Why Smurfing Is Difficult to Detect and What AML Compliance Officers Need to Know?
Why would criminals risk moving large sums of money when there’s a higher chance of detection? Instead, they often opt for techniques with a lower risk of being flagged.
Smurfing is such a technique that launderers often opt for, using this technique, criminals break down large amounts of money into smaller cash usually under the reporting threshold of 10,000 dollars, and then using the different bank accounts they move money from one jurisdiction to another.
The technique of breaking down large amounts into small transactions is also known as structuring. Though both techniques are used for money laundering crimes, there are minor differences between them.
Smurfing in AML poses a significant challenge to compliance officers because of its ability to mask illicit funds through a series of small transactions that seem legitimate.
In this blog, we will discuss the difficulty compliance officers face in detecting the smurfing money laundering techniques and what AML services they must have to stay ahead of this money laundering tactic.
What makes Smurfing Hard to detect for Compliance officers?
- Transaction Structuring Below Thresholds
To make sure they are playing safe, what criminals do in the smurfing technique is, break down the large amount into smaller cash for money laundering purposes. Because small transactions are often not flagged as suspicious.
As per the regulations requirement in most of the jurisdiction, the financial institutions are required to report transactions that exceed the said threshold. But what if criminals never touch that threshold by making multiple transactions of smaller amounts?
This is the biggest hurdle in detecting smurfing in money laundering for AML compliance officers and financial institutions.
- Use of Multiple Accounts and Individuals
The most commonly used smurfing technique is opening multiple bank accounts in different banks under the name of multiple random people.
This is a layering stage of money laundering. They make multiple transactions in different banks under the threshold to ensure that the money is obtained through legitimate sources.
- Cross-Border Transactions
Smurfing can also involve moving money across the border under the name of the remittance. The AML framework to detect money laundering activities varies in different jurisdictions. Therefore, the complicity of dealing with different financial systems and due to weak AML regulations in some countries, it becomes quite difficult to detect the smurfing money laundering activities.
- Evolving Techniques and Technology
With the introduction of digital banking systems and cryptocurrencies, the smurfing technique has become even more favorable for launderers. Using these platforms, the criminals move money to different accounts with minimal increments, such transactions make it difficult for the AML system to flag them as suspicious or to catch up on the money laundering made through these digital platforms.
What AML Compliance Officers Need to Know
- Integrate Advance and Updated Transaction Monitoring Tools
While the criminals are getting smart and advanced in committing money laundering activities, the compliance officers also need to adopt the same approach. That is the reason, the advanced and updated transaction monitoring system is necessary for every financial institution. The advanced technology can even recognize the suspicious patterns and behavioral patterns of each client to flag suspicious transactions.
- Integrate KYC and EDD Procedures
Knowing who your customers are and whether are they the ones they claim to be is very important in identifying the smurfing and background history of each client.
If financial institutions understand the customer’s financial history accurately, it becomes even more easy for them to spot the chances of money laundering committed by higher-risk individuals. This is only possible when you implement the enhanced KYC and EDD procedure on each customer while onboarding them.
- Stay Informed on Emerging Trends
Criminals are never short of surprises when it comes to financial crimes such as money laundering, corruption, and terrorist financing. By adopting these techniques they try to exploit the weak AML solution for money laundering activities. Therefore, the Compliance officer should stay up to date with the latest smurfing trends and news laundering techniques such as the digital banking system and cryptocurrencies or online gambling platforms.
- Regularly Train Staff on Smurfing Indicators
Do you think training isn’t important? You are already behind in the fight against the smurfing money laundering activities. If you are not fully aware of the challenges your team going to face, how would you address them?
Therefore, banks need to train their compliance officers about the latest smurfing challenges, and what strategies should they opt for to detect smurfing in money laundering at the earliest.
Employee awareness is key to stopping smurfing before it escalates into larger money laundering activities.
While smurfing remains a sophisticated and difficult-to-detect money laundering technique, compliance officers equipped with the right tools such as AML Watcher’s advanced money laundering monitoring and screening tool, knowledge, and vigilance can significantly reduce the risk.
