Structuring Cash Deposits, Withdrawals, & Transactions is Risky Business
- 1 What is Structuring?
- 2 Structuring
- 3 Structuring Cash Transactions
- 4 What is Structuring Cash Transactions?
- 5 Structuring Defined
- 6 When Does the Financial Institution Report A CTR?
- 7 What is a Suspicious Activity Report (SAR)?
- 8 31 CFR 1020.320 – Suspicious Activity Report(s)
- 9 You May Avoid CTR and SAR, But…
- 10 FBAR Reporting
- 11 FATCA is Used to Located Undisclosed Foreign Accounts
- 12 Example of FBAR, FATCA & Structuring
- 13 Golding & Golding, A PLC
Structuring Cash Deposits, Withdrawals, & Transactions is Risky Business
Structuring: When a person “Structures” money, they are seeking to avoid regulatory compliance CTR report banking requirements by artificially reducing cash deposit limits to below $10,000. With increase global regulation, structuring money has become a growing epidemic.
Typically (but not always), structuring is related to money laundering. The U.S. has various AML (Anti-Money Laundering) initiatives in place — but structuring is more than just money laundering.
What is Structuring?
When a person structures money, they are usually structuring deposits to the bank, in order to avoid certain reporting requirements. The most common reporting form, is a CTR (Currency Transaction Report). Structuring Money (Cash Deposits) to avoid the issuance of a Currency Transaction Report (CTR) is considered illegal. Artificially structuring (reducing) the amount of cash deposit(s), withdrawals or other cash transactions to avoid cash deposit limits (and the issuance of a CTR) is the definition of structuring.
Why are Structuring Transactions considered illegal? Because you are intentionally evading reporting transactions to the U.S. Government by “structuring” financial transactions to be below reporting thresholds (typically $10,000).
Common issues involving structuring include:
- What is the definition of Structuring?
- What is a Cash Transaction Report?
- Why is Structuring illegal?
- How Can I get Caught Structuring?
- How do I avoid a Criminal Investigation and Penalties?
Structuring Cash Transactions
Unfortunately, sometimes the failure to comply with basic offshore and foreign account reporting requirements can lead a person into a serious situation with Internal Revenue Service.
This is often true when a person has intentionally structured cash transactions abroad, so that less than a certain amount of money is being transferred back and forth from overseas to the United States — in order to avoid reporting under the Bank Secrecy Act.
What is Structuring Cash Transactions?
The situation will typically go something like this: A person has to transfer significant amounts of money overseas. But, the person is also aware that in accordance with financial institution reporting rules, certain financial disclosure are required to be reported for transactions that exceed $10,000 or more (there are other reporting thresholds, but this is the most common). Also, there is the potential that the bank may file a SAR (Suspicious Activity Report)
Therefore, instead of transferring hundreds of thousand dollars overseas in one shot, a person will transfer spurts of $9500 dollars (or similar amounts) in order to avoid the Currency Transaction Reporting requirement.
On a larger scale, a person may issue multiple $9500 payments into multiple bank accounts each month worldwide to move millions of dollars offshore.
The IRM (Internal Revenue Manual) summarizes Structuring as follows:
The definition of structuring for the purpose of evading the transactions in currency reporting is found at 31 CFR 1010.100 et seq. The elements of the structuring regulations are:
- A person acting alone, in conjunction with others, or on behalf of others
- 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
When Does the Financial Institution Report A CTR?
Each financial institution (other than a casino, which instead must file FinCEN Form 103, and the U.S. Postal Service for which there are separate rules) must file FinCEN Form 104 (CTR) for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000.
Multiple transactions must be treated as a single transaction if the financial institution has knowledge that (1) they are by or on behalf of the same person, and (2) they result in either currency received (Cash In) or currency disbursed (Cash Out) by the financial institution totaling more than $10,000 during any one business day.
For a bank, a business day is the day on which transactions are routinely posted to customers’ accounts, as normally communicated to depository customers. For all other financial institutions, a business day is a calendar day. Generally, financial institutions are defined as banks, other types of depository institutions, brokers or dealers in securities, money transmitters, currency exchangers, check cashers, and issuers and sellers of money orders and traveler’s checks. Should you have questions, see the definitions in 31 CFR Chapter X.
*While exceptions, exclusions and limitations apply, this is the general rule.
What is a Financial Institution?
Generally, financial institutions are defined as banks, other types of depository institutions, brokers or dealers in securities, money transmitters, currency exchangers, check cashers, and issuers and sellers of money orders and traveler’s checks.
What is a Suspicious Activity Report (SAR)?
Essentially, a SAR gives the bank authority to report “suspicious transactions.” While this is a good thing (in moderation) it can lead down a very slippery slope, especially in determining who has authority to deem you and your transaction(s)…”suspicious.” This is true, even if the amount of the transaction is LESS than $10,000.
31 CFR 1020.320 – Suspicious Activity Report(s)
This code sections requires certain reporting by banks. Specifically:
“Every bank shall file with the Treasury Department, to the extent and in the manner required by this section, a report of any suspicious transaction relevant to a possible violation of law or regulation.
A bank may also file with the Treasury Department by using the Suspicious Activity Report specified in paragraph (b)(1) of this section or otherwise, a report of any suspicious transaction that it believes is relevant to the possible violation of any law or regulation but whose reporting is not required by this section.
(2) A transaction requires reporting under the terms of this section if it is conducted or attempted by, at, or through the bank, it involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that:
(i) The transaction involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation;
(ii) The transaction is designed to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act; or (iii) The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.”
SAR Form Instructions (Summarized)
All financial institutions operating in the United States, including insured banks, savings associations, savings association service corporations, credit unions, bank holding companies, nonbank subsidiaries of bank holding companies, Edge and Agreement corporations, and U.S. branches and agencies of foreign banks, are required to make this report following the discovery of:
a. Insider abuse involving any amount.
Whenever the financial institution detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the financial institution or involving a transaction or transactions conducted through the financial institution, where the financial institution believes that it was either an actual or potential victim of a criminal violation, or series of criminal violations, or that the financial institution was used to facilitate a criminal transaction, and the financial institution has a substantial basis for identifying one of its directors, officers, employees, agents or other institution-affiliated parties as having committed or aided in the commission of a criminal act regardless of the amount involved in the violation.
b. Violations aggregating $5,000 or more where a suspect can be identified
Whenever the financial institution detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the financial institution or involving a transaction or transactions conducted through the financial institution and involving or aggregating $5,000 or more in funds or other assets, where the financial institution believes that it was either an actual or potential victim of a criminal violation, or series of criminal violations, or that the financial institution was used to facilitate a criminal transaction, and the financial institution has a substantial basis for identifying a possible suspect or group of suspects.
c. Violations aggregating $25,000 or more regardless of a potential suspect.
Whenever the financial institution detects any known or suspected Federal criminal violation, or pattern of criminal violations, committed or attempted against the financial institution or involving a transaction or transactions conducted through the financial institution and involving or aggregating $25,000 or more in funds or other assets, where the financial institution believes that it was either an actual or potential victim of a criminal violation, or series of criminal violations, or that the financial institution was used to facilitate a criminal transaction, even though there is no substantial basis for identifying a possible suspect or group of suspects.
d. Transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act.
Any transaction (which for purposes of this subsection means a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument or investment security, or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected) conducted or attempted by, at or through the financial institution and involving or aggregating $5,000 or more in funds or other assets, if the financial institution knows, suspects, or has reason to suspect that…Click here to the extended definition.
i. The transaction involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any law or regulation or to avoid any transaction reporting requirement under Federal law;
ii. The transaction is designed to evade any regulations promulgated under the Bank Secrecy Act; or
iii. The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction…Click here to the extended definition.
You May Avoid CTR and SAR, But…
By executing transfers in smaller denominations, even though the financial institution may be none the wiser re: a CTR or SAR, you may have a FBAR and FATCA reporting as well if it involves foreign accounts or assets. And, that is where the trouble lies.
A person is required to report an FBAR on any day of the year they have more than $10,000 dollars in annual total of their foreign accounts. The penalties for failing to file this form can be very severe.
And, if the IRS determines that you were willful, the penalties may reach upwards of 100% value of the maximum balance on the foreign accounts.
The requirement of currency transaction is being reported in accordance with the banking secrecy, which is the same Government body relating to the reporting and disclosure of foreign accounts.
FATCA is Used to Located Undisclosed Foreign Accounts
FATCA is the Foreign Account Tax Compliance Act. There are many different thresholds with respect to FATCA in determining who has to file, but if you are engaging in Structuring Cash Transactions, there is a relatively high chance that you will meet one of the threshold requirements.
While the penalties for not reporting under FATCA are not as severe as the FBAR, there are other issues to contend with, and often times the non-filing under FATCA, can lead to a disastrous penalty involving both FBAR & FATCA.
Example of FBAR, FATCA & Structuring
David wants to move money offshore so that it can be used to purchase a home outside of United States.
David has a $1,000,000 sitting in cash at his home. David is originally from a foreign country and has significant contacts overseas. In fact, there are two individuals who are US Green Card Holders in David’s home country who can use some extra cash, and agree to help David, for a small fee.
Therefore, over the next two years, David transfers $1,000,000 in small transactions to his contacts abroad, and then the contacts transfer the money back to David.
Here’s the Problem
Even though David successfully avoids being reported as a result of currency transactions, now there is a concern that David’s accomplices may get him busted. This is because the Foreign Financial Institutions in which David’s friends maintain bank accounts are aware that they are U.S. persons.
That is because at some point, these two individuals updated the bank to let them know of their US address to make sure they received the interest that was being generated by their bank accounts.
Moreover, the bank is a relatively large institution and is FATCA compliant. In other words, the bank reports the information regarding the balances in these accounts to the IRS.
Fast-Forward 2 Years
It is now two-years later and one of David’s contacts is audited by the IRS. He received an IDR (Information Document Request) from the IRS involving various income issues, including issues involving his foreign accounts. Namely, the IRS wants to know where the money in this person’s account came from, how it got there, and whether taxes were paid on it (which is a typical request, not out of the ordinary).
David’s accomplices want to cooperate with the IRS, in order avoid being hit with Tax Fraud and/or willful penalties which could reach 100% value of the account (especially since the money did not belong to them).
They are also worried about a possible investigation by the criminal arm of the IRS (IRS Special Agents).
Alternative Resolution through Offshore Disclosure
Presuming that the money was legally sourced, David and his friends had other options available to them prior to being contacted by the IRS.
David could have just placed the money into foreign accounts and began reporting instead of structuring cash transactions slowly into multiple accounts which were not in his name.
The money was legally sourced — just a lot of cash and David did not trust the banks. Also, he was not intending on reporting all the cash as income…but the money was still legally sourced.
Even if David (or his friends) had a change of heart later after the non-reporting occurred, they could have entered IRS Offshore Voluntary Disclosure and safely brought themselves into compliance.
For anybody who knowingly or intentionally/willfully failed to report foreign accounts, assets, income, or accounts and the money was legally sourced, they should consider entering into the OVDP ‘program’ to avoid future fines, headaches, and possible criminal penalties.
If a person was non-willful, they may qualify for the Streamlined Filing Compliance Procedures.
Golding & Golding, A PLC
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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