Smurfing in Money Laundering - All You Need to Know

Criminals use numerous money laundering techniques to get past the detection systems of financial institutions. Smurfing in money laundering is a common strategy that fraudsters use to avoid suspicion. It's essential to know how it works so you can structure your anti-money laundering solutions to counter such a risk in your business.

Financial institutions, online merchants, money service businesses, and cryptocurrency exchanges are especially at risk of encountering smurfing on their platforms. Let’s walk you through how smurfing in money laundering is executed, ways to detect the activity, and how to prevent it using reliable AML technology for your business.

What is Smurfing In Money Laundering?

Smurfing is a technique used in money laundering to make illegally obtained funds appear legitimate by breaking them down into smaller, less suspicious transactions. The goal is to avoid raising red flags at financial institutions or regulatory authorities that monitor large or unusual cash transactions. 

Money laundering typically begins with funds obtained through illegal activities such as drug trafficking, corruption, or fraud. Criminals can't deposit large sums of cash directly into banks because such transactions are subject to strict reporting requirements. For example, in Nigeria,  Financial institutions are required to report all cash transactions in any currency above a threshold of N5 million for individuals and N10 million for corporate bodies to the CBN and NFIU. In the US, they are required to report transactions from $10,000 and above.  

To avoid the triggers illegal funds are divided into smaller amounts, often slightly less than the reporting threshold, (e.g., $9,000 each in the US). However, the amounts can be further divided into even smaller sums if necessary.

Why is it Called Smurfing?

The term "smurfing" originated in gaming and was later adopted in financial crime. 

In the early days of online multiplayer gaming, particularly in "Warcraft II," players would use multiple accounts or characters to engage in unfair practices. This was often done to deceive opponents or cheat the system. Players would create many smaller, seemingly insignificant accounts (or "smurfs") to divide their gaming efforts. This allowed them to appear less experienced or threatening while they competed against less skilled opponents, making it easier to win or gain an advantage.

Just like gamers, criminals used the term "smurfing" to name the practice of dividing large sums of illegally obtained money into smaller, less conspicuous transactions to avoid detection and suspicion. So, "smurfing" is all about dividing and deceiving, much like the original gaming concept.

How Smurfing Works

Here's a general breakdown of how scammers use the smurfing scheme to carry out illicit cash flow while avoiding the authorities: 

1. Obtaining Funds: 

Money laundering begins with obtaining illicit funds, which can come from criminal activities like drug trafficking, fraud, bribery, or other illegal sources.

2. Splitting the Loot: 

Once the illegal funds are obtained, the next step is to break them into smaller, less suspicious amounts. This is done to avoid raising red flags when depositing or transferring funds, as large transactions may attract attention from authorities.

3. Dispersal: 

After the funds are split, they are distributed among multiple individuals, often called "smurfs." These individuals are typically low-level and unwitting participants, often used as intermediaries to further obfuscate the funds' source. The Smurfs receive instructions on how to move the money without arousing suspicion.
 

Industries Commonly Targeted by Smurfing in Money Laundering

Some of the industries commonly targeted by smurfing activities include: 

• Financial institutions
• Real estate firms
• Gaming and casino platforms
• Money service businesses
• Crypto exchanges

What Happens After the Money Has Been Divided?

There are typically three stages to a money laundering attempt. Smurfing is a common first step. 

After that, the dividend cash is deposited or used for various transactions across different bank accounts or financial institutions to “wash it”. These transactions are designed to seem ordinary and unrelated to criminal activities. The criminals might engage in several rounds of these transactions, known as "layering." This confuses the paper trail and makes it harder for authorities to trace the origin of the funds.

Once the money has been effectively "laundered" through multiple transactions, it appears clean and legitimate. It can then be used without raising suspicion. Criminals may invest it in legal businesses, purchase assets, or spend it as clean money. This phase is called integration. 

 

The key to smurfing is to make the transactions look like normal financial activities to avoid arousing suspicion. Despite this, there are mechanisms to detect and report suspicious activity. 

Top 6 Red Flags to Detect Smurfing in an Organisation

Detecting smurfing before or while it’s happening can help prevent legal and reputational issues in your organisation. But it’s not as easy as it sounds, especially without proper AML compliance technology.

Here are the general red flags that point to smurfing: 

1. Frequent, Structured Transactions: 

Look for patterns of transactions that are frequent, structured, and consistent in size and timing. This might indicate an attempt to avoid detection.

2. Unusual Transaction Patterns: 

Analyze transaction histories for unusual spikes or consistent withdrawals/deposits in round figures, which may indicate smurfing.

3. Multiple Accounts: 

Be vigilant if one individual or group opens various charges with your organisation, mainly if they conduct transactions separately and avoid hitting the reporting thresholds.

4. Rapid in-and-out Transactions: 

Pay attention to individuals who frequently deposit and withdraw funds shortly after each other without engaging in regular banking activities.

5. Structured Cash Deposits: 

Watch for structured cash deposits, where multiple individuals deposit cash amounts under the reporting threshold limit.

6. Inconsistent Customer Information: 

Verify the accuracy and consistency of customer information, including names, addresses, and identification documents, as discrepancies can be red flags

How to Prevent Smurfing with AML Automation

The easiest way to detect a smurfing act is to prevent it before it happens. Using an automated AML check tool, you can automatically flag and prevent known money launderers and fraudsters from ever onboarding onto your platform. 

With Smile ID AML check, businesses can easily assess customer risks to spot customers with a high probability of money laundering. Here’s how it works:

Step 1: Provide identification details

Collect customer information. You will need an ID number, name, nationality, and DOB to complete both the KYC and AML checks.

Step 2: Image Capture

Capture live images of the user and their documents.

Step 3: Get Results

The user information is scanned across global PEPs, Sanctions, and Watchlists after which you will receive a response with the KYC information and AML results. You can review all the user details in a single view.

The organisation can then conduct further investigation on high-risk customers to probe their source of funds and ascertain it is not a money laundering smurfing process. 

With Smile ID AML Check you can instantly screen users against 1100+ global and African sanctions, PEP, and adverse media lists with only the individual’s name, year of birth, and nationality. Book a free demo to learn more today.