Money laundering is a serious criminal offence that involves the illegal acquisition and transfer of assets through various hidden money laundering practices. The three stages of money laundering are placement, layering, and integration.
Business Challenges in Money Laundering
In today’s evolving economy, businesses face financial transaction monitoring in terms of profitability, significance, and development. Among these challenges are prevention of fraudulent activities, illegal transaction and transfer of assets, and illegal funds transfer, which create cash payment red flags for businesses, particularly smaller ones, that may lack the necessary technology and knowledge to identify and detect techniques to launder money for review to fight against money laundering methods. Furthermore, some businesses are more likely to accept cash payments, which can raise concerns about suspicious financial transactions or hidden money laundering practices.
Smurfing Money Laundering Technique
Smurfing and structuring are very similar when it comes to techniques to launder money, but smurfing refers to the financial structuring of breaking down large financial transactions into many small amounts to make them appear less suspicious by employing a large number of “smurf” characters to achieve the larger objective of laundering money.
Smurfing got its name from the practice of dividing up large sums of money into smaller ones and splitting them among multiple accounts that are scattered across the world to make them more easily identifiable, much like the very small cartoon characters known as Smurfs. By applying this smurfing money laundering technique, illegal money can easily become legal money. Using these tactics, can structure transactions to avoid regulatory detection of an illegal funds transfer.
Financial Crimes and Red Flags
Compared to structuring, the crime of smurfing financial deposits is more complicated. The act of smurfing can be similar to making an installment payment to a bank, but there are crucial differences, primarily related to the financial structuring and money laundering methods involved.
Consider a jeweller who has obtained illegal funds through tax evasion or hidden money laundering practices using placement and multi-layering techniques. This person desires to embark on a luxurious vacation that costs 20.000 euros. Instead of making a single, conspicuous payment to the travel agency, they employ the smurfing money laundering technique to avoid cash payment red flags and detection of money laundering. The traveller would also like to deposit at a different bank to avoid financial crimes and red flags.
The procedure develops as follows:
Make the initial payment: Travellers make the initial payments, which cost 5.000 euros. Small payments do not create any cash payment red flags. Complete with installment: The traveller will complete their additional payments by following the smurfing money laundering technique to continue funding vacations. Every payment of around 2.000 euros covers flights, accommodation, tours, and activities. These payments are spread out and structured to avoid making a single transaction that exceeds the reporting threshold set by their bank. The traveller proceeds by using different accounts to divide payments: The traveller may use money laundering methods to make these payments, such as credit cards, debit cards, bank transfers, and even cash, depending on what the travel agency accepts. Using different money laundering methods can further obscure the trail of suspicious financial transactions. Legitimate Documentation: The traveller would ensure that they maintain legitimate documentation that the travel agency provides, whereby the agency provides legitimate documentation for every illegal funds transfer, such as invoices and receipts, to make the transactions appear genuine. Holiday can start: Once the cash transaction structuring is finished, he or she enjoys their holiday without any apparent connection to money laundering methods, as the money for each payment has been effectively integrated by the smurfing money laundering technique.
Financial Structuring
Consider a small business owner who receives income from various sources, including legitimate sales and freelance work. To manage these funds using money laundering methods, the business owner chooses to make periodic deposits into their bank account over several weeks or months, with each deposit falling below the $10,000 threshold, which triggers reporting to the authorities by the bank. These deposits might range from $4,000 to $6,000 to avoid suspicious financial transactions. The cash is not deposited into the bank account in a single transaction, instead there are multiple transactions to avoid raising cash payment red flags.
This helps the business owner maintain better cash flow management and reduces the risk of large, irregular transactions triggering financial transaction monitoring and reporting to the authorities. Importantly, the business owner is fully compliant with the financial structuring of all relevant financial regulations and tax laws, ensuring that their income is appropriately reported and taxed to avoid detection of money laundering. This smurfing money laundering technique highlights cash transaction structuring and legal compliance, contributing to hidden money laundering practices and a lawful financial operation.
AML Solutions for Businesses
To combat “Structuring” and “Smurfing” financial institutions must build AML solutions for businesses. As a result, adopting AML solutions for businesses not only helps to forestall money laundering methods but also facilitates the efficient monitoring of suspicious financial transactions, thereby providing a layer of defence against financial crimes and red flags.
Some investigations include money laundering methods such as the misapplication of public resources, corruption, fraud, embezzlement, and other possible predicate offences. Criminals who use the smurfing money laundering technique do so by depositing large sums of money into a third-party bank account, where the money is then divided up to make it look as though it came from a legitimate source rather than a criminal enterprise.
How does INFOCREDIT support your financial institution?
Infocredit, a leading provider of superior AML solutions globally, works with LexisNexis, ensuring your financial institution is armored against illegal financial activities such as smurfing and structuring. We empower your establishment with efficient and user-centric Anti-Money Laundering (AML) tools essential for smoothly conducting enhanced due diligence processes.
Engage with our innovative solutions designed for effortless screening of potential clients, partners, and transactions. With Infocredit, you adhere to stringent global regulatory requirements and unlock significant time and cost savings through our intuitive interface equipped with pre-configured dashboards and reports tailor-made for your needs.
Please navigate through the intricate web of AML compliance with our robust solutions meticulously covering Politically Exposed Persons (PEPs), Sanctioned Individuals or Entities (SIPs), and Risky Client Accounts (RCAs). We specialize in identifying red flags and diligently tracking daily activity changes, safeguarding financial institutions from inadvertently engaging in illegal or non-compliant transactions.
Choose Infocredit as your trusted partner and experience unparalleled peace of mind with your AML measures, ensuring your financial institution meets and exceeds international regulations; compliance standards. Secure your operations with our state-of-the-art AML solutions, crafted for financial establishments seeking reliability and excellence in compliance within the challenging global financial landscape.