Quora Answer: What is Smurfing?

The following is my answer to a Quora question: “What does smurfing mean, and how is it done?” 

In finance, smurfing is the act of moving funds in small tranches, and through multiple entities and accounts, for the sole purpose of evading detection by the authorities.  The intent is tax evasion, and the distribution, or consolidation of the proceeds of illegal activities.  Large funds movements trigger the system, and financial institutions are required, by law, to report these transactions to the central bank or relevant compliance authority.  To avoid this, money launderers move funds in a series of small tranches, utilising multiple accounts, belonging to multiple entities, to avoid detection.  They also move funds during high traffic periods, so that it is masked by the overall movement of the market. 

Originally, such fund movements were conducted by runners physically depositing, and withdrawing, from hundreds, sometimes thousands, of accounts.  This was especially so in places such as Medellin, Rio de Janeiro, and Miami, with drug money.  Overtime, criminal organisations hired accountants, financial advisors, and bankers, and the system got more sophisticated.  There are dozens of financial instruments, and methods, to move funds undetected across the world, and integrate them in the form of other forms of assets.  Financial instruments include letters of credit, banker’s guarantees, insurance policies and futures contracts, and converted into property, mingled with legitimate transactions of legal businesses, and using ledger to ledger transfers. 

Done properly, money laundering is almost impossible to detect.  Often, people get caught because someone in the network is disgruntled and rocks the boat; or someone who made some money through this, does not know how to be discreet, and flaunts wealth he cannot account for.