Structuring

Last updated

Structuring, also known as smurfing in banking jargon, is the practice of executing financial transactions such as making bank deposits in a specific pattern, calculated to avoid triggering financial institutions to file reports required by law, such as the United States' Bank Secrecy Act (BSA) and Internal Revenue Code section 6050I (relating to the requirement to file Form 8300). Structuring may be done in the context of money laundering, fraud, and other financial crimes. Legal restrictions on structuring are concerned with limiting the size of domestic transactions for individuals.

Contents

Definition

Structuring is the act of parceling what would otherwise be a large financial transaction into a series of smaller transactions to avoid scrutiny by regulators and law enforcement. [1] Typically each of the smaller transactions is executed in an amount below some statutory limit that normally does not require a financial institution to file a report with a government agency. Criminal enterprises may employ several agents ("smurfs") to make the transaction. Structuring appears in federal indictments related to money laundering, fraud, and other financial crimes.

The term "smurfing" is derived from the image of the comic book characters, the Smurfs, having a large group of many small entities. Miami-based lawyer Gregory Baldwin is said to have coined the term in the 1980s. [2] [3]

Regulations

United States

In the United States, the Bank Secrecy Act requires currency transaction reports (CTRs) to be filed for cash transactions involving coin or paper money valued at more than $10,000; it applies to both U.S. and foreign currencies. [4] Contrary to popular misunderstanding, it does not apply to checks or electronic transactions. [5] Financial institutions suspecting deposit structuring with intent to avoid the law are required to file a suspicious activity report (SAR). [6] In 1986, the U.S. Congress enacted section 5324 of Title 31 of the United States Code, [7] which provides (in part):

No person shall, for the purpose of evading the reporting requirements of section 5313 (a) or 5325 or any regulation prescribed under any such section, the reporting or record keeping requirements imposed by any order issued under section 5326, or the record keeping requirements imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508—[...] (3) structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions.

Section 5324 further provides that a violation of this provision may be punished by a fine or up to five years in prison, or both. [8] The filing of Form 8300 is required under Internal Revenue Code section 6050I. [9]

Sums of money resulting from deposits of less than $10,000 may be seized after a warrant is issued based on a suspicious activity report. Legal proceedings, which may cost in the vicinity of $20,000 or more, may be required for an innocent party to retrieve his or her money. Reports in October 2014 by The New York Times of arbitrary seizures resulted in modification of Internal Revenue Service (IRS) practice to focus on investigations that "closely align" with IRS "mission and key priorities". Banks are not permitted to warn or advise customers unless the customer asks, but sometimes bank tellers will informally warn customers. [10]

Outside the United States

JurisdictionSingle transactionNotes
Australia AU$10,000Although there are no weekly or monthly limits, any parceling to evade the rules is a criminal offence. [11]
Brazil variesDepends on transaction type. [12]
Canada CA$10,000All transactions totaling CA$10,000 within a 24-hour period are subject to reporting. Certain businesses may qualify for Alternative to Large Cash Transaction (ALCT) reporting. [13]
Germany €15,000€10,000 for goods deals. [14]
Ireland €10,000Per the 4th EU Anti-Money Laundering Directive (2017) [15]
Italy €12,500 [16]
Netherlands €15,000 [17]
Sweden €10,000 [18]
Switzerland CHF 15,000Under Switzerland's self-regulatory approach, banks through the Swiss Bankers Association set and enforce their own due diligence rules under Art. 25 AMLA supervision. [19] Their code requires customer verification for cash transactions exceeding CHF 15,000 to prevent structuring of payments. [20] Merchants face a higher threshold, requiring customer identification for cash transactions above CHF 100,000, including when multiple related transactions reach this amount. [21]
Thailand US$58,000 [22]

Other uses

The term "smurfing" is also applied to activity associated with controlled substances such as pseudoephedrine. [23] In this context, the agent will make purchases of small, legal amounts from several drug and grocery stores, with the intent to aggregate the lot for use in the illegal production of methamphetamine. [23] Also, since the monthly pseudoephedrine purchase limits in US are too low for mass meth production, this practice often involves using multiple "smurfs".

As Robert Pennal of the Fresno Meth Task Force explains:

Then we started seeing "smurfing." Remember how the smurfs were little gatherers? We started getting calls from different retail stores that people were buying two or three packs—that's the most you can buy—and they went to one store, they bought three, they went to another store, bought three. We're seeing blister packs everywhere because they're sitting in the car, they're punching the pills out of the blister packs, they're putting them in the freezer bags and they're turning them over to chemical brokers. [24]

See also

Related Research Articles

<span class="mw-page-title-main">Money laundering</span> Process of concealing the origin of money

Money laundering is the process of illegally concealing the origin of money obtained from illicit activities such as drug trafficking, underground sex work, terrorism, corruption, embezzlement, and Treason, and converting the funds into a seemingly legitimate source, usually through a front organization. As financial crime has become more complex and financial intelligence is more important in combating international crime and terrorism, money laundering has become a prominent political, economic, and legal debate. Money laundering is ipso facto illegal; the acts generating the money almost always are themselves criminal in some way.

<span class="mw-page-title-main">Financial Crimes Enforcement Network</span> Bureau of the U.S. Treasury Department

The Financial Crimes Enforcement Network (FinCEN) is a bureau within the United States Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing, and other financial crimes.

<span class="mw-page-title-main">Bank Secrecy Act</span> 1970 act of the United States Congress

The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports if the daily aggregate exceeds $10,000, and report suspicious activity that may signify money laundering, tax evasion, or other criminal activities.

In financial regulation, a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR) is a report made by a financial institution about suspicious or potentially suspicious activity as required under laws designed to counter money laundering, financing of terrorism and other financial crimes. The criteria to decide when a report must be made varies from country to country, but generally, it is any financial transaction that either a) does not make sense to the financial institution; b) is unusual for that particular client; or c) appears to be done only for the purpose of hiding or obfuscating another, separate transaction. The report is filed with that country's Financial Intelligence Unit, which is typically a specialist agency designed to collect and analyse transactions and then report these to relevant law enforcement teams.

<span class="mw-page-title-main">Know your customer</span> Financial institution and company term

Know your customer (KYC) guidelines and regulations in financial services require professionals to verify the identity, suitability, and risks involved with maintaining a business relationship with a customer. The procedures fit within the broader scope of anti-money laundering (AML) and counter terrorism financing (CTF) regulations.

Australian Transaction Reports and Analysis Centre (AUSTRAC) is an Australian government financial intelligence agency responsible for monitoring financial transactions to identify money laundering, organised crime, tax evasion, welfare fraud and terrorism financing. AUSTRAC was established in 1989 under the Financial Transaction Reports Act 1988. It implements in Australia the recommendations of the Financial Action Task Force on Money Laundering (FATF), which Australia joined in 1990.

<span class="mw-page-title-main">Currency transaction report</span>

A currency transaction report (CTR) is a report that U.S. financial institutions are required to file with FinCEN for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency valued at more than $10,000. Used in this context, currency means the coin and/or paper money of any country that is designated as legal tender by the country of issuance. Currency also includes U.S. silver certificates, U.S. notes, Federal Reserve notes, and official foreign bank notes. Contrary to popular misunderstanding, these reports do not apply to, and are not used for, non-currency transactions such as checks, nor for electronic transfers such as wire and ACH/EFT.

The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11, 2001 attacks. It has ten titles, each containing numerous sections. Title III: International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 is actually an act of Congress in its own right as well as being a title of the USA PATRIOT Act, and is intended to facilitate the prevention, detection and prosecution of international money laundering and the financing of terrorism. The title's sections primarily amend portions of the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970.

<span class="mw-page-title-main">Anti–money laundering</span> Financial integrity policy framework

Anti-Money Laundering (AML) refers to a set of policies and practices to ensure that financial institutions and other regulated entities prevent, detect, and report financial crime and especially money laundering activities. Anti-Money Laundering is often paired with the action against terrorism financing, or Combating the Financing of Terrorism, using the acronym AML-CFT. In addition arrangements intended to ensure that banks and other relevant firms duly report suspicious transactions, the AML policy framework includes financial intelligence units and relevant law enforcement operations.

Terrorism financing is the provision of funds or providing financial support to individual terrorists or non-state actors.

<span class="mw-page-title-main">Money Laundering Control Act</span> 1986 law that made money laundering a federal crime in the United States

The Money Laundering Control Act of 1986 is a United States Act of Congress that made money laundering a federal crime. It was passed in 1986. It consists of two sections, 18 U.S.C. § 1956 and 18 U.S.C. § 1957. It for the first time in the United States criminalized money laundering. Section 1956 prohibits individuals from engaging in a financial transaction with proceeds that were generated from certain specific crimes, known as "specified unlawful activities" (SUAs). Additionally, the law requires that an individual specifically intends in making the transaction to conceal the source, ownership or control of the funds. There is no minimum threshold of money, nor is there the requirement that the transaction succeed in actually disguising the money. Moreover, a "financial transaction" has been broadly defined, and need not involve a financial institution, or even a business. Merely passing money from one person to another, so long as it is done with the intent to disguise the source, ownership, location or control of the money, has been deemed a financial transaction under the law. Section 1957 prohibits spending in excess of $10,000 derived from an SUA, regardless of whether the individual wishes to disguise it. This carries a lesser penalty than money laundering, and unlike the money laundering statute, requires that the money pass through a financial institution.

The USA PATRIOT Act was passed by the United States Congress in 2001 as a response to the September 11 attacks in 2001. It has ten titles, with the third title written to prevent, detect, and prosecute international money laundering and the financing of terrorism.

The Financial Transactions and Reports Analysis Centre of Canada is the national financial intelligence agency of Canada. FINTRAC was established in 2000 under the Proceeds of Crime Act to facilitate detection and investigation of money laundering. Its mandate was expanded in December 2001 following amendments to the Proceeds of Crime Act to also disclose financial intelligence to other Canadian intelligence and law enforcement agencies with respect to suspected terrorist financing. FINTRAC's mandate was further expanded in 2006 under Bill C-25 to enhance the client identification, record-keeping and reporting measures, established a registration regime for money services businesses and foreign exchange dealers, and created new offences for not registering.

<span class="mw-page-title-main">Unlawful Internet Gambling Enforcement Act of 2006</span> United States law

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) is United States legislation regulating online gambling. It was added as Title VIII to the SAFE Port Act which otherwise regulated port security. The UIGEA prohibits gambling businesses from "knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law." The act specifically excludes fantasy sports that meet certain requirements, skill games, and legal intrastate and intertribal gaming. The law does not expressly mention state lotteries, nor does it clarify whether interstate wagering on horse racing is legal.

A financial intelligence unit (FIU) is a national body or government agency or international organization which collect information on suspicious or unusual financial activity from the financial industry and other entities or professions required to report suspicious transactions, suspected of being money laundering or terrorism financing.

Anti-money laundering (AML) software is software used in the finance and legal industries to help companies comply with the legal requirements for financial institutions and other regulated entities to prevent or report money laundering activities. AML software can facilitate faster and more accurate compliance and investigations.

<span class="mw-page-title-main">Financial crime</span> Crime against property

Financial crime is crime committed against property, involving the unlawful conversion of the ownership of property to one's own personal use and benefit. Financial crimes may involve fraud ; theft; scams or confidence tricks; tax evasion; bribery; sedition; embezzlement; identity theft; money laundering; and forgery and counterfeiting, including the production of counterfeit money and consumer goods.

In financial regulation, a politically exposed person (PEP) is one who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence they may hold. The terms "politically exposed person" and senior foreign political figure are often used interchangeably, particularly in international forums.

Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.

Casinos in the United States which generate more than $1,000,000 in annual gaming revenues are required to report certain currency transactions to assist the Financial Crimes Enforcement Network (FinCEN) of the Internal Revenue Service (IRS) in uncovering money laundering activities and other financial crimes.

References

  1. ↑ Linn, Courtney J. (2010). "Redefining the Bank Secrecy Act: Currency Reporting and the Crime of Structuring". Santa Clara Law Review. 50 (2): 407–513.
  2. ↑ Gross, Samantha; Barrett, Devlin (11 March 2008). "Spitzer Tripped Up on Laws He Enforced". Fox News. Archived from the original on 22 March 2008. Retrieved 14 March 2008.
  3. ↑ Nestmann, Mark (11 November 2014). "Anti-Smurfing Statute and Structuring". The Nestmann Group. Retrieved 16 September 2024.
  4. ↑ See generally 31 U.S.C.   § 5313, 31 U.S.C.   § 5324, 31 C.F.R. sec. 1010.311, and 31 C.F.R. sec. 1010.314.
  5. ↑ Federal Financial Institutions Examination Council (February 2021). "BSA/AML Examination & Compliance Manual" (PDF). Federal Financial Institutions Examination Council. Retrieved 7 March 2024.
  6. ↑ See generally 31 C.F.R. sec. 1010.320.
  7. ↑ See section 1354(a) of the Anti-Drug Abuse Act of 1986, Public Law No. 99-570, 100 Stat. 3207, at 3207-22 (27 October 1986).
  8. ↑ See 31 USC section 5324(d)(1).
  9. ↑ Internal Revenue Service (1 June 2006). "Part IV Examining Process; Chapter 26 Bank Secrecy Act; Section 13 Structuring". Internal Revenue Manual. Washington, D.C.: US Treasury Department. OCLC   37305546 . Retrieved 11 March 2008.
  10. ↑ "Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required" article by Sahaila Dewan in The New York Times 25 October 2014
  11. ↑ Australian Transaction Reports and Analysis Centre (September 2002). "AUSTRAC Guideline No. 1: Suspect Transaction Reporting" (PDF). Financial Transaction Reports Act 1988. Government of Australia. Archived from the original (.PDF) on 19 November 2016. Retrieved 12 March 2008.
  12. ↑ Conselho de Controle de Atividades Financeiras. "Lavagem de Dinheiro" (in Portuguese). Ministério da Fazenda. Archived from the original on 3 July 2007. Retrieved 12 March 2008.
  13. ↑ "Guideline 9: Alternative to Large Cash Transaction Reports to FINTRAC". fintrac.gc.ca. 17 April 2009.
  14. ↑ "§ 10 GwG - Einzelnorm". www.gesetze-im-internet.de. Retrieved 26 May 2019.
  15. ↑ "Annual Report on Money Laundering and Terrorist Financing 2014" (PDF). Archived from the original (PDF) on 10 September 2016.
  16. ↑ Dipartimento del Tesoro. "Antiriciclaggio" (in Italian). Ministero dell'Economia e delle Finanze. Archived from the original on 15 March 2008. Retrieved 12 March 2008.
  17. ↑ FIU-Nederland. "Meldingen Ongebruikelijke Transacties" (in Dutch). Ministerie van Justitie. Retrieved 12 March 2008.
  18. ↑ Europa Taxation & Customs Union (21 December 2007). "Cash controls". European Commission. Retrieved 12 March 2008.
  19. ↑ "Federal Act on Combating Money Laundering and Terrorist Financing (Anti-Money Laundering Act, AMLA) Art. 25". Swiss Federal Council. 1997. Retrieved 7 March 2024.
  20. ↑ "Agreement on the Swiss banks' code of conduct with regard to the exercise of due diligence (CDB 20, Art. 4(2)(g))" (PDF). Swiss Bankers Association. 2020.
  21. ↑ "Federal Act on Combating Money Laundering and Terrorist Financing (Anti-Money Laundering Act, AMLA) Art. 8a". Swiss Federal Council. 1997. Retrieved 7 March 2024.
  22. ↑ Netipoom Maysakun. "MONEY LAUNDERING IN THAILAND" (PDF). The United Nations Asia and Far East Institute for the Prevention of Crime and the Treatment of Offenders. Archived from the original (PDF) on 20 March 2009. Retrieved 15 September 2008.
  23. 1 2 "DEA" (PDF). Justice.gov. p. 16. Archived from the original (PDF) on 17 October 2010.
  24. ↑ "Transcript – The Meth Epidemic". Frontline – PBS.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.