Structuring in Money Laundering Explained

Money laundering is a complex process criminals employ to disguise the origin of illegally obtained money. This process is divided into three stages - placement, layering and integration. Similar to smurfing, structuring in money laundering is a technique employed in the placement stage of money laundering to ensure that illicit funds are introduced to the financial system systematically and without attracting the attention of regulators. 

This article discusses structuring in money laundering, answering common questions like how it works and ways organisations can spot it today.

What is Structuring in Money Laundering?

Structuring refers to the process where criminals split a large financial transaction into several smaller transactions to avoid attracting regulatory attention and scrutiny on the process. This is because the money is usually illegally obtained and needs to be laundered to make it appear ”clean” before the criminal can freely spend it.

The small transactions are usually just below the trigger threshold for financial institutions to report to the regulatory authority which may trigger an investigation. For example, in the US, financial institutions are mandated to report all transactions exceeding $10,000 while in Nigeria, it is N10,000,000 (Ten Million Naira) and N5,000,000 (Five Million Naira) for corporate bodies and Individuals.

If the total sum to deposit is $1,000,000, the criminal may choose to deposit $9,000 every 5 days to 10 different accounts in 10 different banks across 5 different jurisdictions until the total money is deposited. This way, they can inject the illegal sum into the financial system unnoticed. Smurfing is, therefore, a popular money laundering placement method. 

Is Strucring a Crime?

Structuring is illegal regardless of the intention behind which it was done. Criminals can leverage smurfing a technique for placement in integration, while businesses can also employ it to evade tax. Regardless of the intention, it is done to remain under the radar and avoid regulatory scrutiny which is illegal.

Smurfing Vs Structuring; What’s the Difference?

Smurfing is different from structuring although often used interchangeably. Structuring simply refers to splitting a total amount of money and depositing it over time instead of one single transaction. However, smurfing takes things a step further to make it more complex by employing other people, called “smurfs”, to make the deposits. This makes it more complicated and difficult to track compared to simply structuring. 

Although structuring is a common money laundering tactic, it can also be employed by individuals looking to hide their legal money to avoid paying taxes. After the process is completed, layering in money laundering can kick off.

Read more: Structuring vs Smurfing in Money Laundering

Examples of Smurfing in Money Laundering

Structuring can take many forms, depending on the creativity and sophistication of the perpetrators. Some common examples include:

• Frequent Small Deposits: A criminal may make numerous small deposits just under the reporting threshold over a period of time. For instance, depositing $9,500 several times over several weeks instead of one lump sum of $95,000.
• Using Multiple Accounts: Opening several bank accounts in different names and making deposits into each. This disperses the funds and reduces the likelihood of detection.
• Cash Purchases: Using smaller amounts of cash to purchase high-value items like cars or real estate, which can later be sold, effectively laundering the money.
• Check Cashing: Writing numerous checks just below the reporting threshold and cashing them at different locations.

Let’s look at some case study examples: 

Use Case 1: Restaurant Cash Flow

A criminal organisation operates a chain of small restaurants. They regularly deposit cash earnings from these businesses into various bank accounts. To avoid detection, they ensure each deposit is just under the reporting threshold of $10,000. By spreading these deposits across different accounts and different banks, they can launder large sums of money while making it appear as legitimate restaurant revenue. This method also involves frequent cash deposits from supposed daily earnings, further obfuscating the illicit source of the funds.

Use Case 2: Multiple Online Bank Transfers

An individual engages in structuring by utilising online banking platforms to transfer small amounts of money between various accounts. Each transfer is kept under $10,000 to avoid triggering the bank's automatic reporting systems. By using a network of personal and business accounts, sometimes under different names or in different jurisdictions, the individual can move large sums of money without raising suspicion. The ease and speed of online transfers make this a particularly efficient method for structuring.

Use Case 3: Art Gallery Purchases

A sophisticated money launderer uses an art gallery as a front for structuring. They purchase high-value art pieces using multiple payments under the reporting threshold. For example, instead of paying $100,000 for a painting in one transaction, they make ten payments of $9,500 over several months. The gallery, either complicit or unaware, records these payments as legitimate sales. Later, the launderer sells the artwork to a third party, effectively integrating the illicit funds into the legitimate economy.

Use Case 4: Casino Chips

A criminal enters a casino with a large amount of illicit cash. They purchase casino chips in small increments under the reporting limit, then spend a minimal amount gambling. After a few hours, they cash out the remaining chips for a check or wire transfer, claiming the funds as gambling winnings. Casinos are often seen as high-risk for money laundering due to the large volumes of cash transactions and the difficulty in distinguishing between legitimate and illegitimate winnings.

Use Case 5: Structured Real Estate Investments

A money launderer invests in real estate through a series of small, structured payments. They use multiple shell companies to purchase property, making each payment under the reporting threshold. By using different names and accounts, they create a complex web of transactions that makes it challenging to trace the money back to its illegal origins. Once the property is purchased, it can be sold or rented out, further integrating the illicit funds into the legitimate economy.

How to Prevent Structuring in Money Laundering

The best way to prevent structuring in money laundering is through KYC and AML compliance software solutions. With the right solutions, businesses can adequately verify customers' identity and run AML checks on them to assess the risks they pose and put adequate monitoring processes in place. 

The processes they can employ include: 

1. Identity Verification

Quickly and accurately verifying the identities of newly registered customers during onboarding ensures that the organisation only gives platform access to legitimate individuals and spots fake actors or smurfs using a fake identity. 

2. AML Screening and Monitoring

An AML solution screens customers against Politically Exposed Persons (PEPs), sanction lists, watchlists and adverse media for effective risk assessment and to ensure compliance. This ensures that high-risk individuals are identified during onboarding and appropriate measures are taken.  

3. Suspicious Activity Reporting (SAR):

Structuring is complex and an organisation may not be able to uncover it themselves. This is why SAR is important, as institutions are mandated to report such activities to regulators within a stipulated timeframe, who can then proceed to investigate. 

There are also several key questions to answer during reporting as laid out by the regulatory authority in charge. For example, FinCEN mandates that the following questions be answered during reporting:

• Who is involved in the suspicious activity (both partners)?
• What instruments are being used?
• The location where it took place
• The time it occurred
• Why does the organisation think it is suspicious?

Achieving AML Compliance with Smile ID

Structuring is a sophisticated and pervasive method used in money laundering that poses a significant challenge to financial institutions and regulatory bodies. By breaking down large sums into smaller, less detectable transactions, criminals aim to evade AML regulations and integrate illicit funds into the legitimate economy.

Smile ID identity verification solution empowers financial institutions to verify over 8500 identity documents across 226 countries globally. Businesses can also conduct government KYC check on customers. Our AML screening solution Our AML solution instantly screens users against: 

• 1100+ global and African sanctions
• PEP list of approximately 1.5 million individuals across four levels.
• Adverse media from 75,000+ reputable news sources with a minimum of 2 news sources from every country in the world.

This way, financial institutions can easily spot high-risk customers and place appropriate money laundering prevention processes in place. 

Book a free demo to learn more.