurfing remains rampant in the industry. This is because most criminals always operate sub-safely by raising the reporting levels so that they can easily avoid being apprehended.
To combat international Smurfing, exercise international cooperation. Due to the differences in legislation between the countries, this becomes a challenging task.
