STRUCTURING

Structuring is the act of breaking up financial transactions to get around the federal reporting requirements that kick in for transactions over a specific amount of money. These federal reporting requirements require banks to report any deposits, withdrawals, or transfers of more than $10,000. These reporting requirements were first created by the Bank Secrecy Act (the “Act”), enacted in 1970, and its amendments; but have not seen broad enforcement until recent years. Today, structuring is one of the most commonly reported suspected crimes.

Background

The Act was originally intended to make it easier for the government to track tax cheats, money launderers, illegal gambling operations and other criminal enterprises. Indeed, unless currency is smuggled out of the United States or commingled with the deposits of an otherwise legitimate business, any money laundering scheme that begins with a need to convert the currency proceeds of criminal activity into more legitimate-looking forms of financial instruments, accounts, or investments will likely involve some form of structuring.

Bank Reporting Required By The Act

Banks must also report any suspicious activity of its customers or any customer activity that might be construed as manipulating deposits or withdrawals to avoid these reporting requirements. Banks are prohibited from letting their customers know that they have made a report to the government. Bank employees are aware of and alert to structuring schemes. Banks and their employees risk financial sanctions if they fail to sufficiently police their customers or if they notify customers that they’ve been reported for suspicious deposits. Bank employees found to have neglected their duties to report suspicious customer behavior can also be criminally charged and sent to prison. Banks and their employees have quite a bit of incentive to cast a wide net around what constitutes “suspicious activity” with virtually no risk of losing customers due to a policy of over-reporting “suspicious activity” to the government.

Applicable Statute, Regulations and Caselaw

Under the Act, codified at 31 U.S.C. § 5324, et. seq., no person shall, for the purpose of evading the Currency Transaction Report (“CTR”), a geographic targeting order reporting requirement, or certain other of the Act’s recordkeeping requirements: (1) cause or attempt to cause a bank to fail to file a CTR…, (2) cause or attempt to cause a bank to file a CTR…that contains a material omission or misstatement of fact or (3) structure, attempt to structure or assist in structuring, any transaction with one or more banks. The definition of structuring, set forth in 31 C.F.R § 103.11(gg), states, “a person structures a transaction if that person, acting alone, or in conjunction with, or on behalf of, other persons, conducts or attempts to conduct one or more transactions in currency in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading the [CTR filing requirements].” The term “in any manner” includes, but is not limited to, breaking down a single currency sum exceeding $10,000 into smaller amounts that may be conducted as a series of transactions at or less than $10,000.

In the mid-1990s, the United States Supreme Court addressed concern that the enforcement of the criminal sanctions, related to the crime of structuring which required willful intent, could result in conviction of morally blameless people. The Court interpreted the word “willfully” to mean that the defendant knew that structuring was illegal. Notwithstanding the concern expressed by the Supreme Court, within ten months, Congress deleted the term “willfully”” from the statute. Now, the government need only show that a defendant knows about the $10,000 reporting requirement and makes deposits of currency less than that amount in order to avoid it.

Examples of Structuring Transactions

Many ways to structure large amounts of currency to evade the CTR filing requirements have been developed over the years, for example:

A customer may (1) structure currency deposit or withdrawal transactions, so that each transaction is less than the $10,000 CTR filing threshold; (2) use currency to purchase official bank checks, money orders, or traveler’s checks with currency in amounts less than $10,000 (and possibly in amounts less than the $3,000 recordkeeping threshold for the currency purchase of monetary instruments to avoid having to produce identification in the process); or (3) exchange small bank notes for large ones in amounts less than $10,000.
These transactions need not exceed the $10,000 CTR filing threshold at any one bank on any single day in order to constitute structuring. So, if you have $100,000 to deposit in your bank account, and you deliberately choose to deposit that money in increments of $9,999 so your bank won’t automatically notify the federal government, you’re guilty of structuring. It’s a felony punishable by a fine and/or up to five years in prison.

In addition, structuring may occur before a customer brings the funds to a bank. In these instances, a bank may be able to identify the aftermath of structuring. Deposits of monetary instruments that may have been purchased elsewhere might be structured to evade the CTR filing requirements or the recordkeeping requirements for the currency purchase of monetary instruments. These instruments are often numbered sequentially in groups totaling less than $10,000 or $3,000; bear the same handwriting (for the most part) and often the same small mark, stamp, or initials; or appear to have been purchased at numerous places on the same or different days.
However, two transactions slightly under the $10,000 threshold conducted days or weeks apart may not necessarily be structuring. For example, if a customer deposits $9,900 in currency on Monday and deposits $9,900 in currency on Wednesday, it should not be assumed that structuring has occurred. Instead, further review and research may be necessary to determine the nature of the transactions, prior account history, and other relevant customer information to assess whether the activity is suspicious. Even if structuring has not occurred, the bank should review the transactions for suspicious activity.

Potential Civil and Criminal Liability

Structuring transactions to evade reporting required by the Act and certain of its recordkeeping requirements can result in civil and criminal penalties.

Civil Penalties

Greater emphasis on enforcing the anti-structuring statute has resulted in a rise in money seizures, civil-forfeiture cases, penalty assessments and criminal charges against small businesses and the people who own them. Typical targets handle a lot of cash, such as, gas stations, liquor stores, grocery stores, convenience stores, and used-car dealerships. The problem, of course, is that when banks are forced to cast such a wide net, they are going to report a lot of people who have done nothing wrong, but become targets nonetheless; those morally blameless people whose circumstance worried the Supreme Court. And some of those people are going to find themselves in legal trouble. The government may, without notice, seize everything in the account(s) at issue. This can lead to financial ruin for business owners. Targets may be forced to agree to a civil-forfeiture settlement agreement so no criminal charges are filed or to ensure return of at least some of the seized money. Always important, but particularly so here, where the target wishes to recover seized funds, a condition precedent to release of the funds, is complete disclosure to the IRS of the client’s financial affairs.

Criminal Penalties

Some of those reported for engaging in “suspicious activity” may be targeted for structuring prosecution. Historically, the criminal charge of structuring has been used as an ancillary charge in criminal prosecutions of drug dealing, money laundering, illegal gambling, terrorism, and the like. It continues to serve this purpose. After all, it is a technical violation of a criminal regulatory statute for which the only “criminal act” is making frequent deposits of under $10,000.

Over the last few years, however, prosecutorial interest in structuring has taken new focus. Structuring is becoming a favored standalone charge. Many defense counsel do not recognize this shift, to detecting evasion of CTR requirements, from formerly using the massive amounts of data collected under the Act to discover the transfer of large sums of money. Several reasons for this shift are of interest. The elements of the crime structuring are fairly easy to prove. The evidence resides within this country, within the possession and control of the financial system or already within the possession of the government. Few defenses are available to the accused, and, those that may be available to the accused are somewhat complex to develop and present. Finally, one of the more relevant reasons is the elimination of “willfully” as an element of the crime structuring.

A defendant can be prosecuted for structuring, without being aware that it is illegal, without trying to cover up an underlying crime or criminal activity, or without running any kind of illegitimate business. It does not matter if the cash was received or earned legitimately. It does not matter that the cash was dutifully reported at tax time. It does not matter that every penny of tax due required under the law was timely paid. If the defendant knew about the reporting requirement and deliberately deposited less than $10,000 in order to avoid it, he or she is guilty of a federal felony. Under the asset forfeiture statutes, the government can seize everything in the account. There is a potential for abuse by the government. Some suggest the emphasis is basically seizing money.

Epilog

The government has been known to eventually back off, but usually only after the services of an attorney have been retained. Our practice is to fully evaluate each client’s unique circumstances so that we can give our client a complete risk assessment. As previously mentioned, this is particularly important where the IRS requires complete disclosure of the client’s financial affairs as a condition precedent to recover seized funds.

Need Help With IRS Problems? Contact Atlanta Tax Attorney Jack Fishman. Call (404) 320-9300 To Schedule Your FREE Consultation Now.

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