The financial services sector is plagued with financial crimes, especially in the form of money laundering. The two most common forms of the concept are structuring money laundering and smurfing. Let’s first understand the difference between the two.
What is structuring in money laundering?
Structuring in money laundering is when perpetrators make transactions that are in varying sums, below the trigger amount. This allows them to make continuous and regular deposits without triggering the automated cash reporting systems. These kinds of transactions can be hard to notice as they don’t have an obvious pattern and do not trigger automated reporting systems. Structuring is a criminal offense and may indicate involvement in underlying nefarious activities.
What is smurfing in money laundering?
Smurfing in money laundering is when large quantities of money are broken into smaller transactions and done through multiple accounts. Those who make these deposits are referred to as smurfs. Most often, cash that is obtained from illicit means or is intended to be used illegally is distributed this way. Often, the accounts through which such transactions are done belong to various people or people with multiple fake identities. This is favoured method to prepare the money for layering and can be hard to trace as the link between the smurfs and the accounts are hard to identify.
Difference between structuring & smurfing
While they seem similar and are sometimes used interchangeably, smurfing and structuring in money laundering are different. Structuring is when the money is intentionally transacted in smaller amounts to avoid detection to avoid taxes or scrutiny.
Smurfing does that as well but is more sinister, it uses other people, the smurfs to make these deposits. Smurfing is often done with foreign and offshore accounts.
Examples of both
Let’s take a look at an example of structuring in money laundering:
If an individual has INR 50,00,000 to deposit in their bank and they want to evade systems and scrutiny, they would make multiple transactions between INR 500 and INR 49,999 to avoid triggering automated systems. They would ideally space out deposits and use varying amounts.
Let’s take a look at an example of smurfing in money laundering:
If the same individual wanted to distribute a larger amount, say INR 4 crores, they would have to involve smurfs. These people would make small deposits from various places around the state and the country. They may also make payments to different accounts belonging to one individual or multiple individuals in that person’s network. Smurfs may also be asked to carry physical cash abroad and deposit money into accounts in various banks and even various countries.
How does suspicious activity reporting come into all of this?
If a bank or financial services company suspects customers of structuring or smurfing, the institution has to file a SAR or Suspicious Activity Report. The report is filed with the Financial Crimes Enforcement Network (FinCEN). These reports have to be filed within 30 days and make ask for an extension of up to 60 days if more evidence needs to be collected. It is important to note that the institution only has to raise awareness of suspicious activity and does not have to prove that a crime has been committed. They do not have to inform the customer either.
For SARs to meet requirements, the report has to have five essential parts:
- The identity of the person conducting the suspicious activity.
- The instruments or mechanisms used for this activity have to be shown.
- The time and date of the suspicious activity must be recorded.
- The place or places the activity took place must be informed.
- A clear reason for suspicion must be made known as well as the method of operation.
Consequences of money laundering
There are various laws that determine the consequences and terms based on the specific violations under the money laundering act. Sentences can range from three years onwards and may include an additional fine that needs to be paid. Those facilitating money laundering will also face criminal charges.
The consequences go beyond punishment to the criminal:
- Money laundering questions the legitimacy of businesses in the private sector
- It can damage financial markets
- It can cause economic instability and distortion
- Cause a loss of revenue to the government and financial institutions
- Can damage business and personal reputations
- Financial power is given to criminals
- Money laundering enables more nefarious activity such as drug and skin trade, terrorism, and so on.
Benefits of an AML platform
Almost every business deals with financial transactions, however, AML is especially important for those in financial services and FinTech. Having a robust and reliable AML platform offers the following advantages:
- Automatically scans for suspicious behaviour or real-time
- Scans for past suspicious behaviour
- Monitors money transfers
- Sends out alerts about suspicious activity
- Easy to pinpoint the cause of alert or fraud
- Scans numerous types of transactions
- Allows companies to stay compliant
- Integrates features such as sanctions scans, blacklists, watchlists and so on
How does HyperVerge help?
HyperVerge has a plethora of solutions that help companies stay AML compliant and safeguard them from onboarding risky clientele.
- ID Tracking
Verify customers instantly
- Video KYC
Remote and secure onboarding
- Face Authentication
Internal authentication on repeat transactions and users
- Know Your Business
End-to-end business verification services.
To understand more and keep your company safe and AML compliant, take a look at what HyperVerge has to offer.
What is the difference between structuring and smurfing in money laundering?
Structuring in money laundering involves intentionally transacting money in smaller amounts to avoid detection, while smurfing in money laundering involves using other people (smurfs) to make smaller deposits. Smurfing is often done with foreign and offshore accounts and is considered more sinister than structuring.
What is a Suspicious Activity Report (SAR) in the context of money laundering?
A SAR or Suspicious Activity Report is a report that a bank or financial services company has to file if they suspect a customer of structuring or smurfing. The report is filed with the Financial Crimes Enforcement Network (FinCEN) within 30 days and may ask for an extension of up to 60 days if more evidence needs to be collected. The institution only has to raise awareness of suspicious activity and does not have to prove that a crime has been committed.
Is it mandatory for all businesses to use an AML platform?
It depends on the country and the regulations in place. In some countries, it is mandatory for financial institutions and other high-risk businesses to implement an AML platform. However, in other countries, it is optional but highly recommended.