Structuring: Caselaw, Civil Forfeiture, and the Future

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In Part I – What is Structuring? you find a general overview of how structuring is defined, its elements, examples of structuring, and how the IRS evaluates suspected transactions. This Part II will cover some caselaw involving structuring, the civil forfeiture component surrounding the crime, a recent statement by the IRS on enforcement, and how even the professionals can get it wrong.

RELATED: Part I – What is Structuring?

The Landmark Case: Ratzlaf v. United States
In Ratzlaf v. United States, 510 U.S. 135, 114 S. Ct. 655 (1994), the U.S. Supreme Court quickly summarizes the backstory on how Mr. Ratzlaf dealt himself a bad hand:

On the evening of October 20, 1988, defendant-petitioner Waldemar Ratzlaf ran up a debt of $160,000 playing blackjack at the High Sierra Casino in Reno, Nevada. The casino gave him one week to pay. On the due date, Ratzlaf returned to the casino with cash of $100,000 in hand. A casino official informed Ratzlaf that all transactions involving more than $10,000 in cash had to be reported to state and federal authorities. The official added that the casino could accept a cashier’s check for the full amount due without triggering any reporting requirement. The casino helpfully placed a limousine at Ratzlaf’s disposal, and assigned an employee to accompany him to banks in the vicinity. Informed that banks, too, are required to report cash transactions in excess of $10,000, Ratzlaf purchased cashier’s checks, each for less than $10,000 and each from a different bank. He delivered these checks to the High Sierra Casino.

Based on this endeavor, Ratzlaf was charged with “structuring transactions” to evade the banks’ obligation to report cash transactions exceeding $10,000; this conduct, the indictment alleged, violated 31 U. S. C. §§ 5322(a) and 5324(3). The trial judge instructed the jury that the Government had to prove defendant’s knowledge of the banks’ reporting obligation and his attempt to evade that obligation, but did not have to prove defendant knew the structuring was unlawful. Ratzlaf was convicted, fined, and sentenced to prison. 510 U.S. at 137-138.

The U.S. Supreme Court examined the mental state requirement under the structuring law, eventually holding that Congress intended that a jury must conclude that the defendant knew that structuring currency transactions was prohibited by law before a conviction for a “willful” violation may occur. In other words, for the crime of structuring, the defendant merely knowing of the reporting requirement was not enough to meet the elements of the crime. (This further opens the door to the concepts of “specific intent” and “general intent” which create similar confusion, but I digress.)

As with many U.S. Supreme Court cases, there was a split in the courts on the issue of proof of knowledge that structuring was illegal as an element of structuring. The Court, in a divided opinion, reversed the majority rule among the circuits and held that “to give effect to the statutory ‘willfulness’ specification, the Government [must] prove [that the defendant] knew that the structuring he undertook was unlawful.” 510 U.S. at 138.

In 1994, due to Ratzlaf, federal prosecutors were faced with not only having to dismiss pending cases because the precursor investigations lacked such evidence, they were faced with retroactive application of the law interpretation to previous convictions. Thus, Congress quickly acted to amend the Bank Secrecy Act by deleting the statutory “willfulness” requirement of 31 U.S.C. § 5324.

Now, prosecutors need only show that a defendant knows about the $10,000 reporting requirement, and makes deposits or transactions under that amount in order to avoid it, as reflected in the last element mentioned in What is Structuring?.

20 Years Later: United States v. Abair
Fast-forward from Ratzlaf twenty years and we come to a find Ms. Yulia Abair, a Russian immigrant and registered nurse in South Bend, Indiana. The U.S. Court of Appeals for the Seventh Circuit gives us the background on how Abair came to be prosecuted for structuring. The opinion’s summary in United States v. Abair (7th Cir., 2014) states:

Abair emigrated from Russia in 2005 and married an American citizen. Abair owned an apartment in Moscow. After her divorce, Abair sold the apartment and deposited the proceeds with Citibank Moscow. She signed a contract to buy an Indiana home for cash. Citibank refused to transfer funds because her local account was in her married name and the Moscow account used her birth name. Over two weeks Abair withdrew the daily maximum ($6400) from Citibank ATMs and deposited $6400 to $9800 at her local bank. A deposit on Tuesday, May 31 followed the Memorial Day weekend and was posted with one made on Saturday, pushing her “daily” deposit over the $10,000 trigger for reporting, 31 U.S.C. 5313(a). Abair was charged with structuring financial transactions to evade reporting. IRS agents testified that during her unrecorded interview, Abair, who is not fluent in English, revealed knowledge of the reporting rules. Abair testified that she was aware of the limit when she spoke with the agents, but had learned about it after making the deposits, when she asked why identification was required. She said her deposit amounts were based on how much cash would fit in her purse. Abair was convicted and agreed to forfeit the entire proceeds. The Seventh Circuit remanded, finding that the government lacked a good faith basis for believing that Abair lied on tax and financial aid forms and that the court erred (Rule 608(b)) by allowing the prosecutor to ask accusatory, prejudicial questions about them. On the record, Abair is at most a first offender, according to the court, which expressed “serious doubts” that forfeiture of $67,000 comports with the “principle of proportionality” under the Excessive Fines Clause. (My emphasis added.)

The court gave further details of the trial on page 4 of the opinion:

During its case-in-chief, the government focused on Abair’s pattern of withdrawals and deposits. It showed that on each day Abair went to the bank, she had more than $10,000 in her possession yet always deposited less than that amount. The government called two IRS agents who had interviewed Abair. They testified that during the interview, which was not recorded, Abair revealed her knowledge of the reporting rules. The agents also testified that Abair told them outright that she had wanted to avoid the reporting rules because “she thought the government would look at her as though she was part of an organization or something, is what she said.”

For her part, Abair did not dispute that she was aware of the $10,000 limit by the time she spoke with the agents. But she said she learned about it only after making the deposits, when she asked a friend why she had been asked to show identification at the bank. Abair’s version was that the agents asked her why she thought the requirements existed, and she “said probably of organization or something—something like this.” (Abair had arrived in the United States speaking very little English, and she testified to continuing difficulties with complex or technical conversations.) She said her deposit amounts were based on how much cash she had on hand at the time and how much would fit in her purse. (My emphasis added.)

Did Abair have an “illegal purpose” in her suspected transactions? Additionally, was there justice in her forfeiting the funds involved in the acts, the forfeiture of her house’s entire value? At least two of the three judges on the panel didn’t think so:

For all that appears in this record, Abair is at most a one-time offender who committed an unusually minor violation of the structuring statute not tied to other wrongdoing. We therefore have serious doubts that the forfeiture of her home’s entire $67,000 value comports with the “principle of proportionality” that is the “touchstone of the constitutional inquiry under the Excessive Fines Clause”… Abair’s conviction and sentence, including the forfeiture order, are REVERSED and the case is REMANDED to the district court for a new trial.

Nevertheless, the one dissenting judge supported the trial court’s ruling on allowing the government to cross-examine Abair on her creditability, in this matter relating to false information that was previously provided in tax filings by the defendant:

The disputed issues at trial were Abair’s knowledge of the $10,000 reporting limit and her intent to evade it. On the witness stand, she denied that she knew about the currency-transaction limit at the time of the offense and denied any intent to structure her transactions to evade it. Because her credibility was key, so was the government’s Rule 608(b)(1) cross-examination.

Remember, this is not about whether she covered up any illegal activities for which she may have earned the cash. It is whether she was purposefully evading (or trying to) the currency reporting requirements (CTRs).

Suspected Structuring May Lead To Forfeiture
Over the past year (2014), the popular media ran several stories on instances where the government made large seizures of money from business owners suspected of illegal structuring. The case of Carole Hinders, the owner of a cash-only Mexican restaurant in Arnolds Park, Iowa, was the most prominent from the attention it gained for this report in the New York Times.

Civil asset forfeiture cost Ms. Hinders $33,000. And that was without any criminal charges alleged against her. In short, civil asset forfeiture is intended to give law enforcement the means to go after the assets of organized crime, drug dealers, and the like. The seizure and forfeiture can occur without the owner of the property being guilty of a crime. This is due to the legal concept that the asset itself is involved in the crime. An innocent party must go through the proper legal channels to retrieve the assets, or risk them being permanently lost to the government. More information here.

IRS Policy Statement On Structuring and Merry Christmas, Ms. Hinders!
On or about October 25, 2014, Richard Weber, Chief of IRS Criminal Investigation, made this full statement to, and as reported by, the New York Times regarding the agency’s policy on structuring cases:

After a thorough review of our structuring cases over the last year and in order to provide consistency throughout the country (between our field offices and the U.S. attorney offices) regarding our policies, I.R.S.-C.I. will no longer pursue the seizure and forfeiture of funds associated solely with “legal source” structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations (D.F.O.) level. While the act of structuring — whether the funds are from a legal or illegal source — is against the law, I.R.S.-C.I. special agents will use this act as an indicator that further illegal activity may be occurring. This policy update will ensure that C.I. continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.’s mission and key priorities. The policy involving seizure and forfeiture in “illegal source” structuring cases will remain the same. (My emphasis added.)

And in a follow-up article on December 13, 2014, The New York Times reports that federal prosecutors agreed to dismiss the case against Carole Hinders, return her seized money, and possibly allow for her to seek due interest, expenses and legal fees (should the government dismiss the case with prejudice).

Even The Pros Get It Wrong
Just ask regular finance advice columnist Scott Burns. I am a regular reader of Burns through his great personal finance column that appears online and in print circulation. Earlier this year, one of his Q&A format columns particularly caught my eye when he instructed a reader to structure his cash deposits in a manner to avoid the bank’s reporting requirements. I think my jaw literally dropped when I first read the article, as I asked myself, “Did he just advocate…no, instruct… breaking the law in a column!?”

The question turned on if and how the reader could pay off his remaining $41,000 mortgage balance which he had the funds to do. Within his answer, Burns said:

Under the Bank Secrecy Act, banks must file a Currency Transaction Report for amounts that are $10,000 and over. Your best option is to make a series of cash deposits for lower amounts. If you were a rich drug dealer with an unending supply of cash, this remedy wouldn’t be very helpful, but since you’re dealing with only $20,000 you’re not likely to attract undue attention.

I found relief and regained appreciation for Burns when, in his next week’s column, he led with “eat[ing] a large serving of humble pie” (his words).

I gave some questionable advice. It seems a recent suggestion to a reader would, if followed, have caused him to commit an illegal act. I had no idea. Encouraging illegal acts is not part of my job description. …

In the column I told him about the Bank Secrecy Act, a law that requires banks to file a Currency Transaction Report for cash amounts of $10,000 or more. I wrote: “Your best option is to make a series of cash deposits for lower amounts. If you were a rich drug dealer with an unending supply of cash, this remedy wouldn’t be very helpful, but since you’re dealing with only $20,000 you’re not likely to attract undue attention.”

It seemed reasonable to me.

In fact, several readers in banking, law and accounting soon told me that making multiple cash deposits is illegal because it could be viewed as a “structured transaction.” If you deposit your cash in a way that will avoid the necessity of a Currency Transaction Report, you are breaking the law. In addition, it was an illegal act even if the cash was “clean” money, not money from illegal, or untaxed, activities.

You don’t have to think about this too long before the shivers start going up and down your spine. Indeed, its pretty creepy even if, as one former prosecuting attorney wrote, “…from a practical standpoint, the United States Attorney is not likely to want to prosecute an individual who engages in a single act of structuring involving – in K.B.’s example — only $20,000 total in cash.”

Then again, George Orwell’s dystopian novel “1984,” published in 1949, is looking more like truth, and less like fiction, thirty years after its title.

Conclusion
I hope this two-part series on structuring has helped you understand the federal law, the analysis used by the government to examine suspected transactions, and a sampling of cases and examples of illegal and innocent structuring in practice.

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