Money Laundering: What's the Difference between Smurfing and Structuring?
Money laundering is a serious federal offense that involves transforming large sums of money, often generated from criminal activities like drug trafficking or terrorist funding, into seemingly legitimate funds.
The United States strictly prohibits money laundering under federal law, and those found guilty face substantial fines and lengthy prison sentences.
18 U.S. Code 1956 - Laundering of monetary instruments says, "(a) (1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which involves the proceeds of specified unlawful activity-
(A) (i) with the intent to promote the carrying on of specified unlawful activity; or
(ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or
(B) knowing that the transaction is designed in whole or in part-
(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or
(ii) to avoid a transaction reporting requirement under State or Federal law, shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, imprisonment for not more than twenty years, or both.
For purposes of this paragraph, a financial transaction shall be considered to be one involving the proceeds of specified unlawful activity if it is part of a set of parallel or dependent transactions, any one of which involves the proceeds of specified unlawful activity, and all of which are part of a single plan or arrangement."
Two common terms likely to be used when describing money laundering are "smurfing" and "structuring." While these describe similar practices (indeed, smurfing is a type of structuring), there are specific differences to be explored.
What is Money Laundering?
Money laundering involves disguising the origins of illegally obtained money to appear legitimate. The process typically encompasses three stages:
- Placement: Introducing illicit funds into the financial system.
- Layering: Concealing the source of the funds through complex transactions.
- Integration: Making the laundered money available to the criminal again as legally obtained funds.
Key federal laws, such as the Bank Secrecy Act (BSA) and the USA PATRIOT Act, are instrumental in curbing money laundering activities, thereby preventing the flow of illicit funds through the U.S. financial system. Because it cannot comply with strict regulatory requirements, Hawala is considered illegal in the United States.
Smurfing: A Common Money Laundering Technique
Smurfing is a method of structuring whereby large sums of illicitly obtained cash are broken down into smaller, less suspicious amounts. These smaller amounts are then deposited into various bank accounts over time to avoid detection by financial institutions and law enforcement agencies.
The term "smurfing" derives from the image of numerous small transactions, similar to the many small characters in the Smurfs cartoon. This technique involves using multiple individuals, or "smurfs," to execute these transactions.
Characteristics of Smurfing:
- Multiple small transactions.
- Use of various accounts and financial institutions.
- Avoidance of reporting requirements for large transactions.
Smurfing is often the first step in a larger money laundering scheme. By avoiding the $10,000 threshold that triggers mandatory reporting by financial institutions under the Bank Secrecy Act (BSA), criminals aim to avoid regulators' radar.
Structuring: A Broader Concept
While smurfing is a form of structuring, the term structuring more broadly refers to any method of arranging financial transactions to avoid reporting requirements.
While smurfing deals with depositing small amounts of money, structuring can include any manipulation of financial transactions to evade detection. This can involve deposits, withdrawals, transfers, and exchanges. A single individual managing deposits may also do structuring, while smurfing involves multiple people.
Characteristics of Structuring:
- Manipulation of various types of financial transactions.
- Includes deposits, withdrawals, transfers, and exchanges.
- Broader than smurfing in scope.
Structuring is a tactic used to break down transactions into amounts below the reporting threshold, thereby attempting to evade scrutiny. It is a federal offense under the Currency and Foreign Transactions Reporting Act, which mandates financial institutions to report transactions over $10,000.
What Are Related Federal Laws?
18 U.S. Code Chapter 95 - Racketeering has several federal offenses that are related to money laundering, including the following:
- 18 U.S.C. 1951 - Interference with commerce by threats or violence.
- 18 U.S.C. 1952 - Interstate and foreign travel or transportation in aid of racketeering enterprises.
- 18 U.S.C. 1953 - Interstate transportation of wagering paraphernalia.
- 18 U.S.C. 1954 - Offer, acceptance, or solicitation to influence employee benefit plan operations.
- 18 U.S.C. 1955 - Prohibition of illegal gambling businesses.
- 18 U.S.C. 1956 - Laundering of monetary instruments.
- 18 U.S.C. 1957 - Engaging in monetary transactions in property derived from specified unlawful activity.
- 18 U.S.C. 1958 - Use of interstate commerce facilities in the commission of murder-for-hire.
- 18 U.S.C. 1959 - Violent crimes in aid of racketeering activity.
- 18 U.S.C. 1960 - Prohibition of unlicensed money-transmitting businesses
What are the Penalties for a Conviction?
Money laundering practices may be criminally charged under various federal statutes, including 31 U.S.C. 5324 (for structuring and smurfing practices) and 18 U.S.C. 1957 and 1958 for money laundering in general.
The severity of the penalties on conviction depends mainly on the specific statute under which you are charged. For example:
- For violations of 31 U.S.C. 5324 (covering the specific practice of structuring/smurfing), the penalty is up to 5 years in prison or up to 10 years if the offense is part of a structuring pattern involving $100,000 or more in 12 months.
- For general money laundering violations under U.S.C. 1957/1958, you could face up to 10 years in prison, plus fines of up to $500,000 or twice the value of the laundered property, whichever is greater.
What are the Common Defenses?
Given the gravity of money laundering charges, seeking legal representation from an experienced federal criminal defense attorney is crucial if you're accused of structuring, smurfing, or any other form of money laundering. A skilled attorney can employ one of several defenses to combat the charges, including, but not limited to:
- Lack of Intent: Demonstrating that the deposits or other transactions were not made to disguise the source of funds.
- Lack of Knowledge: Providing evidence that you were genuinely ignorant of the source of the funds involved in the transaction(s).
- Entrapment: In cases where law enforcement induces an individual to commit a crime they otherwise would not have committed, entrapment may be a viable defense.
- Duress: Proving that you were coerced into participating in money laundering activities under threat of harm can be a viable defense.
For additional information, contact our federal criminal defense law firm, Eisner Gorin LLP, which has offices in Los Angeles, CA.
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