Updated 2024-09-18
Published 2024-09-10
In financial crime, smurfing refers to a common technique money launderers use to evade detection. This method involves breaking down large transactions into smaller, less conspicuous amounts to avoid triggering reporting thresholds and other red flags in anti-money laundering (AML) systems.
Detecting smurfing is a critical component of AML efforts, and financial institutions should take the necessary steps to use sophisticated alert triggers to identify suspicious activity.
In this blog post, we’ll explore the different types of smurfing alert triggers that can be implemented to strengthen your AML programme.
One of the most straightforward indicators of smurfing is the frequency of small deposits into an account. Smurfers repeatedly deposit amounts just below the reporting threshold, hoping to avoid scrutiny.
AML systems should flag accounts that receive a high volume of small deposits within a short time frame. While a single small deposit might be harmless, a pattern of frequent deposits can suggest an attempt to structure more significant sums of money illicitly.
Tying into the first indicator, money launderers commonly exploit the reporting thresholds by structuring transactions just under the limit, such as depositing €9,900 when the threshold is €10,000.
This behaviour, known as "structuring," is a classic sign of smurfing. Alert triggers should be set to identify multiple transactions that hover just below these limits.
Smurfers often perform multiple transactions in rapid succession to quickly spread large amounts of money.
An AML system should be configured to detect when multiple deposits, withdrawals, or transfers occur in a short period, mainly when the amounts involved are consistently just under the reporting threshold, as mentioned above. This pattern can indicate an effort to evade detection by scattering funds across several transactions.
Another tactic smurfers employ is conducting transactions at various bank branches or ATMs to avoid detection.
By spreading out deposits or withdrawals across different locations, they reduce the likelihood that any branch will notice suspicious activity. AML systems should trigger alerts when transactions of similar amounts are made at different locations within a short timeframe, as this can indicate smurfing.
A sudden increase in the volume or frequency of transactions in an account, particularly when inconsistent with past behaviour, can be a red flag.
For instance, a dormant or low-activity account might suddenly begin receiving numerous small deposits. AML systems should monitor accounts for significant changes in transaction patterns and generate alerts when such deviations occur.
Smurfers may route funds through jurisdictions known for lax regulatory oversight or high levels of corruption to conceal their activities.
AML solutions should be able to flag transactions that involve high-risk countries or jurisdictions, even if the amounts are small. Additionally, if transactions are routed through multiple intermediary banks in these areas, this could suggest an attempt to launder money.
When large payments are artificially split into smaller ones, especially if the amounts are just below reporting thresholds, this should trigger an alert.
For example, a large payment might be divided across several accounts or transferred in small increments over time. This behaviour is a clear indication of smurfing and should be closely monitored.
Consistent and recurring transaction patterns, such as daily deposits of the same amount, can indicate smurfing.
These patterns might appear harmless at first glance, but they should raise suspicion when they occur regularly and involve amounts just below the threshold. AML systems should be programmed to detect such repetitive behaviours.
Transactions during odd hours, such as late at night or early in the morning, can indicate suspicious activity, particularly when combined with other red flags.
Smurfers may attempt to avoid detection by conducting transactions when financial institutions are less likely to monitor activity closely. Alert triggers for transactions occurring at unusual times can help detect these efforts.
Smurfers often use multiple accounts to disperse funds and conceal the money trail. This should trigger an alert if several accounts controlled by the same individual or entity engage in similar small transactions.
AML systems should be able to identify connections between accounts and flag any suspicious activity across these linked accounts.
Detecting smurfing is a critical aspect of robust AML strategies. Financial institutions can better identify and investigate suspicious activities that may indicate smurfing by implementing a range of alert triggers.
It’s essential to have an AML solution that allows you to adjust, modify and add new triggers and alerts as new methods of committing crime emerge constantly.
From monitoring high-frequency small deposits to flagging transactions just below reporting thresholds, these triggers help ensure that money launderers can’t easily escape detection.