I am often surprised by the cleverness of the launderers, as they are never short of ideas and techniques for moving their illicit funds without being detected.
Though criminals have hundreds of laundering techniques in their pockets, today we will discuss how smurfing techniques they use to move their illicit funds from one place to another.
The best example is the smurfing technique, the most widely used method for money laundering.
And how surprising is it that despite the fact that methods are excessively being used in financial institutions to launder money, there are few measures to combat it?
This is due to companies’ weakened compliance strategies. One can even say that because money is broken down into very small amounts, it becomes very difficult for organizations to segregate which transactions are legal and which are suspicious.
So, what should organizations do in such a situation? Understanding the problem is crucial before finding any solution. Therefore, first, we need to understand smurfing and the different ways criminals practice it.
Today, we will cover AML smurfing in detail; the different practices criminals use, and the way forward for organizations to halt the chances of money laundering.
What Makes Smurfing Important in ML
Smurfing is consider a part of placement—the first stage of money laundering.
Using these techniques, launderers try to break down more significant amounts into small chunks to deposit into different accounts and make transactions without being detect.
Why do they do that? The international regulatory body has already declare a transaction threshold, which means if any transaction touches that threshold, it must be monitor thoroughly. Therefore, to avoid any investigation, criminals divide the money into portions that are often not consider suspicious transactions. Do they only use one way of smurfing in aml or have something more in their pocket? How does it affect financial institutions?
Smurfing and its Affects on financial institutions.
Let’s start with the ambitions behind smurfing. We are describing it as we know you are already familiar with it: money laundering.
What happens if money laundering proceeds successfully? The organization that allows that smurfing technique to happen successfully, intentionally or unintentionally, may face fines or penalties for breaching the regulations.
In addition to the financial damage, this can also damage the business’s reputation and, consequently, cause it to lose potential customers.
So, what should businesses do? They must implement AML compliance as per the international regulatory bodies’ requirements, which help them monitor, identify, and report suspicious transactions even when the smurfing technique is being use.
Four most commonly used Smurfing Techniques
- Structuring (Batching)
Criminals always try to opt for tested techniques where there are very few chances of detection.
One such technique is structuring, also known as batching. How does this technique work?
It is very effective, and criminals successfully transfer the amount to another jurisdiction without being detect.
And they do it by remaining below the reporting threshold set by financial institutions.
2. Use of Cash-Intensive Businesses
Another widely used smurfing technique is incorporating illicit funds with large businesses that handle more significant amounts of cash daily, such as bars, casinos, restaurants, and other convenience stores.
What do launderers do? They try to mix the illicit funds with regular business earnings, making the detection process more difficult.
3. International Transfers:
Sending money as a remittance is also becoming very popular in transferring illegal money to other destinations.
Remittances are often send through bank transfers or online systems.
The launderers send money to different countries that are use for illicit purposes.
The best example of this is sending $5,000 in multiple transactions to various accounts in different countries through wire transfers.
4. Prepaid Cards
Digital transactions have captured the money transfer as a whole. Debit and credit cards are the primary sources of such transactions. So, criminals purchase multiple prepaid cards with small amounts of cash that seem less suspicious. Then, these cards are use for transactions or withdrawals. And you, what happened with such a technique? It becomes difficult to trace the source of money.
For example: Loading $1,000 onto multiple prepaid cards and using them for purchases or ATM withdrawals.
AML solution against Smurfing in money laundering
Financial institutions must incorporate the AML framework to effectively monitor, detect, and combat any money laundering technique. First, companies need to understand the risk level every customer brings with it.
To assess the risk, financial institutions must implement robust and advanced AML software solutions that automatically alert the flags on such transactions and in the real-time monitoring process.
Is there any tool that can help businesses combat and detect identity smurfing techniques? Yes, there are many; you can choose the best fit for you. However, as efficiency and effectiveness matter, the AML Watcher is the recommended tool. It has 0 false positive results and costs nearly half of your compliance cost.
