Most people have probably heard of "smurfing" or "smurfs" in relation to the popular cartoon characters, but did you know that it also has a connection to anti money laundering (AML)? We all know that money laundering is the process of concealing the origins of illegally obtained money, and that there are many methods to committing this financial crime. One common method is known as smurfing. In this blog, we'll explain what smurfing is, how it works, and why it's important for organisations and reporting entities to be aware of this type of money laundering.
Smurfing, or sometimes referred to as “structuring” is a type of money laundering that involves breaking up large transactions into smaller ones to avoid detection. The name comes from the similarity between the way funds are broken down and the way that cartoon characters known as "smurfs" divide up tasks.
For example, a group of smurfs might deposit $10,000 worth of illegal money into ten different bank accounts over the course of a week. Each deposit would be below the $10,000 threshold that triggers AML reporting requirements, making it more difficult to detect the suspicious activity.
Smurfing can be executed by using multiple bank accounts, credit cards, or shell companies, and while smurfing is not illegal in itself, it can and is mostly used to facilitate other criminal activities such as tax evasion, terrorism financing, and drug trafficking.
Financial institutions are required to report any transactions over a certain amount, so smurfing allows criminals to avoid this scrutiny, but not for a long time. When you start aggregating all the deposits together, it becomes clear that something suspicious is going on. So, while smurfing may be an effective way to launder money in the short-term, it's not likely to go unnoticed by financial institutions and AML regulators for very long.
There are three stages involved in smurfing: placement, layering, and integration. The placement stage is when the smurfs introduce the dirty money into the financial system. Placement techniques include structured deposits, as mentioned in the example above, which is when cash is deposited into a bank account in small amounts to avoid detection.
In the layering stage, the smurfs try to distance the money from its criminal origins by moving it through a series of transactions. This can involve using shell companies or offshore accounts to make it more difficult to trace the funds.
Finally, in the integration stage, the smurfs will attempt to legitimise the funds by investing them in legitimate businesses or assets.
Smurfing can impact any industry where large sums of cash are exchanged such as financial institutions and the real estate market. In the banking sector, smurfing can be used to launder money obtained through criminal activity. This makes it difficult for banks to track the origins of the funds and raises the risk of fraud and other financial crimes.
In the real estate market, smurfing can be used to purchase property anonymously or to avoid paying taxes on the sale. This can artificially inflate prices and lead to financial losses for legitimate buyers. Other industries at risk of smurfing are casinos, online gaming, and jewellers.
Smurfing can have a serious impact on organisations and reporting entities that are targeted by criminals for money laundering purposes. It can heavily damage the reputation of an organisation if AML regulators find out that they were knowingly or unknowingly involved in money laundering activities. In addition, smurfing can also lead to increased scrutiny from regulators, which can result in heavy fines or even the loss of licenses.
There are several steps that organisations and reporting entities can take to prevent smurfing in money laundering. First, they should have procedures in place to ensure they are following AML regulations i.e., implementing risk management systems like MemberCheck to identify suspicious activity. Second, they should train their employees on how to spot signs of smurfing and how to report it. Finally, they should work with their financial institutions to ensure that they are properly monitoring transactions for potential financial crimes. By taking these steps, industries can help prevent smurfing and other forms of money laundering.
MemberCheck is a powerful AML solution that is used by organisations around the world to prevent money laundering activities such as smurfing. MemberCheck lets you easily search for individuals and businesses by name, allowing you to find matches across multiple databases. This makes it pain-free for organisations to screen PEPs, SIPs and RCAs, identify red flags and track changes in their activities. MemberCheck is a pay-as-you-go service, so you only pay for the searches you need. This makes it an affordable solution for organisations of all sizes.
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