Is smurfing a crime?

Smurfing refers to the practice of structuring cash deposits or withdrawals to evade regulatory reporting requirements. While not explicitly illegal, smurfing is often done to disguise the source of funds derived from criminal activity or to avoid triggering suspicion. This article examines whether smurfing constitutes a crime and the potential penalties associated with it.

Table of Contents

What is Smurfing?

Smurfing involves splitting large sums of money into smaller deposits or withdrawals to avoid detection. The term originated from the image of various people (i.e. “smurfs”) making transactions on behalf of a single organization or individual. Some key characteristics of smurfing include:

Deposits or withdrawals are kept below $10,000 to avoid currency transaction reporting requirements
“Smurfs” make the transactions on behalf of another party to disguise their involvement
Multiple individuals, accounts, and/or branches may be used to break up the total sum

Transactions may be spread over days, weeks, or months to avoid suspicion

For example, a business may split $100,000 in illicit cash earnings into 20 deposits of $5,000 made by various employees over time. This keeps any single transaction from triggering reporting requirements and obscures the true source of the funds.

Why Do People Smurf?

There are several motivations behind smurfing activity:

Disguise proceeds of crime – By breaking up dirty money deposits, criminals can mask funds derived from illegal revenue streams like drug trafficking, fraud, or embezzlement.
Avoid reporting requirements – Banks must report cash transactions over $10,000, so smugglers keep deposits under this threshold to evade regulators.
Prevent seizure of funds – Authorities can seize suspicious bulk cash over $10,000. Smurfing allows criminals to fly under the radar and prevent asset forfeiture.

Conceal tax evasion – Depositing undeclared cash in small sums can hide income from tax authorities.
Obfuscate money laundering – Smurfing disguises the layering and integration stages of money laundering by spreading out placements of dirty cash.

In summary, people smurf to conceal, move, and launder proceeds of unlawful activity while avoiding reports to financial regulators and law enforcement.

Examples of Smurfing

Some examples of smurfing activity include:

A drug trafficker has $500,000 in illegal cash. He recruits 10 people to each deposit $9,900 in different bank accounts and branches over a few weeks.
A money launderer has $1 million collected from credit card fraud. She uses various funnel accounts to wire out the funds in increments of $8,000 to offshore banks.

A terrorist organization has $400,000 raised from extremist groups. It splits the money between several low-level operatives who each open a new account and deposit $9,500 over time.
The owner of a crooked business has skimmed $2 million in undeclared revenue. He structures this into under-$10k deposits via employees, family, and shell companies.

These illustrate how smurfing works in practice to disguise large sums of ill-gotten gains.

Is Smurfing Illegal?

Simply structuring cash transactions to avoid reporting requirements is not strictly illegal in and of itself per se. However, smurfing is frequently associated with laundering money derived from criminal activities like drug dealing, fraud, corruption, tax evasion, human trafficking, and terrorism. Some key points on the legality of smurfing:

There is no law explicitly banning smurfing in small increments to avoid cash transaction reports.
However, smurfing often goes hand-in-hand with concealment of criminal proceeds and illegal money laundering.

Authorities can establish intent to structure transactions to evade regulators, which may constitute criminal conduct.
The act of smurfing alone does not always lead to arrests or charges without evidence it facilitated other crimes.
Smurfing to disguise illegal revenue streams or launder money can result in prosecution.

In essence, while smurfing itself is not prohibited, it can be prosecuted in connection with predicate offenses. This means organizing cash transactions to avoid reporting does not have to be the primary criminal activity for charges to be filed when linked to other unlawful conduct.

Federal Anti-Structuring Laws

While no federal law explicitly bans smurfing, structuring cash transactions to evade reporting requirements violates the following statutes:

Bank Secrecy Act – Requires reporting of cash transactions over $10,000. Structuring efforts to avoid this threshold may be prosecuted.

Money Laundering Control Act – Prohibits disguising proceeds of criminal activity through financial transactions.
USA PATRIOT Act – Enhanced structuring provisions to combat terrorism financing through money laundering.

These laws do not require structuring itself to be illegal. However, instances of smurfing linked to concealment, movement, and laundering of criminal proceeds can result in federal anti-money laundering charges.

State Anti-Smurfing Laws

Some states have enacted their own laws prohibiting smurfing:

Florida – Structuring transactions to evade reporting is a third-degree felony.
Illinois – It is illegal to structure cash deposits, withdrawals, or purchases to bypass federal reporting rules.

New York – Statute prohibits disguising sources of illegally obtained money through structuring.

These demonstrate that while not universally banned, some states have moved to explicitly outlaw smurfing even without connection to other offenses.

Penalties for Smurfing

While smurfing alone may not be illegal federally, when linked to predicate crimes, the penalties can be severe. Possible consequences include:

Criminal charges – Structuring to conceal proceeds of unlawful activity can lead to criminal prosecution.
Fines – Financial penalties up to $500,000 for individuals and $1 million for organizations.
Asset forfeiture – Funds involved in transactions may be seized by the government.

Imprisonment – Jail time up to 10 years under the Money Laundering Control Act.
Restitution – Repayment of illicit earnings required through sentencing.

In addition to criminal consequences, banks are required to report suspicious structuring activity to FinCEN. This can result in investigation, account closure, and inclusion in suspicious activity reports that may trigger audits.

Notable Smurfing Cases

There have been several high-profile cases involving smurfing charges and prosecutions:

Linda Kim – 2013

Ran a smurfing operation in San Francisco to launder profits from illegal marijuana sales.
Employed over 20 people to make structured cash deposits under $10,000 at various banks.

Pleaded guilty to conspiracy to structure financial transactions and money laundering.
Sentenced to 6 months in prison and $420,000 in penalties.

Louis Nastro – 2012

New York business owner engaged in widespread smurfing to evade taxes.

Made over 2,100 structured cash deposits totaling over $9 million.
Admitted hiding business revenues to avoid IRS reporting.
Received 3 years probation and ordered to repay over $300,000.

Sterling Currency Group – 2008

One of the largest cash smurfing cases in U.S. history.
Maryland company structured over $20 billion in cash deposits.
Used check cashing stores to break transactions into smaller amounts.

$15 million civil money penalty assessed against business.

These cases highlight how smurfing, when connected to other criminal conduct, can result in stiff penalties even without an explicit federal anti-structuring statute.

Prevalence of Smurfing

Measuring smurfing activity is challenging since structuring itself is not prohibited. However, FinCEN reports provide some insight:

Over 30,000 suspicious activity reports filed related to structuring in 2021.
Banks filed 75% more anti-structuring reports from 2020 to 2021.
61% cited structuring specifically related to marijuana industry activity.

16% of filings indicated connection to possible terrorist financing.

This indicates that despite no explicit law, smurfing remains under close scrutiny when linked to potential predicate offenses.

Trends and Patterns in Smurfing

Research suggests some trends and patterns in smurfing schemes:

Cash intensive businesses like casinos, bars, restaurants, and convenience stores frequently used to structure deposits.
Mean sums structured range from $15,000 – $85,000 to avoid $10,000 reporting thresholds.
Typical smurfing uses 5-10 individuals to make structured transactions.

Activity commonly spread across different branches and bank accounts.
Money services businesses increasingly used to place structured deposits.

Understanding trends in smurfing typologies assists financial institutions and authorities in detecting and reporting suspicious transactions.

Industry	Percentage of SARs
Dealers in Precious Metals, Precious Stones, or Jewels	23%
Independent Automated Teller Machine (ATM) Operators	16%
Depository Institutions	13%
Casinos / Card Clubs	10%
Money Services Businesses (MSBs)	5%

This table illustrates the top industries where suspicious activity reports related to smurfing originate, according to FinCEN data.

Smurfing Detection and Prevention

Banks and regulators use various techniques to detect and prevent smurfing, including:

Monitoring deposits under $10,000 and identifying structured transaction patterns.

Reviewing cash activity across accounts with common ownership or control.
Analyzing transactions across businesses, branches, and geographic regions to identify potential structuring.
Tracking wire transfers with similar characteristics to detect illegal movement of funds.

Obtaining know your customer information to understand expected account activity.
Using fraud monitoring software to flag suspicious transactional patterns in real-time.

Authorities also educate industries, like real estate and auto dealers, to identify and report smurfing efforts through their businesses.

Conclusion

While not overtly illegal itself, smurfing often facilitates criminal activity and money laundering that may be prosecuted under federal laws. Structuring cash transactions under reporting thresholds does not have to be the primary illegal conduct for charges to be filed. Smurfing also violates some state laws directly prohibiting efforts to evade regulators. Although tough to quantify, existing data indicates structuring schemes remain common across cash-intensive industries to disguise sources of illicit revenue. Combining transaction monitoring, customer due diligence, and timely reporting assists stakeholders in uncovering and preventing unlawful smurfing activity.