Big Fraud in Small Packages: the Art of Smurfing
May 2010
IN THIS ISSUE
— Breaking it Down: Why and How Smurfing Works
— Trouble in Smurf Village: How to Find Smurfs
— In the next issue
GREETINGS!
Welcome to the May edition of our newsletter! In this issue, we’ll examine the money laundering technique known as “smurfing,” and look at how to track and deter it.
BREAKING IT DOWN: WHY AND HOW SMURFING WORKS
Named after the 1980s cartoon series about a group of small characters which all appear relatively similar, “smurfing” applies that approach to the laundering of illicit funds. This can be done by taking the proceeds from a drug deal, let’s say $300,000, and using a group of ten intermediaries — the “smurfs” — to each make deposits of less than $10,000 at different banks over the course of, say, a week. (Smurfing can also apply to obtaining items which are sold in limited legal quantities to individuals, such as psuedophedrine, which is a cold remedy that can be used to aid in manufacturing narcotics.)
Why is $10,000 the magic number? Because any amount above that threshold deposited into an FDIC-insured bank would trigger a Suspicious Activity Report (and its more benign-sounding cousin, the Currency Transaction Report) to be filed, recording the identity of the depositor as well as placing on record the person(s) “on whose behalf the transaction is conducted.” If this information is documented, even falsely, it gives investigators a starting point for an inquiry criminals would rather not start in the first place.
TROUBLE IN SMURF VILLAGE: HOW TO FIND SMURFS
Tracking and ultimately prosecuting smurfs is no easy task — it’s similar in nature to tracing assets across a network of offshore holding companies, except the network in a smurfing matter is comprised of people, not entities, and thus paper trails are much more fluid and less reliable, if they exist at all. In an ironic twist worthy of Dickens, when former New York Attorney General Eliot Spitzer – who built his reputation in part by cracking down on smurfing – was caught soliciting escorts in 2008, it was revealed that he had wired several amounts under the $10,000 threshold — and even asked bank officials to remove his name from the transfers (they declined.)
Fortunately for fraud investigators both within financial institutions and without, the process of detecting smurfs among millions of transactions can be aided by ever-evolving automation techniques. Computer programs can be set to flag any repetitive deposits within a certain threshold, but once again human perception and discretion plays a key role. How large of a transaction is relevant but small enough to be smurfing? $1,000? $5,000? While the first known smurfers pushed the limits, recording transactions above $8,500 on a regular basis, today organized criminals uses multiple smurfs and dozens of institutions, willing to take extra steps to avoid detection. Cross-referencing address information (particularly P.O. Boxes) between account holders to find linkages can also help an investigator identify a network of smurfs to dig further into this serious “under the radar” scheme.
IN THE NEXT ISSUE
In the June issue, as various government agencies ramp up inquiries into financial fraud perpetrated by the private sector, we’ll look at case studies of enforcement employees who betrayed their oaths to become the proverbial fox in the hen house.