Financial crimes like smurfing and structuring represent significant challenges for the global banking industry. These tactics exploit regulatory reporting thresholds to hide the origins of illicit funds, undermine financial transparency, and threaten economic stability. While both methods involve breaking large sums into smaller transactions, they differ in execution, complexity, and intent. This report examines these practices in detail, explaining their mechanisms, differences, and broader implications.
What is Smurfing?
Smurfing is a money laundering technique where illegally obtained funds are divided into smaller, less conspicuous amounts to avoid detection by authorities. The term originates from the idea of “smurfs”—low-level operatives who physically or digitally distribute cash across multiple accounts or geographic regions.
In Indonesia, smurfing takes on a unique form. Individuals can make transfers from different accounts in specific amounts without triggering any predetermined limit flags for smurfing activity. However, transactions that appear normal but occur regularly and are deemed suspicious can be flagged and investigated. This monitoring approach focuses more on pattern recognition and suspicious behavior rather than strict transaction limits.
How Smurfing Works?
Smurfing operates in three stages, mirroring the classic money laundering process:
- Placement: Illicit cash enters the financial system through small deposits. For example, a criminal organization might recruit 10 individuals (smurfs) to deposit Rp950,000,000 each into separate accounts, avoiding the Rp1,000,000,000 reporting threshold in Indonesia. Smurfs may also transport cash across borders to exploit weaker regulations in other countries.
- Layering: The funds undergo complex transactions to obscure their origin. This could involve transferring money between accounts in different countries, converting cash into cryptocurrencies, or investing in high-value assets like real estate.
- Integration: The “cleaned” money re-enters the economy as legitimate funds. For instance, a criminal might use laundered money to purchase a business, making the illicit proceeds appear as legitimate income.
Smurfing’s reliance on multiple individuals and geographic spread makes it harder to trace than simpler methods.
What is Structuring?
Structuring involves deliberately breaking large transactions into smaller amounts to evade anti-money laundering (AML) reporting requirements. Unlike smurfing, structuring is often performed by a single individual or entity and can involve both legal and illegal funds
How Structuring Works?
A person might deposit Rp950,000,000 daily into a bank account to stay below the Rp1,000,000,000 reporting limit. Over time, these small deposits accumulate into a significant sum without triggering alerts. Structuring can also involve withdrawals, purchases, or currency exchanges designed to avoid scrutiny. For example, a business owner with legitimately earned cash might structure deposits to avoid paperwork, not realizing this act itself is illegal.
Key Differences Between Smurfing & Structuring
While both tactics aim to bypass financial regulations, critical distinctions exist:
Smurfing, as a money laundering technique, poses a significant threat to a nation’s economy through various channels. It fuels criminal activities, causes financial instability, hinders economic progress, damages national reputation, risks the security and integrity of financial institutions, leads to financial losses, and creates numerous other adverse effects.
Smurfing Cases in Indonesia
In 2022-2023, Indonesian social media influencer orchestrated a major Ponzi scheme through a fake forex trading platform. He defrauded 15,000 investors of IDR 1.2 trillion (approximately USD 88 million).
To evade detection, he employed sophisticated structuring techniques:
- Had victims transfer money just below the IDR 500 million reporting threshold
- Used 23 different shell companies to process payments disguised as e-commerce transactions
The scheme was eventually uncovered when PPATK identified suspicious patterns across 127 accounts. Kenz was charged with money laundering under Article 5 of Law No. 8/2010, facing up to 15 years in prison.
This case highlights how financial criminals use structuring and shell companies to avoid detection while moving large sums of money through the banking system.
Combating Smurfing and Structuring
To prevent this criminal act from your business, there are some security measurements and digital system required such as:
- KYC Procedures
- Verify customer identities with Know Your Customer (KYC) protocols.
- Run AML checks for proper risk assessment.
- Maintain detailed records to spot unusual patterns.
- Transaction Monitoring System
- Use an automated system to monitor transactions for suspicious activities.
- Flag patterns that resemble structuring or smurfing, such as frequent small deposits just below the reporting threshold.
- Employ AI-enhanced technologies for real-time monitoring, risk-based scoring, and KYC/AML screening.
- Customer Risk Profiling
- Identify the risk levels of customers, with high-risk customers requiring an additional level of assessment, such as Enhancement Due Diligence (EDD).
- Use dynamic risk scoring to assess applicants and their activity in real-time.
- Training and Awareness
Additionally, companies must train employees and raise awareness regarding these issues, conduct regular risk assessments, implement robust AML/KYC regulations, and deploy AI-based solutions.
Strengthen Your Defense Against Financial Fraud
Looking to strengthen your due diligence process? ASLI RI provides advanced biometric and identity verification solutions that help businesses verify identities accurately and detect potential fraudsters through negative record screening. Contact us at www.asliri.id/contact for a free consultation and learn how we can enhance your financial security.
edd identity verification kyc money laundering Smurfing
Last modified: February 20, 2025
