Smurfing in money laundering: what is it and how to detect & prevent it
- azakaw
- Sep 10
- 7 min read
Updated: Oct 13
Money laundering presents one of the most significant challenges for financial systems. Among the various tactics employed by criminals, smurfing stands out as a prevalent and elusive method.
In this article, we’ll dive into what smurfing is, how it operates, the risks it poses to financial institutions, and the strategies being implemented to combat it.
Key Takeaways about Smurfing |
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What is smurfing?
Smurfing is a money laundering scheme that involves dividing large amounts of illegal funds into smaller transactions that stay under reporting limits.
This clever tactic allows criminals to inject dirty money into the financial system without drawing immediate attention.
Smurfing is a key technique to launder money, particularly during the placement or layering phases.
Why is it called smurfing?
The name comes from the animated series “The Smurfs,” where a bunch of tiny characters collaborate to achieve their goals.
In a similar way, in the world of money laundering, many small deposits come together to form substantial amounts.
The role of smurfing in the money laundering process
Smurfing is particularly prevalent during the placement stage, when criminals first introduce their illicit funds into the financial system.
It can also play a role in the layering phase of money laundering, where money is shuffled through various accounts or institutions to obscure its origins further.
How does smurfing work?
Criminals often exploit banking systems, money transfer services, or even cryptocurrency exchanges to launder funds in small, seemingly legitimate amounts.
By carefully planning these transactions, they can slip past the thresholds that would usually trigger compliance alerts.
Breaking down large sums into small amounts
Imagine a criminal with €500,000 in illicit cash.
Instead of making a single hefty deposit, they break it down into hundreds of smaller deposits, each under €10,000, which is the reporting threshold in many countries.
What are the methods used by criminals?
Criminals have several ways of smurfing money. They might, among other methods:
Deposit cash at various bank branches,
Use prepaid cards to distribute funds,
Transfer money internationally through remittance services,
Utilise online wallets and cryptocurrency platforms.
What is the difference between structuring and smurfing?
Structuring is the broader concept of breaking down large transactions to avoid detection.
On the other hand, smurfing is a specific type of structuring that heavily relies on multiple individuals to carry out the deposits.
What are the red flags for smurfing?
Our experience tells us that it's not easy to spot smurfing because criminals respect the thresholds.
However, these are some signs that suggest smurfing, according to our team's expertise and experience:
Unusual cash deposits: A pattern of many small deposits made just below reporting thresholds (for instance, under $10,000 in the U.S.) within a short timeframe.
Inconsistent activity levels: Customers moving money far more frequently than their job, business, or income would normally justify.
Scattered banking behavior: The same individual spreads deposits across several accounts, ATMs, or branches, making the overall activity harder to spot.
Unexplained third parties: Cash being deposited by friends, family members, or even unrelated individuals with no obvious link to the account holder.
Repetitive round numbers: Regular deposits in strikingly similar amounts, such as $9,800 or $9,700, repeated over and over again.
Deposits in multiple places: Activity spread across different towns, regions, or even countries without a clear business reason.
Money that doesn’t stay put: Funds being shifted out quickly, whether by transfers, withdrawals, or international wires.
Mismatch with customer profile: Overall volume and transaction style that simply don’t line up with the client’s declared occupation or business model.
Reluctance to provide KYC information: Clients who hesitate, delay, or outright refuse to complete identity verification or provide documentation. This behaviour often suggests an attempt to keep transactions hidden from regulatory scrutiny.
How to prevent smurfing
While smurfing is a complex issue, it’s not insurmountable.
Tackling smurfing effectively requires a combination of technology, regulatory oversight, and skilled human intervention.
Solutions like azakaw are essential for equipping financial institutions with AI-powered monitoring tools that:
analyse customer behaviour,
identify structuring attempts,
flag high-risk transactions before they go unnoticed.
By automating risk assessments and improving visibility, compliance teams can respond more quickly and effectively.
Strengthen the KYC process
If you don’t really know who your customer is, you can’t judge whether their activity makes sense.
Detailed onboarding and CDD, verification of income sources, and continuous KYC updates make it harder for criminals to hide behind weak profiles.
Read also:
The role of software, technology and Artificial Intelligence
Artificial intelligence (AI) and machine learning can analyse vast datasets to identify patterns and anomalies that might escape human notice.
AI also enhances customer identity verification, minimising the chances of criminals taking advantage of lax onboarding processes.
That's why we're developing our tool, day after day, to include the most advanced AI and machine learning capabilities.
Employee training and awareness
Just having the right technology isn’t enough.
Employees on the front lines must be trained to spot potential warning signs of money laundering, like customers who hesitate to show their ID or unusual patterns in cash deposits.
A knowledgeable workforce is a key line of defence against money laundering activities.
Related content: The best AML & KYC certifications
Collaboration and information sharing
No bank can fight smurfing all on its own.
By sharing information among banks, financial institutions, and regulators, we can better identify smurfing patterns that cross borders and close the loopholes that criminals might exploit.
Initiatives like public-private partnerships have already proven effective in breaking down large-scale laundering networks.
Read also: Types of business fraud
What are the implications of Smurfing for banks and financial institutions?
For banks and financial institutions, smurfing poses both compliance and business risks.
Even if it’s unintentional, failing to spot smurfing activities can lead to big fines and damage customer trust.
Risks of smurfing
Smurfing heightens the risk of financial crimes, complicates credit risk management for banks, and opens doors for criminals to misuse legitimate services.
The reputational damage from AML violations can be just as harmful as the regulatory penalties that follow.
Challenges in detection
Because transactions are intentionally structured to stay below reporting thresholds, smurfing often doesn’t stand out on its own.
Detecting it requires a thorough analysis of customer behaviour patterns, identifying connected accounts, and flagging any unusual activities.
Regulatory obligations and reporting requirements
In the realm of global money laundering regulations, banks are required to set up monitoring systems that can spot suspicious activities and file Suspicious Activity Reports (SARs) when needed.
A robust compliance framework not only helps institutions meet legal standards but also fortifies their defences against potential criminal exploitation.
The global impact of smurfing
Smurfing's repercussions reach far beyond just banks; they ripple through economies and societies around the globe.
By facilitating the movement of illicit funds, smurfing bolsters criminal organisations and disrupts market stability.
Economic consequences
Smurfing skews fair competition by giving illegal businesses an edge. It also injects volatility into financial markets, jeopardises investor confidence, and threatens long-term financial health.
Cross-border risks
Criminals frequently engage in smurfing across regions with weaker AML regulations, making it even trickier to detect.
Without global collaboration, there are still gaps that allow money launderers to flourish.
Examples of smurfing
Although smurfing tends to fly under the radar, several money laundering cases illustrate how smurfing works in real life.
These examples are crucial for compliance professionals to grasp the risks involved and the need for constant vigilance.
Australia
In Australia, back in 2021, a group in Melbourne, headed by Boliang Liu and Tao Zhou, managed to launder around $63 million over the course of a year by employing smurfing techniques.
They cleverly deposited about $2 million each week across various accounts to stay under the radar.
This elaborate scheme was eventually exposed through an undercover investigation.
United States
In the United States in 2024, five individuals pleaded guilty in a smurfing-related structuring scheme.
They set up fake businesses in Florida, opened bank accounts, and made a series of small deposits, each one carefully kept below the $10,000 limit, to launder over $3.3 million into offshore accounts in China.
Everyday scenarios
Smurfing isn’t just about the big bucks.
A small-time trafficker might enlist friends and family to each deposit €2,000 into different accounts. Later, all those funds are funnelled back into the trafficker’s hands.
These instances of smurfing highlight just how easy this technique can be, and why banks need to stay alert at every level.
FAQs
When does smurfing occur in money laundering?
Smurfing typically takes place during the placement stage, when criminals are trying to inject illicit funds into the financial system, but it can also show up during layering.
How can suspicious activities be reported?
If you notice suspicious transactions, they should be reported to the appropriate Financial Intelligence Unit (FIU) using the procedures outlined by national and international AML frameworks.
Read also: How to report money laundering
What are the 3 stages of money laundering?
The three stages are placement, layering, and integration. Smurfing is mainly linked to the placement stage.
What’s the difference between structuring and smurfing?
Structuring refers to the general practice of breaking down transactions to evade detection. Smurfing, on the other hand, is a specific type of structuring that often involves multiple individuals, known as “smurfs.”
Conclusion
Smurfing may look like a small-scale tactic, but it’s often the entry point for much larger laundering operations.
According to FATF, up to 2–5% of global GDP (around $2 trillion annually) is laundered worldwide, and structuring is a key contributor
To effectively tackle smurfing in money laundering, organisations need to harness cutting-edge tools like AI, implement robust customer identity verification, adhere to strict regulatory standards, and foster international cooperation.
As criminals adapt, so too must our anti-money laundering strategies. The battle against smurfing is far from over, but with constant vigilance and creative solutions, the financial system can keep ahead of the game.
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