Understanding Structuring in Money Laundering
The world of finance is attractive to those with a criminal mindset. The potential gains are significant enough to motivate the use of unlawful techniques ranging from simple tax evasion all the way to money laundering and cybercrime. Structuring—a money laundering practice—is one such tactic, and has been gaining traction in recent years. Along with Smurfing, Structuring often goes undetected thanks to a series of small transactions that remain under the reporting thresholds.
What is structuring in money laundering? How does it differ from smurfing? What are the solutions to combat it? Let’s take a look at this crucial issue.
The Importance of Understanding Structuring
Why does structuring—and money laundering in general—matter so much?
For a start, any practice that seeks to circumvent AML (anti-money laundering) or CFT (counter-terrorist financing) compliance regulations is illegal and considered a criminal offense. Whether structuring is employed to save or make money, conceal a monetary bribe, or avoid tax obligations, the consequences are far from negligible. They include:
- Legal penalties for the perpetrators;
- Loss of revenue for financial institutions, governmental bodies, and law-abiding individuals;
- Financing criminal activities;
- Economic distortion as illegally gained funds make their way into the financial system;
- Undermining the integrity of the financial institutions targeted;
What is Structuring in Money Laundering?
So what is structuring as a money-laundering scheme, exactly?
Definition and Explanation of Structuring
The definition of structuring in money laundering is that of an illegal practice by which criminals split a large sum of money into multiple smaller transactions. The goal is to move the amount across bank accounts in small enough quantities that they can’t be spotted through traditional reporting systems.
Structuring’s meaning in money laundering comes from the strategically structured deposits criminals make, keeping the amounts just below the threshold to avoid filing reports with a government agency. Since they do not trigger automated reporting systems, the deposits allow these individuals to move—and effectively clean—large sums of money without creating an obvious pattern, thus bypassing detection.
Legal Consequences of Structuring
Structuring—and money laundering in general—is a criminal offense. As such, it is punishable by law. Any violation can lead to steep fines and up to 10 years of imprisonment.
Structuring vs. Smurfing: Understanding the Differences
Though smurfing and structuring are similar money-laundering schemes, they differ in a few key aspects.
Comparison: Structuring and Smurfing
What is smurfing, exactly? It is a money laundering placement method that splits up large amounts of money into small, unnoticeable transactions. It functions just like structuring but on a wider and more organized scale, often involving several people (or smurfs), multiple accounts, and sometimes even user accounts on real-money online gaming platforms. There, illegal funds are used to purchase virtual assets, which can then be moved between accounts before cashing them out and reinjecting “cleaned money” into the legal financial system. This process is known as “layering”.
Structuring, on the other hand, is typically done to avoid detection or circumvent reporting obligations. It consists in splitting a large sum into smaller deposits to minimize noticeable transactions. While structuring is a money-laundering technique, it is usually done for tax evasion purposes rather than for its own sake.
Key Differences Between Structuring and Smurfing
| Structuring | Smurfing |
|---|---|
| Is an illegal activity | Is an illegal activity |
| Often involves money obtained legally | Often involves money obtained illegally |
| Doesn’t conceal the source of funds (SoF) | Often conceals the source of funds (SoF) |
| Rarely moves cash geographically | Often moves cash across borders |
| Often involves a single perpetrator | Often involves an organized network of perpetrators |
| Doesn’t involve physical cash movements | May involve physical cash movements across borders (or placements) |
Examples of Structuring in Money Laundering
Structuring is a smaller-scale money-laundering practice, and real-world scenarios abound because it is relatively accessible.
Real-World Scenarios of Structuring
Here are a few structuring money laundering examples:
- A customer at a casino cashes in their winnings in two or three portions to remain below the $10,000 threshold that would otherwise trigger a suspicious activity report (SAR).
- A bank customer makes various deposits under $10,000 over several days.
- A bank customer wishes to withdraw $20,000 but decides to make multiple withdrawals from different bank branches instead of asking for the full amount in one transaction.
Impact of Structuring on Financial Systems
Structuring and money laundering have far-reaching consequences for the global economy. Figures indicate that the scale of money laundering represents between 2% and 5% of global GDP, constituting a significant drain.
These practices also undermine the integrity of financial institutions, distort market competition, and hinder investment, leading to increased volatility in financial markets and hampered economic growth.
Finally, money laundering directly facilitates organized crime and corruption.
Detecting Structuring Activities
Undetected smurfing, structuring, and money laundering activities are highly detrimental to the organizations they target, which is why it is crucial to detect suspicious goings-on as early as possible.
Indicators of Structuring in Financial Transactions
Structuring and smurfing red flags include:
- Multiple deposits just under the reporting threshold over a series of days.
- Small daily transactions adding up to more than the maximum one-time amount.
- Several cash deposits across different bank branches, ATMs, or other methods.
- Multiple cash withdrawals across bank branches or ATMs over a short timeframe.
- Several customers opening up new accounts under the same address or foreign nationality.
- Customers asking to carry out transactions or open accounts for ambiguous, improbable, or inconsistent reasons.
The Role of Financial Institutions
Financial institutions are instructed to report structuring or suspicious activities through SARs (Suspicious Activity Reports), which must be filed with the FinCEN (Financial Crimes Enforcement Network) within 30 days. If more evidence is required, an extension of up to 60 days may be obtained.
Structuring and Anti-Money Laundering (AML) Regulations
Overview of AML Regulations Against Structuring
AML standards require companies and organizations to integrate controls to detect and avoid money-laundering practices. These include:
- Account monitoring
- Employee training
- Detection of suspicious transactions
- Reporting
How Structuring Violates AML Compliance
Cash structuring, by definition, goes against the principles of AML since it seeks to circumvent the verification protocols designed to flag larger deposits or withdrawals. In the context of AML compliance, concealing is violating.
Technological Advances in Combating Structuring
AML Compliance Platforms: Detection and Prevention
Measures for Customer Due Diligence (CDD) and rigorous staff training do not make manual verification less impractical. And since the whole point of structuring is to stay under the radar by keeping transactions below the reporting threshold, these activities can be difficult to detect.
This is where new technologies—particularly AI and machine learning—come into play. Thanks to their ability to monitor real-time transactions and analyze huge amounts of data, dedicated solutions such as AML compliance platforms can pick up on suspicious patterns even if the transactions remain below the reporting threshold.
The Importance of Identity Verification and Transaction Monitoring
By automating complex data collecting and screening tasks, businesses can detect suspicious behavior and identify fraud in real time. With the right transaction monitoring solution, organizations can also verify the identity of every customer and screen new users against global watchlists, ensuring that no fraud is being committed.
Best Practices for Financial Institutions
Strategies to Prevent Structuring and Smurfing Activities
One of the most crucial aspects of any anti-money laundering strategy is vigilance:
- Monitoring transactions to pinpoint unusual activities (sudden spikes, high volumes of transactions, transactions associated with cash-intensive businesses, transfers to and from high-risk jurisdictions, etc.).
- Performing in-depth risk assessments (by identifying customers, verifying their identities, analyzing transaction data, etc.).
- Reporting any dubious activity to the relevant authorities.
- Being transparent about the measures in place to discourage attempts at structuring and smurfing.
As far as implementing such precautions, AI and machine-learning-enabled technological solutions offer the most reliable approach to prevent smurfing, structuring, and money laundering activities of all kinds. Paired with a robust AML compliance program, they provide an effective means of identifying suspicious transactions and individuals, deterring potential money launderers, and preventing individuals from getting away with smurfing and structuring.
Implementing Robust Compliance Programs
The institutions required to conduct an effective BSA/AML compliance program must follow the instructions of the FFIEC (Federal Financial Institutions Examination Council), which include:
- Ensuring continuous compliance by implementing an internal control system.
- Testing for compliance regularly and independently.
- Training employees.
- Appointing a compliance officer to oversee compliance activities.
- Verifying customer identities through a Customer Identification Program (CIP).
- Implementing Know Your Customer (KYC) and Customer Due Diligence (CDD) policies.
Conclusion
Structuring in money laundering has been a prevalent crime because the measures in place weren’t advanced enough to combat it effectively. With the rise of AI and machine learning, however, solutions to automate AML compliance and customize every aspect of the process are making it easier than ever to observe CDD rules.
Incode’s AI-first and ML-driven Identity Orchestration Platform pushes the boundaries of automated authentication, offering a seamless way to validate customer data with maximum security and privacy.
Contact us now to design a seamless, agile solution for your business.