Structuring

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.

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]

Regulations

Legal restrictions on structuring are concerned with limiting the size of domestic transactions for individuals, and somewhat limiting the outbound foreign currency transfers of firms or company entities. This should not be confused with capital controls, which are regulatory limits on the money that one can take out of a nation and generally regulate how much money can leave a country at any given time. Both can have some of the same economic effects in some economies, as structuring controls effectively limit the flow of capital by magnitude and duration, and can apply equally to taking money out of a nation as well as putting money into its financial system.

United States

In the United States, the Bank Secrecy Act requires currency transaction reports (CTRs) to be filed for transactions valued at more than $10,000; it applies to both U.S. and foreign currencies.[3] Financial institutions suspecting deposit structuring with intent to avoid the law are required to file a suspicious activity report (SAR).[4] In 1986, the U.S. Congress enacted section 5324 of Title 31 of the United States Code,[5] 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.[6] The filing of Form 8300 is required under Internal Revenue Code section 6050I.[7]

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.[8]

Outside the United States

Jurisdiction Single transaction Notes
Australia AU$10,000 Although there are no weekly or monthly limits, any parceling to evade the rules is a criminal offence.[9]
Brazil varies Depends on transaction type.[10]
Canada CA$10,000 All 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.[11]
Fiji FJ$1,100 Individuals are subject to FJ$7,700 in a given week. Businesses engaged as investor tourism operators have no limit.
France €1,000 For French residents, starting from September 2015.
Germany €10,000
Guyana US$10,000
Ireland €10,000 Per the 4th EU Anti-Money Laundering Directive (2017)[12]
India ₹ 50,000
Italy €12,500 [13]
Lithuania LTL10,000
Netherlands €15,000 [14]
New Zealand NZ$10,000 Not applicable to the Cook Islands
Philippines PHP500,000
Portugal €10,000
Romania €10,000
Spain €3,000
Sweden €10,000 [15]
Thailand US$58,000 [16]
Turkey US$50,000
  • Fiji has its own anti-structuring laws, but they should not be confused with Fiji's capital controls. Fiji has limited outbound withdrawals in hard currency (AUD, NZD, USD) for at least 20 years.
  • The Cook Islands has "Home Rule" with respect to banking. Cook Islands automated teller machines often fail to fully disclose the fact that the Cooks have their own structuring regulations and are not part of the New Zealand banking system.

Other uses

The term "smurfing" is also applied to activity associated with controlled substances such as pseudoephedrine.[17] 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.[17] 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.[18]

See also

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. ↑ 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.
  4. ↑ See generally 31 C.F.R. sec. 1010.320.
  5. ↑ See section 1354(a) of the Anti-Drug Abuse Act of 1986, Public Law No. 99-570, 100 Stat. 3207, at 3207-22 (27 Oct. 1986).
  6. ↑ See 31 USC section 5324(d)(1).
  7. ↑ Internal Revenue Service (2006-06-01). "Part IV Examining Process; Chapter 26 Bank Secrecy Act; Section 13 Structuring". Internal Revenue Manual. Washington, D.C.: US Treasury Department. OCLC 37305546. Retrieved 2008-03-11.
  8. ↑ "Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required" article by Sahaila Dewan in The New York Times 25 October 2014
  9. ↑ Australian Transaction Reports and Analysis Centre (September 2002). "AUSTRAC Guideline No. 1: Suspect Transaction Reporting" (.PDF). Financial Transaction Reports Act 1988. Government of Australia. Retrieved 2008-03-12.
  10. ↑ 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.
  11. ↑ "Guideline 9: Alternative to Large Cash Transaction Reports to FINTRAC". fintrac.gc.ca.
  12. ↑ http://www.antimoneylaundering.gov.ie/website/aml/amlcuweb.nsf/0/B75E0654ED35762480257F230043F9FE/$File/2014%20Report.pdf
  13. ↑ Dipartimento del Tesoro. "Antiriciclaggio" (in Italian). Ministero dell'Economia e delle Finanze. Archived from the original on 15 March 2008. Retrieved 12 March 2008.
  14. ↑ FIU-Nederland. "Meldingen Ongebruikelijke Transacties" (in Dutch). Ministerie van Justitie. Retrieved 2008-03-12.
  15. ↑ Europa Taxation & Customs Union (21 December 2007). "Cash controls". European Commission. Retrieved 2008-03-12.
  16. ↑ 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. Retrieved 2008-09-15.
  17. 1 2 "DEA" (PDF). Justice.gov. p. 16. Archived from the original (PDF) on 17 October 2010.
  18. ↑ "Transcript - The Meth Epidemic - FRONTLINE - PBS". FRONTLINE.

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