Difference Between Smurfing & Structuring
Smurfing and Structuring: Financial Crimes comes in all shapes and sizes. When it comes to banking violations, it may include domestic issues, international issues or both. Oftentimes, financial crimes will overlap.
Two of most common types of financial crimes are Smurfing and Structuring.
While domestic crimes are bad, when these crimes involves offshore and international tax related matters, the penalties can be outrageous.
A common question we receive is:
“What’s the difference between Smurfing and Structuring?”
We will summarize the basics of Smurfing and Structuring.
What is Structuring?
Structuring does not have to include illegally sourced money or money laundering – it can be legal money, and it can be as simple as you do not want the amount or frequencies of your deposits to be scrutinized by the bank….so you structure the deposits accordingly.
Structuring is a Crime
In other words, Structuring is the idea of structuring your deposits, withdrawals, etc. to avoid detection by the Bank.
Typically, this means avoiding depositing more than $10,000 of cash at any one-time — to avoid a Currency Transaction Report (CTR) from being issued, and/or to avoid a potential Suspicious Activity Report (SAR) from being issued.
For reference, bank regulations require financial institutions to file reports when certain transactions occur in either high dollar amounts, or in high frequency. These reports are not limited to the United States.
For example, you have $30,000. Instead of depositing it into your account, you intentionally (and for the purpose of avoiding detection/reporting by the bank) spread out the deposits over several days.
Structuring is a global issue not limited just to the U.S.
Many countries have similar rules in place. The reason being, is that no financial institution wants to learn that they were a conduit or catalyst for any sort of fraud, money-laundering, terrorism, etc.– like a game of Hot Potato.
Smurfing Financial Deposits
Smurfing Financial Deposits: The smurfing financial deposits crime is complicated. If you were like me, and your childhood included running downstairs on Saturday mornings to catch new episodes of the Smurfs — smurfing is different.
The Smurfs were fun (and blue). Smurfing bank account deposits is criminal…and may leave you in jail, with the blues.
Since smurfing will oftentimes include foreign or offshore bank deposits, individuals have to be even more careful.
What makes smurfing financial deposits so complicated, is that in many situations, the same behavior used to smurf accounts is considered just making a legal bank deposits.
For example, if a person wanted to split their $24,000 deposit into three (3) $8,000 deposits because they own three (3) convenience stores throughout the city, and want to have an account near each one of their stores — this is not illegal.
It is when a person smurfs account deposits to avoid detection and bank reporting (CTR and SAR) that it becomes more complicated.
An Example of Smurfing
Gargamel has about $500,000 of cash that he received in legally sourced money. He would like to deposit into different banks to avoid reporting. (aka Structuring)
Gargamel is a U.S. person and doesn’t want to have to report the income on his return, even though the income is all legally sourced.
He does his research and hatches a plan. And, to carry out his plan, he decides he needs some help… and who better to go smurfing than the smurfs, right?
Therefore, Gargamel orders Papa Smurf, Clumsy Smurf, Grouchy Smurf, Greedy Smurf, Brainy Smurf, and (of course, smurfette) to each deposit various amounts of small transactions into numerous different banks to avoid detection.
The idea is that, if for example, Brainy Smurf takes $70,000 and split it into 14, $5,000 transactions that he makes at 14 different banks across smurf village, no one will be the wiser, since it is below the CTR threshold and nothing suspicious about depositing $5,000 into a bank.
If instead, Lazy Smurf deposited all of the $70,000 cash into one account, when there is no proof that he has his own business or otherwise generates that type of money – it could lead to further questioning from the bank, as well as a potential CTR report or an SAR report.
Using Offshore/Foreign is Even More Dangerous
Beyond U.S. structuring/smurfing, once a person is doing these types of transactions overseas and possibly not filing necessary informational returns, FBARs, Form 8938, etc. they might find themselves in some serious trouble.
What Can You Do?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
Golding & Golding: About Our International Tax Law Firm
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