How Structuring challenges traditional financial controls

Among all the techniques used by criminals to launder money, “structuring” has emerged as one of the most concerning due to its complexity and ability to evade traditional detection mechanisms.

What is structuring and how does it conceal itself? 

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rug trafficking, corruption, and terrorism are common sources of illicit funds that criminals attempt to launder through this method. To achieve this, leveraging the progressive digitalisation of services, criminals search for loopholes in the system to avoid controls and oversight. 

Structuring involves breaking down large sums of money into multiple smaller transactions, each below the reporting thresholds established by financial institutions. 

These transactions are carried out either sequentially or simultaneously, often using different bank accounts or even different banks, in order to avoid raising suspicion and to evade automatic alerts from authorities. 

A key feature of structuring is its ability to blend with legitimate activities, making detection even more challenging. Criminals may use shell companies, phantom enterprises, or simulated commercial transactions to create the appearance of legality for illicit funds. 

They use new technologies and digital platforms to disseminate their transactions, such as cryptocurrencies, electronic transfers, and online payment systems, which offer a degree of anonymity and speed in operations. 

Among the various methods employed for structuring, we can find the following: 

• Fractional cash deposits: Making multiple cash deposits below the reporting threshold for suspicious transactions (STR, Suspicious Transaction Report). Financial institutions are required to submit such reports to the authorities when they detect activities or transactions that appear unusual or suspicious. 

• Purchasing goods and services: Acquiring high-value items such as jewellery, art, or vehicles to convert illicit money into legitimate assets. 

• Utilising multiple bank accounts: Opening and using several bank accounts across different financial institutions to disperse illicit money. 

Fundamental differences between structuring and smurfing 

Smurfing, not to be confused with the other smurfing, associated with the gaming sector, is a technique similar to structuring, but differs in the amount of money involved. 

Smurfing operates similarly to structuring but on a larger and more organised scale. It often involves several individuals (known as “smurfs”), multiple bank accounts, and sometimes even user accounts on online gaming platforms with real money. In this method, illicit funds are used to buy virtual assets, which are then transferred between different accounts before being cashed out and reintegrated into the legitimate financial system. This process is referred to as “layering.” 

Let’s look at some practical examples of how this procedure is applied: 

• A drug trafficker deposits $100,000 in cash into a bank account over a period of two months, making deposits of $5,000 or less each time to avoid the submission of a Suspicious Transaction Report (STR). 

• A corrupt official uses prepaid cards to make purchases of $9,900 at various stores, just below the threshold that requires identity verification. 

• A criminal network employs a network of “mules” to deposit illicit money into different bank accounts, using each mule to make deposits of $10,000 or less. 

• A group of cybercriminals converts $200,000 in cash into cryptocurrencies using multiple exchanges and wallets, conducting transactions of less than $10,000 each to evade KYC and AML controls. They then distribute the funds through a series of small and complex transactions on the blockchain to complicate tracking the origin and destination of the crypto assets. 

How to combat these practices 

Addressing structuring requires a comprehensive approach involving various stakeholders: 

• Financial institutions: Implement robust AML and KYC programmes with fail-safe technologies and a deep understanding of regulatory requirements. This includes transaction monitoring, client behaviour analysis, and mechanisms to detect suspicious activities. 

• Government authorities: Strengthen AML regulations, establish a clear legal framework for identifying and reporting suspicious transactions, and promote inter-institutional cooperation. 

• Sector professionals: Train financial and legal professionals on the latest structuring techniques and other AML strategies to effectively identify and report suspicious activities. 

Strengthening regulation and supervision to prevent structuring 

With the implementation of new regulations such as MiCA (Markets in Crypto-Assets) in the European Union, the Bank Secrecy Act in the United States, and the guidelines introduced by the EBA at the end of 2024, identity verification and monitoring requirements have been significantly strengthened. These regulations mandate that cryptocurrency platforms and other financial institutions adopt stringent measures to identify and report suspicious transactions, thereby substantially reducing the ability of criminals to use structuring as a method for laundering money. 

Global collaboration and the use of advanced data analytics technologies complement these efforts, enabling more effective detection of unusual behaviour patterns and enhancing the prevention of money laundering in an increasingly digital financial environment. 

Contact the TrustCloud team now and avoid financial losses