The View at Wikipedia
The Wikipedia article on "Structuring" as a type of financial crime indicates that the term smurfing was adopted as a way of indicating the perpetrators' use of multiple smaller transactions to evade regulatory oversight:
Structuring, also known as smurfing in banking industry jargon, is the practice of executing financial transactions (such as the making of bank deposits) in a specific pattern calculated to avoid the creation of certain records and reports required by law, such as the United States' Bank Secrecy Act (BSA) and Internal Revenue Code section 6050I (relating to the requirement to file Form 8300).
The term "smurfing" is derived from the image of the comic book characters, the Smurfs, having a large group of many small entities. Miami-based lawyer Gregory Baldwin is said to have coined the term in the 1980s.
Typically each of the smaller transactions is executed in an amount below some statutory limit that normally does not require a financial institution to file a report with a government agency. Criminal enterprises often employ several agents (smurfs) to make the transaction.
The term is also applied to activity associated with controlled substances such as pseudoephedrine In this context the agent will make purchases of small, legal amounts from several drug and grocery stores, with the intent to aggregate the lot for use in the illegal production of methamphetamine. Also, since the monthly pseudoephedrine purchase limits in US are too low for mass meth production, this practice often involves using multiple "smurfs".
As Robert Pennal of the Fresno Meth Task Force explains:
Then we started seeing "smurfing." Remember how the smurfs were little gatherers? We started getting calls from different retail stores that people were buying two or three packs — that's the most you can buy — and they went to one store, they bought three, they went to another store, bought three. We're seeing blister packs everywhere because they're sitting in the car, they're punching the pills out of the blister packs, they're putting them in the freezer bags and they're turning them over to chemical brokers.
'Smurfing' in Google Books search results
The earliest Google Books match for smurfing in the sense of "money laundering" appears to be from Hearings before the Subcommittee on Crime of the Committee on the Judiciary, House of Representatives, Ninety-ninth Congress, First Session, on Current Problem of Money Laundering, April 16, June 13, July 24, and September 12, 1985 (1987):
Mr. STAGGERS. Are you aware of this laundering mechanism called smurfing?
Mr. WALKER. Yes.
Mr. STAGGERS. Are you doing anything about that? That is why I pursued the individual filing CTR's.
Mr. WALKER. Yes, if by smurfing you mean—there are two contexts in which the term "smurfing" has been used. One is when a series of transactions under $10,000 are engaged in, whereby amounts of less than $10,000 are used to purchase cashier's checks and then the cashier's checks are transported offshore or to another bank. If they are in pay form then they could be deposited without triggering other reports and thereby avoid the reporting altogether.
Also, I have understood that smurfing is transactions somewhat over $10,000 but so small as not to create any suspicion. Again, this is spread out over the country in which case there would be reports but the reports would be lost in the shuffle, if you will.
Did Gregory Baldwin coin the term 'smurfing'?
The earliest association I've been able to find between Gregory Baldwin and the concept of smurfing appears in The BCCI Affair: A Report to the Committee on Foreign Relations, United States Senate (1993), which does not, however, credit Baldwin with having coined the term:
On July 19, 1990, Lino Linares, a BCCI official in Miami responsible for reviewing BCCI's accounts under its cooperation agreement, wrote BCCI attorney Gregory A. Baldwin at Holland and Knight, that he had "encountered what appears to be a large 'smurfing' operation using primarily money orders ranging from $250.00 to $1,000.00, purchased at different locations, throughout the United States." In smurfing, criminals attempt to evade U.S. currency reporting requirements through making deposits under the $10,000 level in which reports of the deposits of currency are required.
So in July 1990—five years after the exchange about smurfing between Congressman Harley Stagggers and the otherwise unidentified "Mr. Walker"—we have BCCI official Lino Linares telling BCCI attorney Gregory Baldwin that his review of the corporation's accounts had turned up evidence of what appeared to be smurfing. According to Wikipedia's article on BCCI:
In 1988, the bank was implicated for being the center of a major money-laundering scheme. After a six-month trial, BCCI, under immense pressure from US authorities, pleaded guilty in 1990, but only on the grounds of respondeat superior. While federal regulators took no action, Florida regulators forced BCCI to pull out of the state.
So either Baldwin had prior experience with smurfing activities during the early to mid-1980s and coined the term then (but was not noted to have been associated with the term by third parties until 1990, when he worked at BCCI) or he wasn't the originator of the term but was connected to it as a result of his role in the exposure of BCCI's money-laundering operations in 1990–1991. The former scenario is by no means far-fetched, but the latter scenario is plausible, too.