Money laundering is big business and is carried out on a huge scale both in the UK economy and globally. Schemes are generally complex and sophisticated, as they have to be for criminals to stay ahead of the authorities.
One of the biggest challenges that financial criminals face is getting their physical cash into the banking system, also known as the placement stage, without raising the suspicion of the authorities. From there it can go through the complex web of transactions that make up the bulk of a money laundering scheme.
Two of the most popular and commonly used methods of placement are structuring and smurfing. These methods seem very similar on the surface, with both involving the breaking down of large sums into smaller ones, and the names are often used interchangeably; however, they are separate and distinct schemes.
In this article, we will look at why criminals do this, how each is done and how they differ from each other.
Both smurfing and structuring involve splitting up a large sum into multiple smaller amounts and depositing them separately. The reason this is done is so deposits will be under the threshold that raises the suspicion of banks and allows them to avoid the notice of the authorities or HMRC.
In the UK, there is not a threshold amount for deposits that banks must then report to HMRC or police, but rather they are compelled to report any suspicious activity to the National Crime Agency, in the form of a Suspicious Activity Report.
For deposits over £5,000, a bank will ask for proof of the source of the funds. This essentially means that any illicitly gained cash must be deposited in amounts under this threshold.
As anti-money laundering software and processes become more sophisticated, just keeping deposits under £5,000 is no longer enough to avoid suspicion. A high volume of deposits, or transfers from other accounts, that are below £5,000 but add up to a much larger sum will quickly alert a bank to possible money laundering. Due to this, criminals will use a range of accounts, across multiple institutions and often register accounts in the name of third parties.
Should HMRC’s suspicions be aroused they have broad powers to investigate. Through a Financial Institution Notice, they can compel financial institutions to provide information about taxpayers without that individual’s consent or the approval of a tribunal.
Smurfing is where a large sum of dirty cash is split into numerous much smaller amounts and each given to a different low-level financial criminal, or ‘smurf’, and deposited into separate bank accounts. These sums are likely to then be consolidated to some extent into fewer, higher value amounts, but still across multiple accounts, which then follow separate money laundering journeys.
Smurfing can be as simple as depositing cash at a high street bank through to international money mules moving sums of cash across borders to deposit in foreign banking systems.
This aims to hide the illicit source of funds and enter it into the banking system without alerting the banks or authorities as to any illegal activity taking place. Smurfing is almost always part of a larger criminal conspiracy.
The term smurf is thought to have come from drug culture, where smurfs were low-level criminals who were used to buy items that were then used in drug production in quantities that would not arouse suspicion.
Smurfing remains popular with drug dealers, who frequently use this method to launder drug money. In these cases, dealers will bribe or force individuals, often customers, to deposit dirty cash into their accounts and then transfer it to one controlled by the dealer/gang.
It is likely that a smurf is not a serious criminal, and may not be involved in any other criminality. Criminals are likely to select vulnerable individuals who are either desperate or compelled under threat of violence.
Structuring is similar to smurfing in that a larger sum is split into smaller sums and deposited into the banking system. Rather than this being carried out by a wide criminal network, it is usually undertaken by a single individual.
An individual will keep deposits under the threshold of suspicion but may not be trying to hide the source of the funds and may not then send the cash through the other stages of laundering money. This is a popular method of money laundering by individuals trying to engage in tax avoidance.
For example, a self-employed plumber might complete thirty jobs in a week but only declare, invoice and record fifteen. The income from the remaining jobs is then split into smaller sums and deposited over time into their private account without any tax being paid.
Structuring is more popular in countries where banks' anti-money laundering processes for deposits are only to report deposits above a certain amount. As the UK requires banks to report any suspicious activity, regular smaller cash deposits are likely to trigger a bank’s anti-money laundering/tax avoidance processes.
Should HMRC begin an investigation into a person using structuring to dodge taxes, the far-reaching powers and seriousness that the legal system places on tax avoidance mean that most schemes will be difficult to conceal.
As you can see, whilst both smurfing and structuring are similar they do differ in how and why they are enacted.
Companies in the regulated sector are subject to strict laws around their anti-money laundering processes and face harsh fines if they are found to be non-compliant. The Financial Conduct Authority is prioritising the investigation and prosecution of those who are in breach, even unknowingly.
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