How to Avoid the Currency Transaction Trap

Many people are aware that financial institutions are obligated to file a currency transaction report (“CTR”) for deposits, withdrawals, exchange of currency or other payment or transfer, by, through or to the financial institution if such transaction involves currency exceeding $10,000. 31 C.F.R. §103.22. Some people wish to avoid the CTR filing, and they therefore complete currency transactions in increments of less than $10,000. Attempts to avoid currency transaction reporting are illegal and could result in civil and criminal penalties. Thus, clients, attorneys and fiduciaries should be knowledgeable about the salient provisions of the Bank Secrecy Act (“BSA”) contained in 31 U.S.C. §5311 et seq. The BSA requires the filing of certain reports or records for financial transactions that have a “high degree of usefulness in criminal, tax or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.”

Brief History of the BSA Reporting Requirements

In 1970 Congress passed the Currency and Foreign Transactions Reporting Act (“CFTRA”) as part of the BSA. The CFTRA requires financial institutions involved in currency transactions in excess of $10,000 to report such transactions to the government. 31 U.S.C. §5313. Congress recognized many criminal enterprises and tax evaders operated with large sums of cash, and Congress therefore determined that significant information relating to criminal activity, tax evasion and regulatory investigations could be gleaned from currency transaction reports.

However, the initial version of the CFTRA made avoidance simple. The currency transaction threshold of $10,000 was unambiguous but easy to avoid. Customers of financial institutions could deposit cash in sums less than $10,000 without inducing the notification requirement. In one case, the defendant entered into three separate currency transactions all for just under $10,000 with the same bank on the same date, and the court ruled there was no obligation for the financial institution to report a CTR, and therefore, the defendant could not be convicted for violating the BSA for failing to inform the bank of the structured nature of his transfers. U.S. v. Anzalone, 766 F.2d 676 (1st Cir. 1985). Further, the statute and regulations did not adequately address specifics relating to the currency transactions. For example, the statute did not address multiple people entering into structured currency transactions. In one case, multiple defendants, including the attorney associated with an undercover drug trafficking sting, were charged under the BSA for converting large sums of cash into cashier’s checks using multiple banks with each currency transaction involving less than $10,000. Multiple persons converted cash over a three day period in a structured transaction, but the plain language of the statute, as it then existed, did not create a duty upon the defendants to alert the bank to the structured transaction, or impose a duty on the bank to file a CTR. U.S. v. Vrabel, 780 F.2d 758 (9th Cir. 1985). Other attempts to evade the reporting requirement included multiple cash deposits of less than $10,000 in multiple banks, U.S. v. Tobon-Builes, 706 F.2d 1092 (11th Cir. 1983) and deposits of less than $10,000 into multiple accounts in the same financial institution. U.S. v. Heyman, 794 F.2d 788 (2nd Cir. 1986) cert. denied, 479 U.S. 989 (1986). These cases highlighted the many ways that were available to structure transactions to avoid reporting requirements under the CFTRA without punishment.

Anti-Structuring Statute and Regulations

To remove the loopholes to the reporting requirements highlighted by the cases discussed above, the Secretary of the Treasury amended the regulations to the reporting requirements contained in the CFTRA. The regulations were amended to clarify that multiple branches of one bank means the same financial institution, and multiple currency transactions in one business day will be aggregated to one transaction. 31 C.F.R. §103.22(c). However, the financial institution must have knowledge that the multiple transactions were by or on behalf of any one person, and the financial institution must have knowledge the transactions amounted to over $10,000 of cash in or cash out in a single day to create an obligation on the financial institution for the filing of the CRT. Although the regulations were amended to address ambiguities, the CFTRA was not drafted to impose an obligation on customers to meet the reporting requirements for large currency transactions. Only financial institutions were obligated to adhere to the reporting requirements.

In an effort to impose a duty and criminal and civil penalty on private citizens to follow the reporting requirements, Congress, in 1987, added 31 U.S.C §5324 as the anti-structuring law of the BSA. Under the 1987 revision of the BSA, it is now illegal for a person, in an effort to evade the currency reporting requirements, to cause a financial institution to fail to file a CTR or to file a CTR that contains a material omission or misstatement of fact. Further, the anti-structuring law makes it a criminal act to structure transactions, assist in structuring transactions or attempt to either structure transactions or assist in structuring transactions for the purpose of evading reporting requirements. Structuring transactions includes dividing one transaction that would have been above the reporting threshold into multiple transactions.

A person can be convicted of illegally structuring a transaction to avoid currency reporting requirements, if the government can prove beyond a reasonable doubt that the person engaged in the act of structuring, and did so with knowledge that the financial institution involved was legally obligated to report currency transactions in excess of $10,000 and it was the person’s intent to evade the reporting requirement.

U.S. v. MacPherson, 424 F.3d 183 (2nd Cir. 2005) confirms the requisite actus reus and mens rea elements for the crime of structuring. Over a four-month period the defendant deposited a total of $258,100 in cash by 32 different transactions in three different bank accounts. The defendant was sure to make every deposit less than $10,000.

The money was received from legitimate business holdings. The defendant was particular about his banking and assets out of concern for a pending civil judgment, but the civil judgment was settled just prior to when the first structured deposits were made. The defendant argued he did not have motive to engage in illegal structuring. The court determined that no criminal predicate as to the source of the cash in excess of $10,000 is required to prosecute for structuring. Also, the court had to interpret the willfulness element of the crime.

The Court construed willfulness to require “proof that a defendant, with knowledge of the reporting requirement imposed by law, structured a currency transaction intending to deprive the government of information to which it is entitled.” Id at 189. There is no requirement for the government to further prove that the defendant acted with knowledge that the conduct was unlawful. Thus, the anti-structuring law is interpreted that if a person has even vague knowledge of the reporting requirement and structures transactions to evade the reporting requirement, the person can be convicted of structuring. The government does not have the obligation to further prove the person knew it was a crime to structure the transaction to evade currency reporting requirements.

The criminal penalty for an individual violating the law could be a fine of up to $250,000 and a prison sentence of not more than five years. The fine can be as high as $500,000 for an organization found guilty. Repeat offenders with a pattern of illegal activity involving more than $100,000 over a 12-month period or violators who are also convicted of violating another law could face double the fine and up to ten years in prison. 31 U.S.C. § 5324(d). Further, a person found to have structured a transaction to avoid CTR reporting could face a civil penalty that may not exceed the full amount of the currency involved in the transaction. 31 U.S.C. § 5321. Based on the sentencing guidelines, an individual who is convicted of a single count of a structured transaction can face jail of up to five years, a fine of up to $250,000 and forfeiture of all of the currency involved in the structured transaction. If the person is acting as a fiduciary of an estate or trust and has structured transactions, the person is likely to also face a civil suit by the beneficiaries of the estate or trust for loss of the assets as well.

How the BSA Reporting Requirements Affect Attorneys and Clients

Some clients operate businesses that frequently receive large sums of cash. Supermarkets are a common example. Supermarkets generate significant sums of cash daily that must be deposited. Most supermarket operators are familiar with the bank reporting requirements. However, there are many clients who come into contact with significant sums of cash that may not fully understand the currency reporting requirements and may run afoul by attempting to structure deposits to avoid currency reporting. Anyone operating a new venture to sell or purchase goods or services could come across cash paying clients or may need to withdraw large sums to pay for goods or services. For example, an antiques dealer can often be paid in cash.

Fiduciaries can also find themselves subject to bank reporting requirements. An executor could come across large sums of cash in a safe deposit box or "under the mattress." Structuring the deposits to avoid the reporting requirements could result in the executor facing criminal prosecution under the BSA. In addition to the criminal and civil penalties the executor would face, the estate's assets are also subject to forfeiture for violation of the BSA. The executor would likely face a civil action by the beneficiaries of the estate for the loss of the estate's assets.

Conclusion

Many clients have vague knowledge of reporting requirements for cash transactions involving $10,000. Unfortunately, most clients do not have a full understanding of the potential penalties for attempting to avoid the reporting requirements. Attorneys and clients should take caution to abide by the BSA by operating with currency deposits and withdrawals in the normal course of receiving cash even if doing so results in the filing of a CTR. Remember, the BSA was enacted as a tool to provide information to government agencies to investigate possible criminal activity and tax evasion. Assuming your clients are not partaking in criminal or tax evading activity, currency reporting should be of no concern to them.