New IRS enforcement policy ignites debate on value of bank ‘structuring’ reports

November 6, 2014

An announcement by the Internal Revenue Service last week that it will no longer try to seize and forfeit money from those who merely evade government-mandated paperwork when making large cash deposits has ignited a debate about the value of bank efforts to document such acts.

Some bankers believe it would be wise to spend less time completing reports on established customers who deal in cash – and those who side-step such paperwork – and instead focus on rooting-out more nefarious criminals, said Rob Rowe, a lawyer with the American Bankers Association (ABA), a trade group. 

“There has been a debate about whether or not reporting customers’ apparent attempts to (evade cash-reporting requirements) is really a good use of anyone’s time,” Rowe said. “There are so many instances where people are doing this only because they think their transactions are none of the government’s business.”

The IRS policy shift is “one more indicator” that banks may be involved in a paper chase that yields little in the way of intelligence that brings criminals to justice, Rowe said.

But law enforcement officials, including the head of the IRS criminal enforcement division, say the banks’ reports are valuable to agents.

Banks must notify the government when they receive more than $10,000 in cash from a customer. Roughly 14 million such reports are made to the Treasury Department each year. And because this requirement is common knowledge, some try to conceal their financial dealings from the government by breaking-up their deposits, keeping each under the reporting threshold.

What some do not know is that such evasion is a crime under the ironically named Bank Secrecy Act (BSA), whose reporting requirements support the U.S. government’s efforts to combat money laundering, tax evasion, terror finance and other crimes.

The BSA describes the dividing-up of large cash transactions as “structuring,” a crime best known as a common practice of drug traffickers looking to funnel money into the banking system without leaving a documentary trail for investigators to follow. In reality, such efforts attract even greater attention.

Banks are required to report this so-called “suspicious” activity to authorities. In fact, banks perennially file more reports on apparent structuring activity than any suspect activity. Between March 2012 and September 2014, banks and other depository institutions filed more than 400,000 such reports, according to statistics released by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) earlier this month. That is an average of more than 13,000 such reports per month.

True crime or mere paperwork dodge?

Based on anecdotal evidence, some bankers believe that many of those reports unnecessarily impugn either customers whose cash business receipts coincidentally come in under $10,000 on a regular basis, or who make small deposits to prevent the government knowing their business, Rowe said.

He said the common perception in the banking community is that reports revealing those involved in underlying criminal activity such as drug trafficking “are the needles in the haystack.”

Structuring is a felony that can land someone in prison for up to five years, regardless of whether the money apportioned for deposit was earned legitimately or was the proceeds of criminal activity. The law also permits the government to seize the money and confiscate it via a civil forfeiture, which carries a lesser burden of proof than a criminal conviction.

The Justice Department prosecuted 144 structuring cases during 2013, up from 106 in 2009, according to Department figures. Authorities do not track the number of civil forfeitures linked to structuring, however, a Justice Department official said.

IRS criminal enforcement authorities have handled more structuring cases than any other agency, several law enforcement officials familiar with the matter said. Examples of criminal prosecutions for structuring are available here.

Forfeiture follies?

In the past, the IRS has in some cases targeted for civil forfeiture funds belonging to people who earned the money legally and whose only crime was trying to prevent banks from reporting cash transactions to the government.

While the law permits IRS to pursue such cases, and forfeitures must pass muster with Justice Department prosecutors and be approved by judges, critics argue the cases are unfair and that average people who lack the means to fight the allegations are bullied into surrendering their money.

The Justice Department “recognizes not all structuring violations are alike and that the appropriate prosecution will vary depending on the facts of each case,” spokesman Peter Carr said in an emailed statement.

“Often the decision whether to bring structuring criminal charges or a civil forfeiture case comes at the end of the investigation, not the beginning. Where the investigation establishes that an individual has violated the law, the government must decide what punishment best fits the illegal conduct,” Carr said.

He added that the option of seeking a civil forfeiture allows for a “more moderate” punishment than a felony conviction.

“Without this alternative, we would have to choose between two extremes – do nothing at all despite a clear violation of a law that is key in tracking illegal cash transactions or bring felony charges even where we believe the interests of justice do not merit such a harsh penalty,” Carr said.

New IRS policy

A New York Times article published last week outlined instances in which a small business owner and others had their money taken. In the article the IRS announced it had changed its policy and would only seek the forfeiture of funds linked to structuring involving crime proceeds.

Rich Weber, chief of IRS – Criminal Investigation, or IRS-CI, confirmed the decision in an interview with Thomson Reuters and said the new policy had been in the works for months and came into force on October 17.

“After conducting a review of structuring cases, which predated the recent press reports, the IRS concluded that it will focus its limited resources on cases where evidence indicates that the structured funds are derived from illegal sources,” Weber said.

Weber added that egregious cases, such as those involving significant sums or an unusually large number of transactions, could warrant exceptions to the new policy. He said the goal was to ensure a consistent approach by IRS agents across the country.

Value of bank reports

Law enforcement officials who work to enforce structuring violations must rely on bank reports to reveal suspects. FinCEN maintains electronic databases it uses to store bank reports and share them with law enforcement authorities.

In recent years bankers have lobbied Congress to at least double the $10,000 cash-transaction-reporting threshold – a figure approximate to the median family income when the BSA was enacted in 1970 – which would save time and reduce the volume of apparently structured transactions.

However, law enforcers to date have blocked any such adjustment by convincing lawmakers that all of the reports are useful to them.

Now, the bankers’ goal is to convince authorities to provide more information about what is useful and to accept that some customers’ cash transactions do not require the same level of scrutiny.

“What we really want is feedback that tells us which reports are used and the authority to exempt customers we know well,” Rowe said.

A compliance officer at a large, transnational bank who previously worked for a law enforcement agency said the reporting requirements do put an “administrative burden” on banks, but he said the time is not wasted.

While it is difficult for authorities to readily demonstrate to banks how structuring reports are used, they do connect “investigative threads” and make a genuine contribution to putting “bad guys” behind bars, said the source, who asked not to be named.

IRS’ Weber told Thomson Reuters the new IRS policy on structuring-related forfeitures will not lessen agents’ interest in banks’ reports.

“If banks see structuring, they do need to continue to file (reports) and IRS-CI is going to continue to review them as rigorously and thoroughly as we have in the past,” he said. “If after the review we see that (the funds come from) a legal source, we are not going to do a seizure.”

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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Interesting how the IRS can lose hundreds of emails when their own employees are being investigated for malfeasence/criminal actions (Tea Party scandal), with no repercussions. Yet they know every transaction a private citizen does and confiscates private citizens money, even when money is derived from non-criminal sources. The IRS is itself a criminal orginization, with the full blessings of the federal government.

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