Smurfing in Money Laundering

In order to effectively prevent this form of structuring, Anti-Money Laundering (AML) frameworks must include targeted controls capable of identifying, investigating, and reporting suspicious patterns. Firms should implement transaction monitoring systems capable of detecting cumulative or structured transactions⁷ across accounts and counterparties. This includes identifying multiple low-value transactions that may be part of a coordinated attempt to move funds to or from a sanctioned entity.

One of the most effective defenses⁸ is a robust monitoring system that aggregates transactions by customer, account, and entity across time and channels. This enables the detection of patterns where multiple small transactions, individually below the reporting threshold, collectively exceed thresholds or form suspicious activity. Furthermore, it is imperative that undertakings configure alerts for scenarios that have been identified as being associated with smurfing:

• Frequent cash deposits just below reporting thresholds
• Use of multiple individuals’ deposits to a single account
• Unusual frequency of low-value transactions
• Use of different branches, ATMs, or payment channels for similar-size transactions
• Rapid layering of funds through unrelated entities
• Consistent cash flow into deposits over time
• Customer reluctance to provide information or explanations for fragmented deposits

Smurfing often involves activity that is inconsistent with a customer's profile. For example, a low-risk retail customer suddenly initiates high-frequency cash transactions. Institutions must regularly update and calibrate customer risk profiles and trigger Enhanced Due Diligence⁹ (EDD) when behaviour deviates from expectations.

In banking, smurfing usually involves multiple small deposits, withdrawals, or transfers structured to avoid triggering reports. A common scenario that illustrates this phenomenon is that of a client who wishes to deposit $50,000 in cash but opts to divide it into six deposits of $8,300, dispersed over several days or across different branches, in order to remain below the reporting limit of $10,000. This behavior is indicative of a red flag. Banks that fail to detect such structuring risk regulatory penalties and reputational harm.

In order to mitigate this risk, financial institutions employ automated monitoring systems that aggregate transaction data by customer and identify patterns that may indicate structuring. In instances where an account's activity exhibits a discrepancy with the customer's profile¹⁰, such as a low-income account receiving a significant influx of cash, enhanced due diligence procedures are implemented. Regulators have penalized banks in the past for not catching obvious structuring, underscoring the importance of these controls.

Money launderers have also applied smurfing in the insurance industry, particularly with life insurance or investment-linked policies. The technique involves paying insurance premiums or contributions in structured increments to avoid raising flags. For instance, life insurance policies² may be utilized by individuals engaged in illicit activities, such as the sale of illegal drugs, to conceal the profits from these activities. These individuals may arrange for a substantial sum of money to be disbursed across multiple policy accounts or allocate additional funds through a series of smaller third-party checks and money orders, each falling below the reporting threshold. In other cases, the brokers could receive remuneration for policies from the commission account. In such instances, the brokers could accept cash from clients and credit the client's policy with funds from their business operating account. Over time, the criminals could cash in or borrow against those policies, turning illicit cash into apparently legitimate payouts.

In order to mitigate the risk of such exploitation, insurance companies are obligated to implement Anti-Money Laundering (AML) controls analogous to those required of banking institutions. In many jurisdictions, insurers are obligated to file suspicious transaction reports for any activity that appears to be money laundering through insurance products. Common red flags in the insurance industry include

• payments from multiple third parties into a single policy,
• early policy cancellations or surrenders that incur a loss just to retrieve funds,
• and customers who demonstrate an unusual level of concern with the financial transaction over the insurance benefit.

In the event that these indications of potential structuring emerge, insurers are obligated to conduct an investigation and issue a report. By taking this action, they contribute to the prevention of insurance policies being utilized as a clandestine conduit for the transfer of illicit funds.

Casinos and gaming establishments are also vulnerable to smurfing. These venues often have legal reporting thresholds for cash transactions, and criminals try to structure their buy-ins and cash-outs to avoid triggering those reports.

FATF has noted cases where a group of accomplices each buy chips just under the limit and then combine their chips for one person to cash out, effectively laundering their cash as gambling wins¹¹. In order to mitigate the risks associated with such activities Casinos employ AML procedures that include monitoring the cumulative value of chip purchases and redemptions to detect suspicious behavior. Particular attention is paid to frequent transactions just below reporting thresholds, a red flag for structuring activities. Casinos also monitor the use of multiple patrons contributing to a single bankroll, a technique used to obscure the origin and ownership of funds. When such conduct is observed, institutions are required to file SARs under applicable national AML frameworks.

Online gambling platforms apply similar surveillance by tracking repeated low-value deposits and withdrawals, as well as coordinated account activity that may indicate smurfing. These controls are critical to protecting the integrity of the gaming sector and preventing its exploitation as a vehicle for laundering illicit funds.