There is a significant amount of money being lost as a result of money laundering and terrorist financing, which includes illegal activities such as arms trafficking, human trafficking, and drug trafficking. Financial criminals engage in such activities to convert their illicit gains into legitimate funds. To achieve this, they often employ various techniques and tools, one of which is Cuckoo Smurfing. This unique method of money laundering enables criminals to disguise their transactions as legal international activities of legitimate bank customers.
What is Cuckoo Smurfing?
There is a method of money laundering known as Cuckoo Smurfing that is commonly used by criminals. This method is relatively simple compared to other forms of money laundering. Essentially, Cuckoo Smurfing involves breaking large transactions down into smaller ones in order to steal or launder money from the government. This technique is often used as a way to avoid paying taxes illegally. Through Cuckoo Smurfing, criminals are able to use cash or drugs without being caught. Even those who assist in the process are considered guilty of money laundering. Criminals use this method to move their money around the world.
To begin the process, criminals deposit their money into seemingly innocent bank accounts. They typically enlist the help of internal bank employees to find these accounts. The money is then inserted into the financial system, often by purchasing casinos or international currency. From there, the money is allocated to other accounts through a series of complex bank transactions designed to conceal its source.
Example of Cuckoo Smurfing
Imagine a scenario where a criminal in Texas owes £7,000 to a criminal in Manchester, and a merchant in Manchester owes £7,000 to a supplier in Texas. To launder the money, the Manchester merchant goes to their bank and deposits £7,000, instructing the bank to transfer the money to the Texas supplier's account. However, instead of following the instructions, the Manchester banker colludes with the Texas criminal to invest £7,000 in the Texas supplier's account. Then, the Manchester banker transfers £7,000 from the Manchester merchant's account to the Manchester criminal's account. The merchant and the supplier are unaware that the funds were not directly transferred, but they both receive and pay £7,000. If detected, the Manchester banker could face severe consequences for violating money laundering regulations. The Cuckoo Smurfing technique is a sophisticated form of money laundering that exploits the financial system's vulnerabilities and highlights the need for robust anti-money laundering measures to prevent financial crimes.
Australian High Court Views
The practice of Cuckoo smurfing originated in Europe and is named after the bird's behavior of laying its eggs in other bird's nests. This illegal activity is also prevalent in Australia, where criminals deposit their illicit cash profits from crime syndicates into the bank accounts of innocent parties who are waiting for overseas transfers. This is often done to avoid bank fees and transactions are carried out to avoid detection by following reporting requirements.
It has been determined by the Australian High Court that if a bank in Australia uses a Money reminder to transfer funds to an account, the reminder automatically washes the corresponding amount of money in Australia. This means that the customer's bank account information is provided to individuals in Australia who then deposit the cash into the account. This is a common practice by deposit teams in Australia.
For nearly two decades, the Australian Federal Police (AFP) has been investigating the technique known as Cuckoo Smurfing. This technique gained significant attention in 2019 when a Supreme Court case in Australia raised questions about the legal obligation to monitor accounts. It wasn't until 2014 that the Australian government acknowledged that innocent victims were being targeted through Cuckoo Smurfing. Since then, the AFP has taken action by freezing Australian bank accounts that receive structured funds, and this effort continues to this day.
While Cuckoo Smurfing shares some similarities with the Hawala system, there is a critical difference: the former intentionally creates money laundering risks, while the latter is a system for transferring funds when traditional methods are not available. Regulators and banks must implement measures such as Know Your Customer and Customer Due Diligence to prevent these risks.