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Structuring in Money Laundering Explained

The nature of financial transactions and the potential for significant gains attract bad actors and their devious tactics. That’s why the financial sector is filled with all sorts of crime — starting from bribery or tax evasion and ending in cybercrime or money laundering.

Within the realm of these fraudulent crimes, two money laundering techniques stand out: structuring and smurfing. First of all, let’s set these two practices apart. 

What is Structuring?

Structuring in money laundering is when criminals make transactions intentionally splitting larger amounts into a series of smaller sums to avoid scrutiny from law enforcement or compliance obligations. In other words, criminals strategically structure deposits just under the threshold to prevent unwanted attention.

In these cases, the individual or entity typically conducts smaller transactions without requiring the financial institution to file a report with a government agency. For instance, in the United States, a report must be submitted for all cash transactions exceeding $10,000 processed by a financial institution.

Such transactions are harder to notice as they do not trigger automated reporting systems. This enables criminals to continuously make regular deposits under the reporting threshold, as they don’t have an obvious pattern for the trigger to be made. 

Examples of Structuring

Structuring is relatively simple because all the funds typically go into the same account or a small number of accounts under the same name. Despite that, it can backfire if a bank detects a trend of deposits that are all under the reporting limit:

Is Structuring a Crime?

Even if the person obtained the funds for structuring legally, structuring is still illegal and is considered a criminal offense. Criminals employ structuring in money laundering to avoid anti-money laundering (AML) or counter-terrorist financing (CTF) compliance regulations. They may also create multiple accounts to maintain their “under the radar” status and prevent filing a suspicious activity report (SAR)

Criminals also utilize structuring to conceal how they actually earned the money. Sometimes, individuals use this tactic to avoid tax obligations. Typically, this happens if a person or a high-ranking individual with power and influence receives a monetary bribe. To avoid paying tax on these funds, they make several smaller deposits across multiple accounts.

What is the Difference Between Structuring and Smurfing?

Even though, in banking jargon, smurfing has a similar meaning as structuring, these are two different things. Overall, the main difference is that unline structuring, smurfing is a more sophisticated money laundering strategy involving a bunch of people rather than depending on a single person who makes several deposits just below the reporting threshold. 

Smurfing is a form of structuring and a money laundering tactic that contains illegally obtained money and low-level financial criminals called smurfs. The term “smurf” has roots in illegal drug manufacturing and now, in the context of money laundering, refers to an individual who’s a junior money launderer. Keep in mind that both structuring and smurfing are illegal.

Smurfing happens when illegally obtained cash is given to smurfs, who then make multiple deposits into several bank accounts. Smurfs can use different identities (including fake identities) and various financial institutions to make foreign and offshore bank deposits. 

Examples of Smurfing

One of the other differences between structuring and smurfing is their prevention and detection measures. Banks are required to deploy different solutions that identify and prevent both structuring and smurfing, such as transaction monitoring tools, which detect red flags and smurfing patterns of suspicious activity.

Nonetheless, smurfing is considered a more complex scheme because it’s difficult to detect due to the involvement of multiple smurfs:

This way, the smurfs prepare the money for layering, the second stage of money laundering. Transactions made by smurfs are hardly traceable since the link between the people, all of the accounts, shell companies, and various deposits is difficult to establish. 

Some popular examples of layering in money laundering include:

How is Suspicious Activity Reporting Linked to Structuring and Smurfing?

In cases where a financial institution suspects a customer of structuring or smurfing, they are legally obligated to file a Suspicious Activity Report (SAR). The report is submitted to the Financial Crimes Enforcement Network (FinCEN).

Financial institutions must file SARs within 30 days. If additional evidence needs to be collected, the institution can request an extension of up to 60 days:

It’s essential to understand that the financial institution must only report and raise awareness of suspicious activity and doesn’t have to prove that a crime has occurred. That means the bank doesn’t have to inform the customer about the report.

How to Detect Structuring and Smurfing?

In case of suspicious activity, companies and financial institutions rely on AML professionals to understand the common methods employed by structuring. Only trained compliance specialists are responsible for detecting suspicious patterns and must be prepared to carry out enhanced due diligence (EDD) procedures for high-risk customers.

Some red flags indicating structuring and surfing:

Benefits of Using an AML Compliance Platform

There are special AI-powered tools and AML compliance software that are designed to detect money laundering signs in real-time, minimizing the manual workload for compliance officers. Regulated entities, such as those operating in crypto, fintech, gambling, etc., are required by law to conduct AML screening and employ EDD measures for suspicious, high-risk individuals. 

To automate the complex, data collecting and screening part, businesses today use AML platforms that propose several benefits:

iDenfy is the leading fraud prevention software provider that has both AML tools and identity verification services under a single platform. So if you’re looking for a KYC, KYB, or AML service provider — you’ve come to the right place. 

Try out a free demo today, or check out our customer stories to see how our tools perform in various industries.

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