This article answers the question of ‘What is Smurfing in Money Laundering?’ and the relevant concepts.
Smurfing Money Laundering
Smurfing is a technique of concealment of illicit funds and making the Money Laundering process more complex and undetectable. In smurfing, money laundering is done by breaking large amounts of cash into smaller portions called ‘smurfs’ used to make undetectable transactions. These smurfs are deposited in different accounts, making it difficult for regulators to identify money laundering activity.
Typically, Money Laundering involves 3 main stages mentioned below:
Smurfing is a part of the Placement stage of the Money Laundering process. Smurfing further involves structuring where the broken-down larger amounts of cash are deposited into smaller amounts that remain below the reporting limit set by regulatory bodies and financial institutions
What is Structuring in Money Laundering?
Structuring and Smurfing are interchangeable terms used for the same concept. There might be a thin-line difference in a few aspects, but overall, both terms refer to the same illicit activity of concealing larger amounts of Laundered cash. Structuring money laundering further involves the following steps:
- Breaking Larger Amounts through multiple deposits, purchases through different accounts, and withdrawals
- Keeping transactions below the reportable threshold as per the jurisdiction and regulatory requirements. This reporting threshold varies from country to country.
- Dispersing funds into multiple bank accounts or financial institutions, typically located in different geographical locations.
How Smurfing is Detected?
Mostly, the AML (Anti-Money Laundering) procedures rely on the expertise and diligence of the Compliance Professionals to identify potential Money Laundering and Smurfing activity. AML systems raise red flags for potential smurfing activity, where ongoing monitoring is vitally important. Here are a few ways in which KYC AML systems can detect Smurfing Money Laundering.
1 Pattern Monitoring & Analysis:
KYC and AML systems analyze transaction patterns and behaviors, where they are programmed to identify irregularities and anomalies. They also detect repetitive transactions that involve smaller amounts from the same account to multiple accounts.
2 Detection of Structuring:
AML and KYC Systems are able to identify deliberately split amounts through automated KYC and AML procedures. They can do this by detecting suspicious behavior and analyzing the smaller transactions that are kept below the reporting requirements.
3 Behavior Analysis
Customer behavior is one of the most important aspects that helps in the identification of Money Laundering. KYC and AML systems monitor the transaction history, customer relationships, sources of income & funds, and suspicious behavior. Any sudden changes in these elements will be flagged as suspicious and reported to the authorities for further investigation.
4 Entity Monitoring & Analysis
Financial Institutions, Banks, and other relevant business entities are also monitored by the KYC and AML systems. Any suspicious connections or links to the high-risk jurisdictions will be flagged and reported. Furthermore, any relationships that indicate money laundering activity will also be highlighted in a regularly monitored AML system.
Read the insightful blog on Effective Ongoing Monitoring
Smurfing in Money Laundering is an illegal activity. It is used to hide illicit funds and make the Money Laundering process complex for regulators to detect. Smurfs are the smaller fractions that are sourced from larger amounts of criminally earned cash. Therefore, to protect the integrity of the financial ecosystem, KYC (Know Your Customer) and AML (Anti-Money Laundering) systems are vitally important for identifying and monitoring such activities. Through continuous and systematic monitoring and training of compliance professionals, Smurfing and other money laundering activities can be detected and prevented well before time.
To know more about how KYC and AML combat financial crime, visit the KYC/AML Guide and build an insightful understanding of a robust and seamless defense line against money launderers and fraudsters.