Smurfing in Money Laundering

What Is Smurfing?

Smurfing is the practise of laundering cash by dividing it up into smaller amounts in an effort to avoid being discovered. It’s also referred to as structure.

Money mules that employ the smurfing technique attempt to avoid triggering suspicious activity reporting criteria by doing a large number of tiny transactions. 

Smurfing refers to many user accounts being created in order to influence the platform or the rankings in professional gaming and real-money gaming, which is an entirely separate sort of smurfing. 

What Is a Smurf?

A smurf is a money mule that divides huge quantities of money into smaller ones in order to avoid being discovered.

According to the FBI’s classification of money mules, smurfing is typically thought to be carried out by complicit or at least willing smurfs due to the peculiar activities it necessitates. 

The term “cuckoo smurfing” is occasionally used to refer to smurfing, especially when unwanted or unintentional players are involved.

How Does Smurfing Work? 

We are all aware that there are several ways to perpetrate the financial crime known as money laundering, which is the process of hiding the source of money gained unlawfully. 

One such technique is smurfing, which is also known as “structuring” and is a form of money laundering that entails splitting up large transactions into smaller ones in order to evade discovery. The term is derived from the similarities between how money are allocated and how the “smurfs” cartoon characters split up chores.  

For instance, over the course of a week, a gang of smurfs may transfer $10,000 in illicit funds into ten separate bank accounts. As a result, it would be more challenging to identify suspicious behaviour because each deposit would be below the $10,000 level that initiates AML reporting obligations.

Smurfing, which may be carried out through many bank accounts, credit cards, or shell businesses, is not illegal in and of itself but is frequently used to support other illicit activities including tax fraud, financing of terrorism, and drug trafficking. 

Smurfing gives criminals a short-term escape from inspection because financial institutions are compelled to report any transactions beyond a specific threshold, but only temporarily. Aggregating all of the deposits together reveals that there is suspicious activity taking place. Smurfing may be a successful method of money laundering in the short term, but financial institutions and AML regulators won’t likely overlook it for very long.

Smurfing involves the placing, layering, and integration phases. The Smurfs infuse black money into the financial system during the placement phase. Structured deposits, such in the example above, are a type of placement method where cash is put into a bank account covertly in tiny sums. The smurfs move the money via a series of transactions at the layering stage in an effort to hide its illicit origins. In order to make it more challenging to track down the cash, this may entail establishing phoney businesses or offshore accounts. 

The Smurfs will finally make an effort to legitimise the cash at the integration stage by investing them in trustworthy companies or assets. 

Financial institutions and the real estate market are two examples of industries that are susceptible to smurfing. Smurfing can be done in the financial industry to launder money gained via illegal conduct. This increases the danger of fraud and other financial crimes and makes it difficult for banks to trace the source of the payments.  

Why Is Money Laundering Called Smurfing?

Smurfing and money laundering are not synonymous, and neither are money mules. Smurfing is a reference to the Smurfs from the comic book series since both are many, almost similar, and little, much like the money that is broken up into smaller amounts to wash it. 

All of this is stated in an NBC News piece, which also mentions that Miami-based attorney Gregory Baldwin is credited with coining the word. 

Other sources concur with the symbolism of “smurfing,” but they point out that it was probably first used in the slang of drug users, who would buy small quantities of their preferred drugs or ingredients for making drugs from a variety of sources, abuse them, or use them to make other drugs. 

Examples of Smurfing in Fraud

Smurfing is a popular method for avoiding detection while attempting to launder money. For illustration:

According to the Daily Mail, former footballer Ryan McDowell was sentenced to prison in 2018 for leading a smurfing operation that laundered at least £692,000/$931,270.

Smurfing was responsible for the £3.6/$4.84 million that was discovered on 95 separate bank accounts in 2019. According to Interpol, the money had been put in a number of modest transactions.

The Spanish police and Europol apprehended criminals in 2018 who were thought to have laundered up to €9/$11 million through crypto ATMs, smurfing, and bank dumps.

How Smurfing Detection in Finance and Banking Works

When it comes to banks, building societies and other financial institutions, stopping smurfs in their tracks requires having effective know-your-customer (KYC) measures in place and adopting AML fraud detection.

There are technologies available today that support businesses’ AML operations by leveraging the effectiveness of fraud detection using machine learning and heuristics. 

Advanced systems use methods like social media search, data enrichment, and device fingerprinting to form conclusions and give risk ratings per individual or per transaction as opposed to manual document review operations, which are expensive and prone to human mistake.

This enables risk assessors to decide more wisely and effectively. 

Know more about IDcentral’s KYC and AML Screening Solution

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