What is smurfing?
In banking and finance, smurfing is a money laundering technique in which large sums of money are split into smaller transactions across multiple accounts, institutions, locations, or instruments (such as prepaid cards). The goal is to avoid triggering legal reporting thresholds for large transactions, such as those set under anti-money laundering (AML) laws, and to obscure the origin of the funds.
Smurfing is also used in online gaming, where it refers to a secondary account a skilled player uses to compete against less-skilled players. But the term has a different origin in the context of money laundering, where it describes the act of breaking down large transactions into smaller ones — much like a group of small cartoon Smurfs working together. The similarity between the two terms is coincidental, as they developed independently.
The difference between smurfing and structuring
Smurfing and structuring both involve breaking down large sums of money into smaller transactions to avoid regulatory scrutiny. However, there are a few differences:
Structuring is the legal term for the act of breaking up transactions to avoid reporting thresholds. It’s usually carried out by a single individual, though it can also be done by a group.
Smurfing is the colloquial term for a complex form of structuring that typically involves multiple individuals, known as "smurfs.” Each of these smurfs makes smaller transactions to avoid detection.
Smurfing is often part of a larger, coordinated money laundering operation and may involve transfers that cross geographical borders. Structuring, while potentially international in scope, is usually viewed as a more localised effort.
The core goal of both smurfing and structuring is to avoid triggering mandatory reporting requirements and to conceal the true source of the funds. But smurfing adds an additional layer of complexity through its use of multiple participants and locations.
How does smurfing work?
Money laundering in general consists of three stages: placement, layering, and integration. Smurfing is a specific technique used primarily during the placement and layering stages.
Placement
In the placement stage, smurfs (individuals recruited to assist in the process) introduce illicit funds into the financial system by breaking them into small deposits across multiple accounts, branches, or institutions. These deposits are typically structured to stay below mandatory currency transactions reporting thresholds (e.g. $10,000, under US law).
For example, funds may be deposited into standard user accounts on real money gaming platforms, turning a large sum into a series of apparently legitimate transactions.
Layering
In the layering stage, the smurfs transfer funds between various accounts, financial institutions, and even jurisdictions, creating complex transaction patterns designed to obscure their origins and complicate tracing efforts.
Integration
In the integration stage, the laundered money is reintroduced into the legitimate financial system, often through investments in assets such as real estate or art, giving the illusion of legal income.
Smurfing: A real-world example
In the 2010s and early 2020s, cocaine traffickers in Spain and Portugal laundered more than €10 million using smurfing techniques to avoid detection by remaining under regulatory reporting limits. Underscoring the difficulty in identifying smurfing, the criminal organisation was active for more than eight years and the operation was uncovered and stopped only following a three-year investigation.
How to prevent smurfing in banking and finance
Here are some key activities banks and financial-service providers can do to prevent or mitigate the risk of smurfing:
Implement robust Know Your Customer (KYC) and Customer Due Diligence (CDD) measures to verify customer identities, understand the purpose of accounts, assess source of funds, and monitor ongoing account activity.
Conduct regular AML risk assessments to identify vulnerabilities.
Monitor accounts for unusual transactions, such as frequent small deposits or offshore transfers. If needed, implement real-time transaction monitoring to detect suspicious activities.
Maintain detailed records for compliance and regulatory reporting.
Look for specific smurfing indicators, such as patterns of large numbers of deposits just under reporting thresholds.
Use AML transaction monitoring systems to identify red flags.
Work collaboratively with law enforcement as well as other institutions to prevent money-laundering activities. This isn’t optional. Financial institutions are legally required to file Suspicious Activity Reports (SARs) with the relevant authorities when they detect potential money-laundering activities.
Stay up to date with evolving smurfing trends, such as the use of cryptocurrencies for smurfing-like structuring to evade detection.
Maintain compliance with relevant regulations, such as the 6th Anti-Money Laundering Directive (AMLD6) in the EU and the BSA and PATRIOT Act in the US.
Automated AML screening tools can help you reduce compliance costs while maintaining high standards. For example, Fourthline’s AML screening solution checks multiple data points to rule out up to 95% of false positives automatically. It also gives you conclusive outcomes to ensure you aren’t serving individuals with unacceptable levels of risk.
Smurfing FAQs
Is smurfing a money laundering technique?
Yes, smurfing is a technique used in money laundering. However, money laundering encompasses a much broader set of illegal techniques and behaviours. Other money laundering techniques include:
Making use of tax havens to hide potentially illicit assets from scrutiny;
Paying unregistered workers in cash (“black salaries”);
Bulk cash smuggling (i.e., physically moving money across international borders to disguise where it came from).
Is smurfing always illegal?
Smurfing is almost always associated with money laundering or some other financial crime. If the money were not illicit, it would not need to be laundered. Therefore, while real identities and legitimate transactions may be a part of smurfing, the overall pattern is designed to obscure illegal behaviour.
What's the difference between smurfing and layering?
Smurfing is a technique used in the placement stage of money laundering. It involves breaking large amounts of illicit money into smaller transactions to evade reporting and obscure the origins of the funds.
Layering, on the other hand, is the second stage of money laundering. It involves moving and disguising illicit funds within the financial system to obscure their origin.
What is cuckoo smurfing?
Cuckoo smurfing is a money laundering technique in which criminals exploit legitimate bank accounts expecting overseas transfers.
For example, a person sends cash abroad through a money transfer business. That business partners with a local remittance provider tied to a criminal organisation. Instead of using the sender’s money, the organisation wires illicit funds to the recipient’s bank account. The sender unknowingly legitimises the criminals' money while their own funds go to the criminal organisation.
