When Structuring Laws Go Bad, Congress Steps In

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In October 2014, the IRS made a very important decision regarding structuring laws and civil forfeitures. Structuring laws, which prohibit the break-up of large deposits for purposes of avoiding bank reporting requirements, were meant to nab criminals seeking to bypass the IRS and/or commit money laundering violations. In application, however, the laws also had the unfortunate effect of sweeping innocent business owners into its web of enforcement. In an effort to narrow the net of offenders to the target-group of those intentionally, and therefore criminally, seeking to evade their bank reporting duties, the IRS changed its policies last October.

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The structuring law seizures we know today are rooted in the Bank Secrecy Act, dating back over four decades. Although the law has been revised several times over the past years, it essentially requires banks to report any deposit, withdrawal or transfer of money in excess of $10,000, and to report customers who appear to be structuring their deposits with the express aim of getting around reporting requirements. The primary purpose of such laws was to track down bank accounts used for criminal purposes, such as money laundering or running gambling operations.

It is a felony to structure deposits to avoid being reported, but the chain of culpability does not end with the account holder. Financial institutions that fail to report, or are found to have notified customers that they have been reported, can also be hit with penalties and sanctions. Individual bank employees who fail to report can also face criminal charges for neglecting their responsibility to identify and report suspicious banking behaviors. The “stick” behind the implementation of structuring laws carries a heavy incentive for financial institutions to stay hyper-vigilant of their reporting duties. It is for this reason that business and property owners running legal operations are often reported for suspicious activity, in addition to account holders more legitimately suspected of illegal or criminal behavior.

Facing some bad press and increasing Congressional pressure to stop targeting legal business owners, the IRS shifted course in how structuring laws were to be enforced. Moving forward, structuring laws were to be invoked against account holders engaging in suspected criminal activity. Individuals making use of their account for legal operations would no longer fall victim to the wide scope of structuring laws simply as a result of depositing amounts considered too close to the $10,000 cut off.

Prior to the October 2014 change, however, several business owners found themselves paying thousands to the IRS in civil forfeitures and settlements resulting from apparent violations of structuring laws. Whereas a business owner now would be able to make deposits without fear of structuring law consequences, owners of similarly legal business operations pre-October 2014 not only had the structuring laws hanging over their head, but also reaching deep into their pockets to take civil forfeiture fines that accompanied a violation. So, while business owners after the October 2014 policy change may breathe easier, the question now remains how to remedy what some refer to as unwarranted seizures made in the pre-policy change era.

Noting that it is within the discretion of the IRS to return funds that were seized despite originating from a legal source, members of the House Ways and Means Oversight Subcommittee made demands for the return of such funds. In order to facilitate the return, federal statutes permit the Treasury Secretary to consider, approve, or deny petitions for remission or mitigation. Writing to the Treasury Secretary, members of the subcommittee stated that the return of the seized funds would place business owners previously subjected to seizures on equal footing with post-policy change business owners. The letter encouraged the Secretary to grant petitions in such cases and, ultimately, to return seized funds as quickly as possible.

If you think that you think that you may have structuring or money laundering issues, contact Frost & Associates today.

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