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HOW TO AVOID A CASH STRUCTURING INVESTIGATION
Federal prosecutors regularly prosecute “cash structuring,” a form of money laundering, as a standalone crime.
INTRODUCTION
The Internal Revenue Service and federal prosecutors aggressively prosecute “cash structuring,” which is a form of money laundering, as a standalone crime.
To read a true story of how cash structuring landed a business executive in federal prison, click here: Cash Structuring Sends Executive to Federal Prison.
DISCUSSION
Charges of money laundering and cash structuring often come together in federal indictments. In addition, cash structuring appears in federal indictments related to fraud, tax evasion, other white-collar financial crimes, as well as certain drug crimes.
Definition of Cash Structuring
Cash structuring is the act of breaking up what would otherwise be a single significant financial transaction into a series of smaller transactions to avoid scrutiny by regulators and law enforcement. Cash structuring is also known as “smurfing” in the industry.
The Bottom Line
It is illegal to knowingly and willfully make cash deposits into bank accounts (for example) under US$10,000 to avoid federal reporting requirements. Cash structuring is not limited to cash deposits; it captures cash withdrawals as well.
From the federal law enforcement perspective, individuals and businesses that regularly deposit smaller amounts of cash may be attempting to avoid the bank’s automatic reporting obligation and possibly attempting to evade taxes. Therefore, regular cash deposits that are not necessarily illegal still raise red flags.
Do not knowingly try to avoid the $10,000 reporting rule. In a cash structuring case, the government must show that the taxpayer knows the rules and knowingly structures transactions to avoid or obstruct the reporting.
CTR or Currency Transaction Reports
The most common reporting form is a Currency Transaction Report or CTR. Structuring money such as cash deposits to avoid the filing of a Currency Transaction Report (CTR) is illegal.
Banks are required to file CTRs for cash transactions of $10,000 or more. This filing requirement is not discretionary; it is mandatory. In fact, banks may also file a CTR where a customer makes multiple cash transactions that, in the aggregate, reach or surpass the $10,000 threshold if they suspect a customer is engaging in cash structuring.
Specifically, under the Bank Secrecy Act, banks and other financial institutions must report cash deposits greater than $10,000. Since some people try to avoid triggering the CTR report, banks are also supposed to report suspicious transactions, including deposit patterns below $10,000.
Significantly, beware that the Bank Secrecy Act allows the IRS to legally seize assets of those who knowingly structure transactions to avoid CTR reporting.
*Pro-Tip: Remember that bank officials have the training to recognize cash structuring, and they will file a CTR report if they suspect it is happening. While a CTR does not accuse anyone of committing a crime, it raises red flags. A person with many CTRs on file may have to explain to the bank or other law enforcement authority the nature of their cash deposits.
Banks already know that many individuals and businesses will try to get around the CTR requirement by making multiple deposits at the same bank over several days. Others may attempt to evade the requirement by going to many different banks on the same day or several days.
Of course, making smaller cash deposits does not mean that a person is trying to defraud the government or engage in structuring. Many small businesses and freelancers deal in cash transactions every day. There are myriad reasons why people make smaller cash deposits or withdrawals. A restauranteur or boutique owner may legitimately need to make regular cash deposits.
*Pro-Tip: Any person under investigation or indictment for cash structuring should consult legal counsel. Prison Professors, an Earning Freedom company, regularly assists clients to locate and vet experienced criminal defense counsel.
Penalties
Cash structuring carries significant consequences. It is a federal felony crime. A person convicted of cash structuring would face substantial fines and up to five years in prison.
Cash structuring can lead to additional felony charges. The government may also tack on tax evasion charges in addition to cash structuring.
A person convicted of tax evasion for structuring cash transactions to avoid federal reporting requirements can face anywhere from three to five years in prison. Substantial monetary penalties may also apply, including fines as high as $250,000 for individuals and $500,000 for corporations and significant civil penalties.
Individual Obligations
Many people are not aware that federal law imposes individual obligations to report cash receipts to the IRS. Under 26 USC § 6050I, anyone who receives $10,000 or more in cash must report the transaction to the IRS by filing Form 8300.
26 USC § 6050I applies to any monetary transactions that occur in trade or business resulting from a single transaction or a series of related transactions within a 12-month period.
The IRS considers cash as “any US or foreign currency and includes cashier or traveler’s checks, bank drafts, and money orders.” A transaction is any event that results in the transfer of cash or items with monetary value. As a way to ensure that all cash transactions of $10,000 or more get reported, banks and other financial institutions are also required to inform the IRS of any large monetary transactions or suspected cash structuring.
31 USC § 5324 defines structuring as:
- a way of organizing large cash transactions into smaller deposits or payments to evade reporting requirements;
- causing or attempting to cause a financial institution to fail to perform its reporting requirements;
- obstructing or attempting to obstruct a business in fulfilling its reporting requirements; and/or
- assisting or attempting to assist in structuring any transactions that violate 26 USC § 6050I.
TOP DO’s & DON’Ts
Anyone potentially affected by suspicions of cash structuring should:
- Keep up with the Bank Secrecy Act rules regarding cash structuring.
- Establish a good relationship with the bank and ensure that the bank understands the nature of regular cash transactions.
- Avoid saving up cash and making deposits that are of similar amounts.
- Do not knowingly try to avoid the $10,000 reporting rule.
- Remember that the IRS will pursue cash structuring, as it frequently goes hand in hand with other criminal activity.
CONCLUSION
The most important advice a person can follow to avoid running afoul of cash structuring laws is to be aware.
People and small businesses regularly transacting in cash must keep up with the rules under the Bank Secrecy Act. Anyone who deposits cash regularly should aim to establish a good relationship with their bank and explain the nature of the business and the ebbs and flows of cash deposits. A banker familiar with the particular circ*mstances can become an ally should there ever be an investigation.
Avoid saving up cash and making deposits that are of similar amounts. This is precisely what can raise red flags at a financial institution and with investigators.
The IRS and the DOJ will pursue cash structuring cases. Avoid knowingly trying to skirt the $10,000 reporting rule. In a cash structuring case, the government must show that the taxpayer knows the rules and knowingly structures their transactions to avoid the reporting.
Finally, cash structuring (and money laundering) are of significant interest to federal law enforcement. Excess cash deposits raise suspicions, whether for drug money, terrorist fundraising, gambling, or other illegal activities. While the IRS may attempt to keep innocent taxpayers out of the fray, anyone can unwittingly become involved in a cash structuring investigation when regularly making large cash deposits.
Prison Professors, an Earning Freedom company, regularly assists clients and their legal counsel in white-collar criminal investigations.
