Blog — AML Dictionary

Written by Momen Talaat

Structuring Transactions

Structuring transactions, also known as smurfing or money structuring, refers to the practice of intentionally breaking down larger financial transactions into smaller amounts to avoid triggering reporting requirements or detection by financial institutions and regulatory authorities.

24/05/2023

Definition: Structuring transactions, also known as smurfing or money structuring, refers to the practice of breaking down large sums of money into smaller, less noticeable amounts to evade financial reporting requirements and avoid detection by authorities.

Structuring transactions is often associated with illegal activities such as money laundering, tax evasion, or terrorist financing, as it aims to conceal the origin, purpose, or destination of the funds.

Historical View

Throughout history, individuals and criminal organizations have employed various techniques to disguise illicit funds and avoid attracting attention from authorities. The practice of structuring transactions has evolved alongside advancements in financial regulations and increased scrutiny from law enforcement agencies.

While the concept of structuring transactions is not new, the emergence of modern financial systems and electronic payment methods has provided new avenues for individuals to engage in such activities. The digitization of money and the global nature of financial transactions have made it easier for individuals to move funds discreetly and evade detection.

Governments and regulatory bodies have responded to the challenges posed by structuring transactions by implementing strict reporting requirements, transaction monitoring systems, and enhanced international cooperation to combat financial crimes.

Practical Examples

1. An individual deposits $9,000 in cash into multiple bank accounts on the same day, staying below the $10,000 threshold that triggers a currency transaction report (CTR) to be filed by the financial institution.

2. A business owner splits large cash deposits into smaller amounts and makes them at various branches of the same bank to avoid arousing suspicion and bypassing the reporting threshold.

3. A drug trafficker purchases money orders with large sums of illicit cash, each below the $3,000 reporting threshold, and later redeems them to convert the funds back into usable money.

4. An individual uses multiple prepaid debit cards to transfer funds between accounts, ensuring that each transaction remains below the reporting limit set by the card issuer.

5. A person engages in “smurfing” by recruiting friends or associates to make small deposits on their behalf, effectively pooling funds from different sources to avoid detection.

6. A business owner manipulates invoices or falsifies transactions to divide a large payment into smaller amounts, making it difficult to trace the origin of the funds.

7. An individual conducts numerous international wire transfers of relatively small amounts, circumventing the reporting requirements for large cross-border transactions.

8. A money launderer purchases multiple high-value assets, such as luxury cars or real estate, using cash or multiple smaller transactions, making it challenging to trace the source of funds.

9. A terrorist organization utilizes multiple individuals or shell companies to transfer funds between accounts in different countries, making it harder for authorities to track and disrupt their financial activities.

10. An individual uses cryptocurrency mixing services to obscure the origin and destination of digital assets, effectively “laundering” the funds through the mixing process.

Statistics

1. The United Nations Office on Drugs and Crime estimates that money laundering accounts for 2-5% of global GDP, with structured transactions being a common method employed by criminals to conceal the illicit origins of funds.

2. According to the Financial Crimes Enforcement Network (FinCEN) in the United States, between 2014 and 2018, there were over 90,000 suspicious activity reports (SARs) filed related to structuring transactions, involving billions of dollars.

3. The U.S. Internal Revenue Service (IRS) reported that between 2015 and 2019, it assessed over $58 million in penalties against individuals and businesses engaged in structuring transactions to evade cash transaction reports.

4. The European Union Financial Intelligence Units (FIUs) recorded a significant increase in suspicious transaction reports related to structuring activities, highlighting the global nature of the issue.

5. The Financial Action Task Force (FATF) estimated that only a small percentage of illicit funds are detected and seized, indicating the ongoing challenges faced by authorities in detecting and preventing structuring transactions.

6. A study by the United Nations indicates that structuring transactions are commonly associated with criminal activities such as drug trafficking, corruption, and tax evasion.

7. The National Crime Agency (NCA) in the United Kingdom reported an increase in the use of structuring transactions by criminal organizations involved in money laundering and drug smuggling.

8. The use of digital currencies, such as Bitcoin, has provided new opportunities for structuring transactions, as the decentralized nature of these currencies can make it challenging for authorities to track and trace the flow of funds.

9. The COVID-19 pandemic has led to an increase in financial crimes, including structuring transactions, as criminals exploit the economic uncertainty and the movement of funds to evade detection.

10. Financial institutions and regulatory authorities have invested significantly in technology and analytics to enhance their capabilities in detecting and preventing structuring transactions, contributing to increased detection rates and the disruption of illicit financial activities.

Incidents

1. Operation Choke Point, conducted by the U.S. Department of Justice and other agencies, targeted banks and payment processors involved in facilitating structuring transactions for businesses deemed high-risk or illegal, such as payday lenders and adult entertainment businesses.

2. The case of United States v. Tanzi involved a prominent Italian banker who used structuring transactions to hide losses in the bank’s financial statements, ultimately leading to the collapse of the bank and his arrest.

3. The Bank of Credit and Commerce International (BCCI) scandal revealed a vast network of structuring transactions used to launder money, finance terrorism, and facilitate corruption, resulting in the closure of the bank and significant legal consequences for those involved.

4. The Panama Papers leak exposed numerous instances of structuring transactions used by wealthy individuals, politicians, and corporations to conceal assets and avoid tax obligations.

5. The arrest of the Mexican drug lord, Joaquín “El Chapo” Guzmán, revealed the extensive use of structuring transactions to move illicit funds across borders and evade detection by authorities.

6. The case of Zhenli Ye Gon, a Chinese-Mexican businessman, involved the use of structuring transactions to launder drug proceeds and resulted in one of the largest cash seizures in history.

7. The investigation into the Malaysian state investment fund, 1MDB, uncovered a complex web of structuring transactions used to siphon off billions of dollars, leading to multiple arrests and prosecutions.

8. The FinCEN Files leak exposed major banks’ involvement in facilitating structuring transactions, highlighting systemic weaknesses in anti-money laundering controls and the need for stricter oversight.

9. The case of Richard Pratt, an Australian businessman, demonstrated the use of structuring transactions to evade taxes, resulting in significant fines and reputational damage.

10. The investigation into the Hawala network, a traditional informal money transfer system prevalent in some regions, revealed the use of structuring transactions to move funds without detection, making it challenging for authorities to track illicit financial flows.

The Future

1. Technological advancements, such as artificial intelligence and machine learning, will enable more effective detection and analysis of structuring transactions, empowering authorities and financial institutions to stay ahead of evolving money laundering techniques.

2. Increased international cooperation and information sharing between regulatory bodies, financial institutions, and law enforcement agencies will enhance the collective efforts to combat structuring transactions and other financial crimes.

3. The continued development of blockchain technology and digital currencies will pose both challenges and opportunities in addressing structuring transactions. Blockchain analysis tools and improved transparency in digital transactions may help detect and prevent illicit activities.

4. Regulatory frameworks and compliance requirements will evolve to keep pace with emerging trends in structuring transactions. Governments and financial institutions will enhance their monitoring and reporting systems to identify suspicious patterns and enforce regulations.

5. The growing role of financial technology (fintech) companies in facilitating financial transactions will require robust AML measures and effective oversight to prevent the misuse of their services for structuring transactions.

6. The development of global standards, such as those set by the FATF, will continue to guide countries in implementing effective AML measures and combatting structuring transactions at an international level.

7. Enhanced customer due diligence measures, including comprehensive KYC (Know Your Customer) procedures, will play a crucial role in detecting and preventing structuring transactions by ensuring the transparency and legitimacy of financial transactions.

8. Increased public awareness and education about the risks and consequences of structuring transactions will empower individuals and businesses to make informed decisions and discourage participation in illegal financial activities.

9. The adoption of advanced analytics platforms and software solutions, such as Kyros AML Data Suite, will help financial institutions and regulatory bodies streamline their AML efforts and improve the detection and prevention of structuring transactions.

10. Ongoing research and collaboration between academia, industry experts, and regulatory bodies will drive innovation in detecting and combating structuring transactions, ensuring the integrity and security of the global financial system.

Kyros AML Data Suite

As the fight against structuring transactions continues to evolve, organizations can leverage advanced solutions like Kyros AML Data Suite. Kyros offers a comprehensive suite of AML compliance software that incorporates cutting-edge analytics and transaction monitoring capabilities to help businesses detect and prevent structuring transactions.

By utilizing Kyros AML Data Suite, organizations can strengthen their AML programs, enhance their risk management strategies, and ensure compliance with regulatory requirements. The software provides real-time alerts, advanced data analytics, and powerful reporting features, empowering organizations to stay ahead of emerging threats and maintain a strong defense against structuring transactions.

Explore the Power of Kyros AML Data Suite

Visit kyrosaml.com to learn more about Kyros AML Data Suite and schedule a demo or book a call with our experts. Discover how Kyros can assist your organization in effectively combating structuring transactions and safeguarding against financial crimes.

Conclusion

Structuring transactions pose significant challenges to the integrity and stability of the global financial system. As authorities and financial institutions continue to enhance their detection and prevention capabilities, it is crucial to stay vigilant against illicit activities associated with structuring transactions.

By leveraging advanced technologies, international collaboration, and robust AML measures, society can mitigate the risks posed by structuring transactions and preserve the transparency and integrity of financial transactions. Together, we can foster a secure and accountable financial ecosystem.

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