What Is a Smurf?
A smurf is a colloquial term for a money launderer who seeks to evade scrutiny from government agencies by breaking up large transactions into a set of smaller transactions that are each below the reporting threshold. Smurfing is an illegal activity that can have serious consequences.
Current bank regulations require banks or other financial institutions to report cash transactions exceeding $10,000—or any others they deem suspicious—on a suspicious activity report (SAR).
- Smurfing is a money-laundering technique involving the structuring of large amounts of cash into multiple small transactions.
- These smaller transactions are often spread out over many different accounts, to keep them under regulatory reporting limits and avoid detection.
- The Patriot Act gave law enforcement agencies broader powers to curb money laundering by putting in place reporting requirements for any deposits, withdrawals, or currency exchanges exceeding $10,000.
How a Smurf Works
Smurfing involves depositing illegally gained money into multiple bank accounts for under-the-radar transfer in the near future.
To prevent money laundering by criminals involved in illegal activities, such as drugs and extortion, countries such as the United States and Canada require a currency transaction report to be filed by a financial institution handling any transaction exceeding $10,000 in cash. Therefore, a criminal group with $50,000 in cash for laundering may use several smurfs for depositing anywhere from $5,000 to $9,000 in a number of geographically dispersed accounts. This is a form of structuring transactions to avoid regulatory detection. Shortly after the 9/11 terrorist attacks, the USA Patriot Act expanded anti money-laundering efforts by allowing investigative tools designed for organized crime and drug trafficking prevention to be used in terrorist investigations and making reporting of transactions of $10,000 or more mandatory.
Smurfing takes place in three stages: placement, layering, and integration. In the placement stage, the criminal is relieved of guarding large amounts of illegally obtained cash by placing it into the financial system. For example, a smurf may pack cash in a suitcase and smuggle it to another country for gambling, buying international currency, or other reasons.
During the layering stage, illicit money is separated from its source by a sophisticated layering of financial transactions that obscures the audit trail and breaks the link to the original crime. For example, a smurf may move funds electronically from one country to another, then divide the money into investments placed in advanced financial options or overseas markets.
The integration stage is when the money is returned to the criminal. Although there are numerous ways of getting the money back, funds must appear to come from a legitimate source, and the process must not draw attention. For example, valuables such as property, artwork, jewelry, or high-end automobiles may be purchased and given to the criminal.
Example of Smurfing
One way criminals move money internationally is known as “cuckoo smurfing.” Suppose that a New York criminal owes a London criminal $9,000, and a London merchant owes a New York supplier $9,000.
- The London merchant goes to London Bank and deposits $9,000, with instructions to transfer the money to the New York supplier’s bank.
- The London banker, working with the New York criminal, instructs the New York criminal to deposit $9,000 in the New York supplier’s bank account.
- The London banker then transfers $9,000 from the London merchant’s account to the London criminal’s account.
The London merchant and the New York supplier do not know the funds were never directly transferred. All they know is that the London merchant paid $9,000 and the New York supplier received $9,000. However, if caught, the London banker could face serious consequences.