Maksim Afanasjev
Staff Product Manager
September 11, 2024
Blog Post
Education
Fraud Prevention
Share:
On this page
What exactly is structuring?
What's the difference between structuring and smurfing?
What are some structuring and smurfing examples?
Suspicious activity reporting
Currency transaction reports
Suspicious activity reports
Is structuring a federal offense?
Consequences of money laundering
Enhancing business integrity
What exactly is structuring?
Structuring is when a person deliberately splits a large financial transaction into a series of smaller transactions – with the specific aim of avoiding scrutiny from regulators and law enforcement officials.
Each of these smaller transactions is usually for an amount that is just below the limit where a financial institution needs to file a report with a government agency. In the US, a currency transaction report (CTR) must be submitted if a financial institution processes any cash transaction exceeding $10,000.
To avoid providing the bank with the information required for a CTR, somebody engaged in structuring may split their transactions across several days or deposit the money into different accounts at different banks.
What's the difference between structuring and smurfing?
Although some people use the terms interchangeably, structuring and smurfing are different.
Structuring involves intentionally (and for the purpose of avoiding detection/reporting) splitting an amount of money rather than depositing it all in one transaction. Although it is a common money laundering tactic, perpetrators also use the technique to evade taxes on legally acquired money and to hide where they generate their money from.
Smurfing is everything structuring is – and more. It involves using other people (‘smurfs') to deposit money into multiple accounts.
Smurfing is a popular money laundering placement method. Cash obtained illegally is distributed among smurfs, who then make deposits into several different accounts (sometimes under different identities) at a variety of financial institutions. Smurfing can be quite complicated, and the process often includes foreign and offshore bank deposits.
Once the money has entered the financial system in this manner, it is then accessible for layering (the second stage of money laundering). Suspicion is frequently avoided since it is difficult to establish a link between the smurfs, the deposits, and the accounts used.
What are some structuring and smurfing examples?
To properly demonstrate the differences between structuring and smurfing, let's look at a couple of examples.
Let's say that someone has $90,000 in cash. If they want to avoid reporting requirements, they can split this into 10 transactions of $9,000. This is an example of structuring. Remember, structuring transactions in this way is illegal.
Structuring is relatively easy to detect because all the money usually goes into the same account or a small number of accounts that are under the same name. As a result, it can backfire if a watchful bank observes a trend of deposits that are all just below the reportable level.
However, let's say that the same person doesn't want to report this income on their tax return or wants to hide the fact that the cash has been obtained illegally. In this instance, the person enlists the help of their friends to make deposits for them. These people then all deposit various amounts of money into numerous different banks in different areas, to avoid detection. They will usually do this under a series of aliases and make payments across borders. All of these payments will be just below the CTR threshold.
The idea is that if all these people deposit various amounts in various banks – under various names – then nobody will be able to figure out that the transactions are linked.
Of course, the alternative is that the individual in question could simply deposit all $90,000 into their bank account in one transaction. This is the legal solution. However, if the person has no proof that they have the capacity to earn this type of money or that their business has the capacity to generate the cash, then it could lead to further questioning from the bank. If this is the case, a bank will file a currency transaction report and a suspicious activity report.
Currency transaction reports
A Currency Transaction Report is an essential part of a bank's anti-money laundering (AML) responsibilities. These reports require the bank to verify the identity and social security number of anyone who attempts to execute a large transaction, regardless of whether that person has an account with the bank.
Today, when a customer initiates a transaction involving more than $10,000, most bank software will create a CTR electronically and fill in tax and other customer information automatically.
A bank is not obligated to tell a customer about the $10,000 reporting threshold unless the customer asks about it specifically. When the customer is informed about the threshold, they may then decide that they wish to abort the transaction entirely or execute the transaction for an amount below the threshold. If the customer backs out of the transaction, a suspicious activity report (SAR) should be filed.
Suspicious activity reports
If a financial institution suspects that a customer is structuring transactions in an attempt to avoid reporting requirements, then they are required to file a suspicious activity report (SAR). SARs can be used to cover almost any activity that a bank believes is suspicious.
This report must be filed with the Financial Crimes Enforcement Network (FinCEN), which will then investigate the incident. A financial institution has the responsibility to file a report within 30 days. On top of this, an extension of no more than 60 days may be obtained, if necessary, to collect more evidence. Crucially, the institution does not have to prove that a crime has been committed and the customer does not need to be informed.
FinCEN requires that the SARs filed by financial institutions identify the following five essential elements:
- Who is conducting the suspicious activity?
- What instruments or mechanisms are being used?
- When did the suspicious activity take place?
- Where did it take place?
- Why does the filer think the activity is suspicious?
In addition, the method of operation must also be included in the report.
Examples of suspicious activities that may prompt a financial institution to file a SAR include:
- A lack of evidence of legitimate business activity
- Transactions that do not correspond with the stated business type
- Unusually large volumes of wire transfers
- Unusually complex transactions that require multiple accounts
- Bursts of transactions within a short timeframe
- Transactions that are an attempt to avoid reporting and recordkeeping requirements
Consequences of money laundering
A violation of 18 U.S.C. §1956 can result in a sentence of up to 20 years in prison. Meanwhile, a violation of 18 U.S.C. §1957 can result in a sentence of up to 10 years in prison. Similarly, people found guilty of structuring can face up to five years in prison.
As with most federal financial crimes, the exact sentence a person will receive is often determined by the amount of money involved in the offense and the number of crimes committed.
However, money laundering also has consequences for businesses and the wider economy as a whole. Studies have shown that money laundering:
- Undermines the legitimacy of the private sector
- Undermines the integrity of financial markets
- Causes economic distortion and instability
- Leads to a loss of revenue
- Causes huge amounts of reputational risk for businesses
There are also several social consequences of money laundering, including allowing drug traffickers, smugglers, and other criminals to expand operations. Plus, economic power is transferred from the market, government, and citizens to criminals.
As a result, there is a big focus on stopping laundered money from entering the financial system. This is why it's so important to know what structuring is and how it can be stopped.
Enhancing business integrity
If your company must comply with money laundering regulations, consider using Veriff, a solution for financial institutions to fulfill their AML obligations through various checks.
AML screening, or Anti-Money Laundering screening, is vital for businesses aiming to mitigate risks associated with financial crimes. The key benefits of implementing effective AML screening include enhanced compliance with regulatory requirements, which helps protect organizations from fines and legal repercussions. Additionally, it fosters trust among stakeholders by demonstrating a commitment to ethical practices and customer safety. AML screening also aids in identifying high-risk customers and transactions, allowing for proactive measures to be taken against potential fraudulent activities. However, it is important to note that Veriff does not detect structuring; it is just one of many solutions that financial institutions (FIs) use to meet their AML obligations, which involve a comprehensive array of different checks. Ultimately, by investing in robust AML screening solutions, businesses can safeguard their operations and contribute to the overall integrity of the financial system.
Here at Veriff, we understand that no two companies have the same KYC and fraud prevention needs. This is why our solution can adapt to your requirements while also providing superior accuracy in online identity verification. Take a look at our plans today to see how much an anti-money laundering platform could cost you.
