AUSTRAC issues guidance on growing global money laundering threat

AUSTRAC Cuckoo Smurfing Money Laundering

Australia’s financial crimes investigation agency, AUSTRAC, has released a new guide to help financial organisations and other businesses detect and counter ‘cuckoo smurfing’ – a money laundering technique seeing increasing prevalence across the globe.

Cuckoo smurfing involves several steps, but relies first and foremost on splitting up bulk illegal funds transfers into multiple small transactions (below the $10,000 reporting threshold) in an effort by criminals to avoid detection.

AUSTRAC is alerted typically only when an overseas transaction exceeds $10,000.

The technique exploits legitimate bank accounts of individuals and businesses. Legitimate overseas money transfers are effectively hijacked by criminals, allowing them to ‘wash’ the proceeds of crime with clean cash.

The technique often relies on overseas money remittance services working in cahoots with criminal gangs. The remitters use an honest client’s money to purchase Australian currency for the client’s intended recipient (for instance, an Australian account holder expecting money from a friend, relative or business partner) which is then funnelled to the criminal gang’s account.

However, because honest money transfer recipients still receive the full amount due (in this case, the criminal’s unwashed funds), they remain none the wiser.

“Generally, the beneficiary customer receiving the funds is expecting legitimate funds to be deposited into their account, and is not aware the funds transferred are the proceeds of crime,” AUSTRAC noted in its report.

“Often these recipients are unaware that the funds transferred into their accounts have in fact come from criminals using funds generated from drug dealing and other serious criminal activities.”

‘Cuckoo smurfing’ takes its name from the methods used by the cuckoo bird.

“Cuckoos lay their eggs in the nests of other species of birds which then unknowingly take care of the eggs believing them to be their own.”

The ‘smurf’, or third-party agent, refers to individuals employed by criminal syndicates to conduct cash deposits made into a beneficiary’s bank account (the ‘cuckoo’s nest’) and collect the equivalent transfer amount in cash.

AUSTRAC chief executive Nicole Rose PSM said the method is widely used by criminal syndicates “involved in crimes that inflict serious harm on our community such as drug trafficking, slavery, fraud and corruption”.

“We rely on financial businesses to report to AUSTRAC and partner with enforcement to stop these criminal syndicates and protect members of the Australian community.”

She warned money transfer businesses, banks and, financial institutions to be on the lookout 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.

Last year, in a partnership led by ANZ, Australia’s major banks, police services, the financial intelligence unit (FIU) and criminal intelligence teams led a program to detect and disrupt cuckoo smurfing operations, leading to multiple arrests and millions of dollars of illicit funds tracked.

Five individuals involved in a major international laundering syndicate were arrested, with one operation detecting $5.4 million moving through 167 bank accounts across Australia’s major banks.

ANZ, Thomson Reuters noted, has invested heavily in recent years in its real-time financial crime detection framework.

The bank’s typologies for detecting cuckoo smurfing, developed alongside the Fintel Alliance partners, have allowed the authorities to detect and even pre-empt the time and place of suspicious deposits, it said.

AUSTRAC’s ‘Cuckoo Smurfing’ guide can be downloaded here.