The term “smurf” refers to a money launderer who attempts to avoid detection by law enforcement by splitting up significant transactions into a number of smaller ones that are all below the reporting threshold. Smurfing is an unlawful behavior with potentially dire repercussions.
According to current bank laws, financial institutions must file a suspicious activity report for any cash transactions that over $10,000 or that they deem questionable (SAR).
Smurfing is the practice of concealing the transfer of money obtained illegally into a number of bank accounts.
Countries like the United States and Canada require a financial institution processing any transaction above $10,000 in cash to file a currency transaction report in order to prevent money laundering by criminals engaged in illicit activities like drug trafficking and extortion.
Criminal organizations may try to hide their activities by separating their funds into several smaller deposits and distributing them around a number of geographically scattered accounts in an effort to avoid these reporting requirements. In order to prevent regulatory notice, transactions might be structured in this way.
The USA Patriot Act, passed shortly after the 9/11 terrorist attacks, strengthened anti-money-laundering regulations by requiring reporting of transactions totaling $10,000 or more and allowed the use of investigative techniques intended to combat organized crime and narcotics trafficking.
How a Smurf Works
The three steps of smurfing are placement, layering, and integration. The criminal is relieved of protecting substantial sums of cash gained unlawfully at the placement stage by transferring it into the financial system. For instance, a smurf may conceal money in a bag and go to another nation to gamble, acquire foreign currency, or for other purposes.
In the layering stage, a clever stacking of financial transactions is used to disconnect illegal money from its source, obscuring the audit trail and severing the connection to the initial crime. For instance, a smurf may transfer money electronically from one nation to another before investing the proceeds in cutting-edge financial products or foreign exchange markets.
The money is given back to the criminal during the integration phase. There are several methods for recovering the monies, but all of them must make it seem as though the money originated from a trustworthy source. For instance, items like real estate, works of art, jewelry, or expensive cars could be bought and delivered to the offender.
Example of Smurfing
The practice of “cuckoo smurfing” is one way foreign money is moved by criminals. Let’s say that a criminal from New York owes another from London $9,000, and a merchant from London owes a supplier from New York $9,000 in debt.
- The London businessman visits London Bank and deposits $9,000 with the request that the money be transferred to the bank of the New York supplier.
- Working with the New York criminal, the London banker gives the New York criminal the order to transfer $9,000 to the bank account of the New York supply.
- The London banker then moves $9,000 from the account of the London merchant to the account of the London criminal.
The New York supplier and the London merchant are unaware that the money was never transmitted directly. They only know that the New York supplier earned $9,000 and the London merchant received $9,000. But if discovered, the London banker may suffer severe repercussions.
Structured transactions involving a number of accomplices, each with their own bank account, is another typical technique. If someone had $50,000 to send overseas, for instance, it would often result in a Currency Transaction Report and draw attention to the person’s source of income. That individual may have ten accomplices make $5,000 bank transfers apiece to evade a CTR. Even if the money is obtained legitimately, splitting the transaction to prevent reporting is still illegal.
Why Is It Called Smurfing?
The makers of illegal methamphetamine may have taken inspiration for the term “Smurf” from them. Drug producers sometimes dispatch accomplices to make several purchases at various sites while staying inside the legal purchasing restrictions in order to amass authorized precursor chemicals.
What Is Smurfing in Money Laundering?
Smurfing is the term used to describe the practice of breaking a big quantity of money into several smaller transactions, often separated into multiple distinct accounts, in order to evade regulatory attention.
Why Is Smurfing Bad?
Smurfing is a type of money-laundering that can help criminal organizations transfer money they have obtained unlawfully into the regulated financial system.
What Is Smurfing in Cybersecurity?
Smurfing in cybersecurity, which has nothing to do with financial Smurfing, refers to a Distributed Denial-of-Service Attack in which many servers are made to communicate with the target at simultaneously. Despite how brief each communication is, together they render the target’s network useless.