An action in a sentence can be represented in two ways, namely active and passive voice.

The passive voice always uses the past participle form of the main verb irrespective of any tense. Only the auxiliary verbs depend upon the sentence given in the active voice.

The option C is correct as the given sentence is in the active voice and to transform it into passive voice the subject of the given sentence 
(The smugglers) comes in the place of the object (which is not mentioned here) and vice-versa, so, the transformed sentence should start with 'it'.

Also, as the sentence is in the simple past tense, 'was' is used before the past participle form of the main verb (realize). 

Options A, B, and D are wrong as the subject is not in its place in the transformed sentence,'someone' cannot be used here as the answer to who didn't realize is 'The smugglers', not 'Someone', and the meaning of the transformed sentence comes different from what is given respectively.

The correct answer is C)It was not realised by the smugglers that their conversation was being recorded.