What is smurfing? How to spot the signs and protect against it

‘Smurfing’ is a money laundering technique by which criminals move large sums of money in a series of smaller transactions. By depositing smaller amounts separately, the criminal hope to avoid arousing suspicions that the money was acquired by nefarious means.

Why the need for smaller deposits?

Many countries have regulatory limits for the amount of cash a person can deposit at a financial institution. For example, in the US, a person can deposit $10,000 in cash, but any more than that and the institution is legally bound to alert the authorities with a Suspicious Activity Report (SAR).

In the UK, there’s no regulatory limit, but financial institutions will have their own policies which contain their own thresholds. For example, the Financial Conduct Authority has proposed a limited for personal accounts of cash deposits of no more than £1,000 per 24-hour period and £10,000 per 12-month period.  Anything above this would trigger a SAR. The threshold imposed by Barclays bank is a £20,000 limit on cash deposits in a year.

In the UK, anybody working in the regulated sector is required under Part 7 of the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 to submit a SAR in respect of information that comes to them in the course of their business if they know, or suspect or have reasonable grounds for knowing or suspecting, that a person is engaged in, or attempting, money laundering or terrorist financing. 

By breaking up cash deposits into smaller chunks, criminals hope to avoid drawing attention to a large transaction which may arouse suspicion from the authorities.

Is it an offence?

Money laundering is a financial crime, and smurfing plays its part in the money laundering process. Smurfing is an attempt to hide the fact that money comes from illegal sources.

In short, smurfing is an offence and anybody who is involved in it could face a fine and / or imprisonment. Any of their possessions which are considered to be the proceeds of crime may be confiscated.

How does it work? Placing, layering and integration

There are three aspects the money laundering process: placing, layering, and integration.

Placing

Criminals obtain large sums of money through illicit activities like selling drugs, profits from fraud, or ransoms from cyber attacks. They first need to ‘place’ this money.

They can’t deposit it into a bank account all at once without triggering the reporting for suspicious activity. Instead, they deposit it in smaller bundles at various different locations (smurfing).

The money is deposited into accounts that are controlled by other people in the criminal gang.

Layering

The layering stage is an attempt at disguising the origins of the funds. The money may be moved around from country to country, or used for various investments. Cryptocurrency or foreign trading currency is often used at this stage because it is more difficult to trace.

Integration

Then the funds are transferred back to domestic accounts through various assets. This could be houses, jewellery, artwork, or cars.

In this way, the money is ‘clean’, and when the luxury car (for example) is sold, it no longer looks like the proceeds of crime.

Smurfing red flags

The financial institutions are under obligations to report suspicious activity. But what does that look like in terms of smurfing? These are some of the red flags that might indicate smurfing activity:

• Repeated cash deposits into an account

• Cash deposits at different ATMs into the same account, or linked accounts

• Increased activity on an account, particularly in terms of cash in and out.

• Multiple users of the account

How financial institutions protect against smurfing

Cracking down on financial crime is a collective responsibility and managers and employees all need to be aware of the signs, and what to do about it.

With that in mind, regular training is very important for any financial institution. Train your staff frequently on the red flags of smurfing and money laundering. Everybody should know the procedure for reporting suspicious activity through a SAR, and informing the appointing Money Laundering Regulation Officer (MLRO) at the workplace.

Financial institutions also need robust Know Your Client (KYC) controls. This helps to determine the legitimacy of a client’s funds and the purpose of their financial activities.

Many institutions now use technology and AI to monitor monitoring account activity and spot anything unusual such as: transaction patterns, deposits just below thresholds, and trends over time.

Contact us today, we work on both privately funded and serious Legal Aid cases across Leeds, Bradford, Halifax, Wakefield, Huddersfield, Keighley and across West Yorkshire and the UK.

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