Financial institutions are at risk of fraudsters looking to evade anti-money laundering legislation through the use of complex schemes, including the practice of structuring. Find out what structuring involves, the potential penalties, and how technology is a key tool to stop bad actors.
Money laundering is a serious financial crime that can be incredibly complex in nature. As a result, a number of terms and pieces of jargon are associated with the act of money laundering.
In this guide, we’ll specifically look at ‘structuring’. In doing so, we’ll answer common questions such as ‘what is structuring in money laundering?’, ‘how is structuring different to smurfing?’, and ‘does structuring need to be reported to authorities?’
Structuring is when a person deliberately splits a large financial transaction into a series of smaller transactions with the specific aim of avoiding scrutiny from regulators and law enforcement officials.
Each of these smaller transactions is usually for an amount that is just below the limit where a financial institution needs to file a report with a government agency. In the United States, a currency transaction report (CTR) must be submitted if a financial institution processes any cash transaction exceeding $10,000.
To avoid providing the bank with the information required for a CTR, somebody engaged in structuring may split their transactions across several days or deposit the money into different accounts at different banks.
Although some people use the terms interchangeably, structuring and smurfing are different things.
Structuring involves intentionally (and for the purpose of avoiding detection/reporting) splitting an amount of money rather than depositing it all in one transaction. Although it is a common money laundering tactic, perpetrators also use the technique to evade taxes on legally acquired money and to hide where they generate their money from.
Smurfing is everything structuring is, and more. It involves using other people (‘smurfs’) to deposit money into multiple accounts.
Smurfing is a popular money laundering placement method. Cash obtained illegally is distributed among smurfs, who then make deposits into several different accounts (sometimes under different identities) at a variety of financial institutions. Smurfing can be quite complicated, and the process often includes foreign and offshore bank deposits.
Once the money has entered the financial system in this manner, it is then accessible for layering (the second stage of money laundering). Suspicion is frequently avoided since it is difficult to establish a link between the smurfs, the deposits, and the accounts used.
To properly demonstrate the differences between structuring and smurfing, let’s look at a couple of examples.
Let’s say that someone has $90,000 in cash. If they want to avoid reporting requirements, they can split this into 10 transactions of $9,000. This is an example of structuring. Remember, structuring transactions in this way is illegal.
Structuring is relatively basic because all the money usually goes into the same account or a small number of accounts that are under the same name. As a result, it can backfire if a watchful bank observes a trend of deposits that are all just below the reportable level.
However, let’s say that the same person doesn’t want to report this income on their tax return or wants to hide the fact that the cash has been obtained illegally. In this instance, the person enlists the help of their friends to make deposits for them. These people then all deposit various amounts of money into numerous different banks in different areas to avoid detection. They will usually do this under a series of aliases and make payments across borders. All of these payments will be just below the CTR threshold.
The idea is that if all these people deposit various amounts in various banks under various names, then nobody will be able to figure out that the transactions are linked.
Of course, the alternative is that the individual in question could simply deposit all $90,000 into their bank account in one transaction. This is the legal solution. However, if the person has no proof that they have the capacity to earn this type of money or their business has the capacity to generate the cash, then it could lead to further questioning from the bank. If this is the case, a bank will file a currency transaction report and a suspicious activity report.
From this example, you can clearly see how money launderers can use structuring and smurfing to hide their assets. By breaking their funds into several smaller deposits and spreading them among a number of geographically scattered accounts, they can attempt to evade scrutiny.
Banks in the US have an obligation to report all transactions above a set amount. They also have an obligation to report any transactions that appear suspicious.
In the United States, the Bank Secrecy Act states that a currency transaction report (CTR) must be filed if any cash transaction exceeds $10,000.
A currency transaction report is an essential part of a bank’s anti-money laundering (AML) responsibilities. These reports require the bank to verify the identity and social security number of anyone who attempts to execute a large transaction, regardless of whether that person has an account with the bank or not.
Today, when a customer initiates a transaction involving more than $10,000, most bank software will create a CTR electronically and fill in tax and other customer information automatically.
A bank is not obligated to tell a customer about the $10,000 reporting threshold unless the customer asks about it specifically. When the customer is informed about the threshold, they may then decide that they wish to abort the transaction entirely or execute the transaction for an amount below the threshold. If the customer backs out of the transaction, a suspicious activity report (SAR) should be filed.
If a financial institution suspects that a customer is structuring transactions in an attempt to avoid reporting requirements, then they are required to file a suspicious activity report (SAR). SARs can be used to cover almost any activity that a bank believes is suspicious.
This report must be filed with the Financial Crimes Enforcement Network (FinCEN), which will then investigate the incident. A financial institution has the responsibility to file a report within 30 days. On top of this, an extension of no more than 60 days may be obtained, if necessary, to collect more evidence. Crucially, the institution does not have to prove that a crime has been committed and the customer does not need to be informed.
FinCEN requires that the SARs filed by financial institutions identify the following five essential elements:
In addition, the method of operation must also be included in the report.
Examples of suspicious activities that may prompt a financial institution to file a SAR include:
Money laundering is a serious crime. Although it’s sometimes charged at the state level, it’s often prosecuted in federal court.
There are two federal criminal laws that specifically address money laundering. The first law (18 U.S.C. §1956) makes it a crime for anyone to engage in a financial transaction with money that was obtained from criminal activity with the intent to try and promote the criminal activity or conceal it.
The second law (18 U.S.C. §1957) makes it a crime for a person to engage in a monetary transaction in an amount greater than $10,000, knowing that the money was obtained through specific criminal activity.
Structuring was criminalized by Congress in the Money Laundering Control Act 1986, when Title 31 of the United States Code was enacted.
Money laundering is a serious crime under federal law. A violation of 18 U.S.C. §1956 can result in a sentence of up to 20 years in prison. Meanwhile, a violation of 18 U.S.C. §1957 can result in a sentence of up to 10 years in prison. Similarly, people found guilty of structuring can face up to five years in prison.
As with most federal financial crimes, the exact sentence a person will receive is often determined by the amount of money involved in the offense and the number of crimes committed.
However, although money launderers and people who facilitate their illegal activities face harsh personal penalties, money laundering also has consequences for businesses and the wider economy as a whole. Studies have shown that money laundering:
Added to this, it’s also worth highlighting that there are several social consequences of money laundering, including allowing drug traffickers, smugglers, and other criminals to expand operations. Plus, economic power is transferred from the market, government, and citizens to criminals.
Due to this, there is a big focus on stopping laundered money from entering the financial system. This is why it’s so important to know what structuring is and how it can be stopped.
If your company is subjected to money laundering regulations, then you should enlist the help of an anti-money laundering platform like our AML solutions.
With an anti-money laundering platform in place, you can show regulators that you take financial crime and compliance seriously. The platform can help you:
Here at Veriff, we understand that no two companies have the same KYC and fraud prevention needs. This is why our solution can adapt to your requirements while also providing superior accuracy in online identity verification. Take a look at our plans today to see how much an anti-money laundering platform could cost you.
Want to learn more about how an anti-money laundering platform can help your company meet its compliance requirements? Get a personalized consultation and demonstration from an identity verification and KYC expert on our team today. We’d love to help you find the perfect solution for your needs.
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