In recent years, those in the financial investigation community have had to deal with the question, what is cuckoo smurfing in money laundering?
This technique has been used by a number of criminal organisations including drug traffickers, terrorist financiers and in complex frauds.
It allows money obtained through illegal activities to be washed by hiding the transactions as international legal activities of non-doubtful bank customers.
How Does Cuckoo Smurfing Work?
Cuckoo smurfing involves the money launderer splitting large transactions into multiple small transactions to avoid detection.
In Australia, banks are required to provide threshold transaction reports for any cash transfers of $10,000 or more by the national regulator, AUSTRAC. Bearing this in mind, it is no surprise that criminals seek to break up large sums of money into numerous small transactions of less than $10,000.
By doing so, banks are not alerted to these transactions and not reported.
This is known as 'structuring'. Often individuals will be recruited to deposit the small amounts at different locations or ATMs or bank branches. These individuals are often not give the names of those who recruit them and 'burner phone numbers' are used so that if the person depositing the money is caught, they will not be able to identify their recruiter.
Initially the money will be 'washed' in some way. A common example is it being exchanged for chips at a casino. The chips will then be returned and the money refunded. Alternatively the money will be exchanged for international currency.
That money is then saved in bank accounts that seem innocent and ordinary. Often bank employees will be recruited to find accounts that are most susceptible to this. This means that often innocent people are caught up in cuckoo smurfing - much like money mules.
Usually the innocent bank customer will be awaiting an overseas transfer which allows a second concurrent transaction to occur. In this way there will be one legitimate transfer from the unwitting customer that moves monies into or out of Australia, and another transfer of illegal money.
The illegal transfer will be made using the details of the innocent bank customer so that it appears to be coming from them and not a money launderer. So in addition to the legitimate transaction, there will also be other transactions in that person's name and with their details.
However, the monies in these other transactions are sent to a different beneficiary. That beneficiary will be an overseas bank account that the criminal syndicate controls.
Key to this technique is that the transactions are under the threshold for detection and none would attract the attention of AUSTRAC. This makes the offending difficult to detect and even more difficult to law fraud charges.
By the time the innocent bank customer receives their bank statement showing the illegal transactions, the money will have been returned to the money launderer and they will have disappeared.
An Example of Cuckoo Smurfing
A common example of cuckoo Smurfing is when a criminal syndicate arranges for cash sums of under $10,000 to be transferred in or out of Australia using the bank account details of an unwitting third party.
Banks rarely are alerted as it falls below the threshold. As such, it does not get the attention of AUSTRAC. The identity of the money launderer is also hidden as the only details provided are that of the innocent third party.
From there, the money is transferred to numerous other bank accounts by making multiple complex transactions. This disguises the source of the money to be laundered and makes tracing it both difficult and expensive.
Ultimately the money is returned to the money launderer and will appear legitimate to only the most shrewd experts, such as money laundering lawyers.
Why Is Cuckoo Smurfing Used in Money Laundering?
The big advantage of Cuckoo Smurfing compared to other money laundering methods is its simplicity.
The benefits are twofold. Firstly, it becomes much more difficult to detect smaller transactions than large ones. This is particularly so when multiple people are used to make the structured deposits. This is because an outsider will see it as a number of different individuals all putting money into the system. In this way it can often appear to be a legitimate business.
Secondly, when international transactions are involved, local police often will not have the knowledge or authority to properly investigate the offence.
Finally, cuckoo smurfing can also can be used to hide legitimate transactions and avoid tax obligations.
Why Is It Called Cuckoo Smurfing?
Cuckoo smurfing derives it's name from the actions of the Cuckoo bird. A cuckoo will take its eggs and place them in the nest of another bird. That bird will then care for the egg until it hatches. In the same way, money launderers use innocent bank customers' accounts.
The 'Smurfing' aspect of it comes from recruiting persons to make the structuring deposits. Much like the cartoon smurfs who would replace everyday verbs with the word "smurf" as a way to conceal their real intentions, money launderers will disguise the transactions with structured deposits.
Victims of Cuckoo Smurfing
Prior to 2014, it was accepted that cuckoo smurfing victims were innocent actors. However, since then the Australian Federal Police have begun making applications in the Supreme Court to freeze bank accounts of these victims.
This is done by applying for a freezing order - also known as a restraining order. Essentially the bank accounts the money went into is frozen and the owner of the account cannot make any transactions with it.
Following this, the AFP would seek a forfeiture order. If granted, the entire amount of money in that account is forfeited to the AFP. Clearly the consequences of this can be devastating. If you are in this situation you should contact specialist money laundering lawyers as soon as possible.
Money Laundering Laws
Section 193B of the Crimes Act 1900 (NSW) sets out that if you dealt with money or property that was proceeds of crime, you may be guilty of an offence.
You can beat money laundering charges in two ways. Firstly, the prosecution must prove beyond reasonable doubt:
- You dealt with (ie. received, possessed, concealed or disposed of) money or property; and
- (Depending on the level of knowledge alleged) You knew; or were reckless; or were negligent as to that money or property being proceeds of crime; and
- (Only if charged with intending to conceal) intended to conceal that it was proceeds of crime.
Secondly, you can rely on one of the below defences to money laundering charges:
- Knowledge: The prosecution cannot prove that you had the requisite level of knowledge;
- The prosecution cannot prove you dealt with the property
- The money or property was not 'proceeds of crime'
- Duress: You were forced to commit the offence
- Necessity: Your actions were necessary in the circumstances
Cuckoo Smurfing Money Laundering Statistics
When analysing statistics from the Local Court, we can see that since 2018, 29% of persons found guilty of this offence received a jail sentence of some kind when their case was heard in the Local Court. 15% of offenders were sentenced to full-time prison. Only 5% received no conviction for Money laundering. All other offenders received convictions on their criminal record.
In the District Court, 100% of offenders were sentenced to some form of imprisonment. 73% of offenders were sentenced to full-time jail.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.