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Smurfing – What is a Smurf in Banking and Finance?

What Is Smurfing in Finance and Banking?

SmurfingA smurf is an insider term for a money launderer who tries to avoid detection by government agencies. Smurfing is the practice of dividing big transactions into smaller ones that are individually below the reporting threshold. Smurfing is a criminal offense with significant repercussions. Current banking rules compel banks and other financial institutions to file a suspicious activity report (SAR) for cash transactions over $10,000.  Banks are also required to report any other transactions deemed suspicious.

A Suspicious Activity Report (SAR) is a document that financial institutions must file with the Financial Crimes Enforcement Network (FinCEN).  Banks and associated institutions are required to disclose when there is a suspected case of money laundering or fraud. These reports are instruments for monitoring any conduct in finance-related businesses that are judged unusual, a prelude to unlawful action, or may endanger public safety.

Smurfing – A Closer Look

Smurfing is the practice of transferring unlawfully obtained funds into many bank accounts in preparation for future under-the-radar transactions. Countries such as the United States and Canada require a currency transaction report to be submitted by financial institutions.  They must submit this report when processing any cash transaction exceeding $10,000.  The purpose is to prevent money laundering by criminals engaging in illicit activities such as narcotics and extortion.

To avoid these reporting requirements, criminal organizations may seek to distort their deposit activity.  For example, by breaking their funds into several smaller deposits.  Then, dispersing the funds among a number of geographically scattered accounts. This method is known as structuring transactions in order to evade regulatory scrutiny. Shortly after the 9/11 terrorist attacks, Congress passed the USA Patriot Act, which expanded anti-money-laundering measures.  It authorizes investigative tools to address organized crime, drug trafficking prevention, and is used in terrorist investigations.  Further, it makes it mandatory to report transactions of $10,000 or more.

Smurfing Steps

Smurfing usually takes place in three stages.

  • Disposal – In the disposition stage, the criminal deploys large amounts of illegally obtained cash into the financial system.  For example, the smurf may smuggle a large amount of cash to another jurisdiction and exchange it through gambling or purchasing another international currency.
  • Overlay – During the layering stage, illicit money is stripped from its source.  This is done through stacking financial transactions that obscure the audit trail cutting the link to the initial crime. A smurf, for example, may electronically transfer funds from one country to another.  Then, divide the funds into smaller investments of financial options in overseas markets.
  • Reunite – The money is returned to the criminal in another form. There are several methods for recovering the monies.  However, the funds must look to have originated from a legal source, and the procedure must be discreet. For example, valuable assets such as property, artwork, jewelry, or high-end vehicles may be acquired and delivered back to the source.

What is Structuring?

Structuring does not have to entail illegally sourced money or money laundering.  It might simply be that you do not want the size or frequency of your deposits to be inspected by the bank.  As a result, you arrange your legally acquired deposits accordingly.

Structuring is also a Crime

Structuring is the strategy of arranging or layering your deposits, withdrawals, and so on in order to evade detection by the bank. Typically, this involves not depositing more than $10,000 in cash at one time.  The purpose is to avoid triggering a Currency Transaction Report (CTR) or a possible Suspicious Activity Report (SAR). Bank laws require financial institutions to make reports when certain transactions occur in large dollar amounts or on a frequent basis. These reports are not limited to the United States.

Smurfing Examples

For example, suppose you have $25,000 in cash. You would prefer not to trigger a CTR so you want to avoid detection and reporting by the bank.  Therefore, you do not put the money directly into your account with a single deposit.  Instead, you deliberately stretch it out over many days. Structuring is a worldwide issue that is not restricted to the United States. Many nations have laws in place that are comparable to the one in force in the United States. The reason for this is that no financial institution wants to be considered as a conduit or catalyst for any type of fraud, money laundering, terrorism.

A common method is structuring transactions with a group of accomplices, each with his own bank account. For another example, consider John who does not trust banks.  He has accumulated over $250,000 in cash over a number of years that he keeps at home in a floor safe.  An issue arises where he needs to send $75,000 overseas. Of course, this large transaction would ordinarily trigger a Currency Transaction Report and call attention to the source of his income. In order to avoid a CTR, John asks ten of his buddies to make bank transfers of $7,500 each. In return, John reimburses them all in cash.  Even if the money is legally sourced, the act of dividing the transaction to avoid being reported is itself a crime.

There is no general law against handling large sums of money. However, the act of structuring transactions to evade federal reporting limits is a crime, even if the money is legally sourced and obtained.

When is a Suspicious Activity Report (SAR) Required?

The grounds for issuing a SAR vary by nation and even by the institution.  Triggering is based on the nature of the suspicious behavior and the specific policies of the bank or financial institution. Whatever the grounds, in select cases, FinCEN in the United States mandates a suspicious activity report. First, if a financial institution suspects an employee of engaging in insider trading, it must file a report. It is not, however, limited to employees. Financial firms also keep track of their customers’ transactions. A report is necessary if probable money laundering or Bank Security Act breaches are discovered. For example, a SAR might be triggered if a bank suspects a customer of operating an unauthorized money lending service. In most cases, the SAR must be submitted within 30 days of the detection of probable criminal behavior.

Smurfing FAQs

Why Is It Called Smurfing?

The name appears to have been inspired by illegal methamphetamine makers. To amass restricted precursor chemicals, drug producers frequently dispatch accomplices.  In turn, they make several purchases at different places while staying under the legal purchasing limitations placed on controlled chemicals.

What Is a Smurf in Money Laundering?

Smurfing is a form of money-laundering which allows criminal groups to move illegally acquired money into the regulated financial system. It refers to the practice of avoiding regulatory scrutiny.  Large sums of money are divided into multiple smaller transactions, sometimes divided into multiple different accounts.

What is Smurfing in gaming?

Smurfing is a significant issue in practically every competitive multiplayer game. Some gamers make a second account to play against lower-leveled opponents for a more casual experience. Others utilize the account to play with their lower-ranked pals. However, because the smurf is usually better than the opposing team, this usually destroys the competitive experience for them.

What Is Smurfing in Cybersecurity?

Cybersecurity Smurfing is a type of Distributed Denial-of-Service Attack.  It occurs when many servers are misled into connecting with the target simultaneously. Despite the fact that each interaction in itself is insignificant, the cumulative effect renders the target’s network inoperable.

Up Next: What Is a Branded Title Auto?

Branded TitleA branded title identifies a vehicle that has sustained damage due to causes like accidents, flooding, odometer tampering, etc. Once a brand has been assigned to a car’s title, it cannot be removed by repair, no matter how thorough.  A branded title indicates that the car had extensive damage, issues with its odometer, or a defect that caused it to be bought back by the manufacturer. An automobile with a branded title isn’t always a totally negative thing. Branded title automobiles need more investigation and research than new or clear title vehicles. However, with a trustworthy vendor and a high-quality repair, it might still be a solid value.

Specific title brands depend on the car’s condition and the state where the label was attached. Only a state official can assign a branded title to a vehicle and register it in its documents.  Check with your local Division of Motor Vehicles for state-specific information. Buying a secondhand automobile might be cost-effective, but it is not without potential risks. For safety reasons, always review all relevant documents to ensure the vehicle’s history. The title brand indicates whether or not the car is possibly hazardous to drive. If you want to buy a used car, it is critical that you understand what it means. A branded title implies that the vehicle had substantial damage, manipulation of its odometer, or a flaw that led the manufacturer to buy it back. A car with a branded title can be a terrific value, but there are several negatives that may make the transaction unappealing.

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