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Author Topic: Federal structuring laws and making it easy to catch criminals
scifibum
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This came to mind because I heard that Kent Hovind was convicted for, among other things, structuring transactions to avoid tax reporting requirements. I don't necessarily want to talk about Hovind's case, though. Rather, I'm concerned about the intent and effect of laws that punish people from structuring their transactions in order to avoid paperwork.

Here's an anecdote related to me by my father. An acquaintance of his, who I will call Stu, was going through problems with his wife. His wife left him and told him she wanted a divorce.

Now, Stu and his wife had joint bank accounts with a significant amount of cash in them. Stu became worried that his wife would try to withdraw all the cash (she, after all, had initiated the hostilities.) He decided to beat her to the punch and made a visit to his local bank branch, where he asked to withdraw something like $20,000. He found out that the transaction would require a Currency Transaction Report. He questioned the teller until he found out that it was a requirement for transactions of $10,000 or above. He then asked to withdraw $9000. Unfortunately he was doing something known as structuring, which is illegal. The bank filed a Suspicious Activity Report as required by law.

The point of these laws is to help thwart money laundering from illegal activities - or to tip off authorities on who to investigate for such things. Stu had no criminal intent, he just wanted to protect himself from having all his money taken by his estranged wife, and in his distressed state of mind didn't want any official reports to be filed. Perhaps he was dumbly supposing the additional paperwork would give his wife some kind of advantage, or perhaps it simply jarred him into starting with something smaller until he could give it more thought.

At this point Stu was quite likely guilty of violating structuring laws which potentially carries a fine and prison sentence. Bad news. But it got worse for him, because he worked for a bank, as an applications developer. The bank had a policy of firing people who do things that look like money laundering. So Stu was looking at losing his job too. With some advocacy from others at the bank, Stu was able to save his job (and I imagine that his case was not one of priority with federal prosecutors either, although I don't know the outcome). But it looked pretty serious for Stu after he had what amounted to a knee-jerk reaction to being informed of a bank regulation. I don't think Stu was necessarily pristine in intent that day - he might well have intended to screw his wife over financially - but he certainly didn't set out to violate federal regulations.

The bank's policy is pretty reasonable - they don't want to taint themselves in any federal investigations, and obviously employing suspected financial criminals would be bad policy for a bank. However, the federal regulations that put Stu in that situation seem pretty scary to me. This is a situation that any innocent person with more than $10,000 could find himself in. They ask to deposit or withdraw $10,000.01, and the bank informs them of the currency transaction report requirement. They think to themselves, "huh? What's that? Maybe I don't want that. Is that going to get me in some kind of trouble?" so they start asking questions. Why does there need to be a report? Oh, so let's go with $9,900. I'll get the other $100.01 from another account. If they say those magic words, they are punishable by up to five years in prison. I could see myself doing this very thing if I hadn't heard Stu's story (well, and if I had a lot more cash). The bank doesn't (isn't allowed to) warn customers about structuring. They aren't permitted to allow the structured transaction but the transaction doesn't have to occur, just the attempt, and then the bank has to file a report and the citizen is screwed.

I don't like this law. It's too easy for people to stumble into committing a federal offense. More generally, I don't like the idea that the federal government can set up laws and define crimes that are solely about making it easier for the government to catch criminals. In other words, structuring is only a crime because making it a crime makes it easier for the government to catch drug dealers and other criminals. It seems sort of like making it a crime to close your blinds at night because then the police won't be able to see into your home in case you're making counterfeit money in there. Or perhaps like requiring you to keep receipts for 100% your purchases, so they can review them and make sure you didn't buy any marijuana.

I think I'd rather have a country where crimes are things that harm others, and citizens are presumed to have the right to do whatever they damn well please otherwise, including transacting solely in sums of $9999.99.

(Edited thread title)

[ January 02, 2009, 12:59 PM: Message edited by: scifibum ]

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RickyB
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It's a thorny issue. I agree with you. But there's not much to do for such things but get a decent lawyer and hope for a decent judge, the kind who will say "prosecution showed no cause to suspect anything beyond the incident itself, explanatory story about wife corroborated, I'ma give this guy a slap to remind him to be wary next time with ducking a federal reporting requirement... but I aint gonna screw his life over it".
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Quinnalus
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Very old law, Sci... I have a friend who works for the IRS and his only Job is to audit banks and car dealerships for proper disclosure on this law.

The funny thing is that it is a guilty conscience syndrom. According to my friend, at least with the IRS, if the ill named "Suspicious Transaction Report" is filled out... 90% of the time it goes no where unless your name is already on a watch list. The worst it might do for an ordinary Citizen is trigger a tax audit.

Do you know if the teller that told him about the law was fired? She could have been.

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scifibum
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"Do you know if the teller that told him about the law was fired? She could have been."

Here's what I got from the wiki page about the currency transaction report:

quote:
Unlike the Suspicious Activity Report (SAR), a customer is always informed about the need to file a CTR before the transaction is completed. However, a customer is not directly told about the $10,000 threshold unless they initiate the inquiry.
From this, I think the teller would be OK to explain the $10k limit if asked, and it appears they always disclose the CTR.

I think the SAR is a separate report, subject to some discretion in cases where the transaction starts out close to but under $10k, but mandatory when the customer re-structures to avoid the $10k limit. The teller would be in trouble for disclosing that it was happening. (I only inferred that the report happened because it appears to be an absolute requirement when someone attempts structuring down from an initial amount >$10k.)

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Talltwin
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Scifi - did Stu try to take out the money in cash?? If his intent was only to protect his funds, he could have asked for a Cashiers Check/Bank Check in order to move the funds into an individual account at another institution. The CTR's are only designed to track CASH transactions. There are related laws regarding the purchase of travelers checks and money orders/bank checks (again, with CASH), but if he had just asked the bank teller to prepare a bank/cashiers check for the funds, he would have been good. He could have deposited it at any institution and never have popped up on the radar.

talltwin

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scifibum
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Yeah, that was my understanding. Only applicable to deposits or withdrawals of cash. I actually pulled a cashier's check for a considerable amount when we closed on our current mortgage, and there was no mention of a CTR.

I'm hoping to get some reactions to the issue of whether it's OK to define "crimes" that are about making it easier to catch the real crime. No one is hurt or damaged by the amount of a cash transaction. I understand the federal government has a hard time catching money launderers, counterfeiters, etc. without this kind of regulation, but I think that's the way it is supposed to be. I don't really feel comfortable with the idea that our activities can be arbitrarily subject to being defined as crimes in order to make that job easier.

Is the benefit to the rest of us - catching more money laundering, presumably - worth the risk of abrogating the rights of individuals to transact their finances as they please?

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Talltwin
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Well, the cash transaction is not in and off itself an issue. The IRS looks for a pattern of such activities. Also, if you are in a business that deals in lots of cash (recycling center, bar, gambling establishment, etc.) you can get the limits before you have to file a CTR raised. Many years ago as a branch manager I had to help a customer go through the process to do just that. They had legitimate business reasons for taking and depositing upto $20,000 cash on a daily basis. If they went over that, then we would have to complete the form. Stu caught someones eye when he intentionally tried to avoid the $10,000 limit. Had he just asked for $9,000 cash with no prior interaction with that teller, then most likely they would not have filed a SAR.

I torn on this issue. I understand and appreciate the CTR function, but I am concerned about the potential abuse that may come about because of it of a misunderstanding on how it should be used.

talltwin

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