Smurfing Money and Is Splitting Bank Account Deposits Criminal?
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Smurfing Money Deposits
Smurfing Financial Deposits: If you were like me and you picture yourself as a child running downstairs on Saturday mornings to watch TV when you hear someone say “smurf” — well, smurfing is different. The Smurfs were fun (and blue). Smurfing bank account deposits is criminal…and may leave you in jail, with the blues.
When a person deposits accounts into various bank accounts with the idea of avoiding detection, the general phrase is called Structuring. Smurfing on the other hand is a specific strategy.
Since smurfing will oftentimes include foreign or offshore bank deposits, individuals have to be even more careful. That is because in recent years, the IRS has taken an aggressive enforcement position on matters involving foreign accounts compliance and unreported foreign income.
*While Smurfing and Structuring are sometimes used interchangeably — they are not the same.
Making Several Small Financial Deposits
What makes smurfing financial deposits so complicated, is that because in many situations, the same behavior used to smurf accounts is considered 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 they want to have an account near each one of their stores — this is not illegal.
When a person smurfs account deposits to avoid detection and bank reporting (Currency Transaction Report CTR and Suspicious Activity Report SAR), then it becomes more complicated.
First, What is Structuring?
Before understanding what smurfing is, it is important to get a basic idea of what structuring is.
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
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.
In fact, many countries have similar rules in place. The reason 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.
In order to successfully structure, you need a plan – and what plan is complete without some smurfs?
An Example of Smurfing
Let’s keep it simple: 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.
Gargamel 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 with than the smurfs, right?
Therefore, Gargamel orders Papa Smurf, Clumsy Smurf, Lazy 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 Brainy Smurf takes $70,000 and splits it into 14 separate $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 Banks 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 About Smurfing?
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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