AUSTRAC, the Australian Transaction Reports and Analysis Centre recently published a financial crime guidance document focused on a money laundering technique used by organised crime groups (OCGs) known as "cuckoo smurfing".
Criminals, in conjunction with corrupt remitters, often use cuckoo smurfing to help disguise and integrate illicit money by exploiting genuine money transfers intended for a genuine beneficiary.
This technique isn't new and has been recognised as a money laundering technique for many years (it was defined in FATF's Money Laundering & Terrorist Financing Typologies guidance document in 2005).
The idea is simple and follows a basic pattern although there are a number of potential variations, for example, the beneficiary could also be corrupt. Typically, a cuckoo smurfing scheme would include variations on the following steps:
- A genuine customer deposits legitimate funds with a remitter to send to a genuine overseas beneficiary;
- The remitter who is corrupt, shares the transaction details with OCGs overseas;
- Instead of the remitter making the transfer, the OCG pay people ("smurfs") to deposit illicit local cash into the beneficiaries account (the cuckoo's nest) - usually in values just under the reporting threshold;
- The remitter retains the legitimate funds and subsequently makes them available to the OCG.
The AUSTRAC guidance sets out a range of risk indicators for Australian businesses to be aware of, however they are applicable globally, and companies in other jurisdictions should be aware of them also.
Described in three categories - Demographic, Depositor and Account, the indicators in conjunction with existing controls and monitoring, can help financial institutions identify suspicious activity.
The use of red flag indicators is a tried and tested way for companies to raise awareness of specific risks and help identify suspicious activity. If they are set out clearly and unambiguously and are combined with good training, they will be helpful. The AUSTRAC guidance provides a good starting point.
If you haven't considered this particular money laundering risk and would like some help to do so, please contact Neal Ysart, Lead Regulatory & Investigations Advisor at firstname.lastname@example.org / Tel: +971 55 138 9250 or your usual Clyde & Co point of contact.
Money transfer businesses, banks and financial institutions should monitor for indicators of potential criminal activity including cash deposits appearing inconsistent with expected transaction activity of an account holder, cash deposits conducted on the same day across multiple branches and ATMs and multiple cash deposits predominately in amounts under $10,000.