Your bank maintains several accounts for a local businessman who owns a finance company and a real estate company. During a routine audit of this customer’s accounts, you notice that 25 money orders totaling $11,200 were deposited to the account over a two-day period.

Do you report the activity as suspicious?

According to a criminal indictment filed by the U.S. Attorney’s Office in Miami in May 1999, this activity, which took place at a Miami bank in February 1997, was part of a $400,000 drug money laundering operation. It was uncovered by a multi-agency investigation known as Emerald Snow. The indictment provides an excellent case study on patterns of transactions that could be a sign of money laundering. If not accompanied by a reasonable and plausible explanation from the customer, these transactions should prompt a suspicious activity report.

"Smurfing"

The Emerald Snow indictment says that on February 12, 1997, defendant Francisco Diaz deposited 13 money orders totaling $5,732 in an account at City National Bank of Florida controlled by Ciro Martinez, a Miami businessman. Later the same day Diaz deposited 12 money orders totaling $5,563 in that account. It is alleged that the money orders were purchased with drug proceeds.

Multiple deposits of low-value monetary instruments purchased from banks or money services businesses with criminal proceeds constitute a money laundering scheme known as "smurfing." Smurfing takes many forms, including multiple deposits of cash or monetary instruments in amounts typically below $3,000. Smurfing can be conducted through your institution by one or more persons making deposits to one or more accounts during several visits. Several persons arriving at an institution together and going to different tellers, or several going to different branches, to make deposits to one or more related accounts is a tell-tale sign of smurfing.

Smurfing can also involve the deposit of multiple monetary instruments into accounts at several different financial institutions. The Emerald Snow indictment charges Eddy Marin with depositing five money orders totaling $2,500 into a NationsBank account one week prior to the deposits made by Francisco Diaz at City National Bank. It also says that on March 12, 1997, Suyapa Elmady deposited 160 Travelers Express international money orders totaling $79,320 in an account at International Bank of Miami. The U.S. alleges that the deposits of Diaz, Marin and Elmady, all of which were made to accounts controlled by Martinez, were part of the same money laundering scheme.

The U.S. Suspicious Activity Reporting regulations, among other things, require U.S. banks and other depository institutions to report "suspicious transactions," which include any transaction involving $5,000 or more that is Aconducted or attempted by, at, or through the bank... and the bank knows, suspects, or has reason to suspect" involves "funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities… as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation" (31 CFR 103.21). Smurfing falls under this definition of suspicious activity.

Keep in mind that multiple deposits of low denomination monetary instruments or small amounts of cash are not always a sign of money laundering. Some businesses, including rental management companies that accept money orders for rent payments and restaurants that do a high volume of cash business, have a legitimate reason for conducting such transactions.

A tell-tale sign of smurfing is the deposit of multiple monetary instruments with consecutive serial numbers, signifying that the instruments were purchased by one person at one time. Similarly, the deposit of cash wrapped in currency straps stamped by other banks can be a sign of smurfing.

Structuring

The Emerald Snow indictment says that on February 12, 1997, Martin del Barrio laundered $9,500 in cash by depositing it in an account at Citibank Federal Savings Bank. del Barrio allegedly returned to the bank twice in the next two days to deposit $9,600 in drug cash in the same account.

The U.S. Bank Secrecy Act, under which the Suspicious Activity Reporting regulations are issued, makes it a crime to "structure" currency transactions "for the purpose of evading the reporting requirements" of the BSA (Title 31, USC Sec. 5322 and 5324). Structuring normally involves multiple cash deposits or withdrawals at amounts below the $10,000 currency transaction reporting threshold prescribed by BSA regulations (31 CFR 103.22). Structuring can also involve conducting a transaction in a way that causes the filing of a report that contains "a material omission or misstatement of fact."

"Bank Secrecy Act/Structuring/Money laundering" is one of the 17 crimes listed on the U.S. Suspicious Activity Report form as a type of suspicious activity that must be reported. Structuring transactions and smurfing are similar types of suspicious activity.

By understanding common patterns of money laundering activity such as smurfing and structuring, you can better assist your institution in detecting and reporting suspicious activity and preventing money laundering.