One of the simplest and most common techniques used by rookie money launderers is “structuring” or “smurfing”—breaking up large transactions into smaller amounts to avoid detection. The goal is to keep each transaction below the regulatory threshold that triggers mandatory reporting by financial institutions, typically set at $10,000 in many countries.
This seemingly straightforward tactic often appeals to those who are new to laundering money, believing they can outsmart the system by staying just below the radar. As we in the financial crime industry know banks and financial institutions are well-equipped with rules and systems that detect and prevent this behaviour. In this article, we’ll dive into why people engage in this activity, how they get caught, the common rules banks use to detect this, and why attempting this method is risky, illegal, and get you on the wrong side of the law.
Why Do People Do This?
For rookie money launderers, the appeal of transacting just below the regulatory thresholds lies in its simplicity. They believe that by breaking down large sums of money into smaller, more manageable transactions—typically below $10,000—they can avoid raising suspicion.
Money launderers often rationalize that financial institutions won’t notice multiple smaller transactions as long as each one stays below the reporting threshold. This tactic can also involve using multiple accounts or even multiple individuals (often referred to as “smurfs”) to deposit money into various banks in small increments. The rookie launderer assumes that spreading out the money across different accounts and locations will outwit the bank’s transaction monitoring systems.
How Do They Get Caught?
While structuring may seem like a clever way (at least to the money launderer) to avoid detection, it is, in fact, one of the most common methods that law enforcement agencies and financial institutions are trained to detect. Transaction monitoring systems are designed to flag multiple transactions that, when viewed together, may indicate an attempt to evade reporting requirements.
- Pattern Detection: Even if individual transactions fall below the reporting threshold, if they are made frequently and in a structured manner (such as multiple deposits of $9,900), banks will notice and flag the activity through pattern detection.
- Transaction Clustering: Financial institutions use algorithms that group transactions made by the same individual or related parties over a specific period. When banks notice multiple small transactions occurring across several days or weeks, they may investigate further, assuming the launderer is trying to stay below the radar.
- Suspicious Activity Reports (SARs): Financial institutions are required by law to file Suspicious Activity Reports (SARs) when they detect unusual activity. This includes transactions that appear structured to avoid reporting thresholds. If an institution suspects structuring, it will report the activity, even if no single transaction meets the threshold for mandatory reporting.
- Increased Scrutiny from Regulators: Even without explicit detection systems, regulatory bodies continuously monitor trends in financial behaviour. Banks and money service businesses often face significant regulatory pressure to be vigilant, and failing to detect suspicious behaviour could result in heavy fines or sanctions. This forces them to adopt highly sensitive tracking mechanisms.
Let’s now look at common Rules Banks Use to Catch Structuring
Financial institutions have robust mechanisms to detect illegal structuring activities, and they are well-aware of the “just below the threshold” tactic. Some of the most common rules and systems banks use include:
- Aggregation of Transactions: Banks don’t just monitor individual transactions. They aggregate transactions over time to detect patterns of repeated small deposits that might indicate an attempt to avoid reporting thresholds. For example, if someone deposits $9,500 on Monday and $9,700 on Thursday, the bank’s system will flag this for review.
- Frequency-Based Alerts: A key indicator of structuring is the frequency of transactions. Banks monitor how often transactions occur below the threshold. If an individual repeatedly makes deposits just under the $10,000 limit, this triggers an automatic alert.
- Geographic Monitoring: Banks track where deposits and withdrawals are made. If a person is making multiple deposits in different branches or even different banks in close proximity, this can be an indicator of smurfing, a technique used to spread out transactions and you will get caught.
- Linked Accounts and Entities: Banks track related accounts and entities to ensure that money isn’t being moved between them in a manner that evades detection. For example, structuring across multiple accounts under different names but linked by common patterns will raise red flags.
- Behavioral Analytics: Advanced analytics tools allow banks to profile the normal behaviour of their customers. If someone who usually makes small, sporadic deposits suddenly starts making regular, high-value deposits just below the threshold, it will trigger an alert for further investigation.
Conclusion:
So, my 2 cents: Statement 1: If you are thinking of doing this to avoid detection, don’t do it.
Statement 2: If you think you are smart enough to outsmart the bank, then read the first statement.
Statement 3: You still think you are smart; read the first two statements.