STRUCTURED CASH DEPOSITS: WHAT DO I DO WHEN THE IRS

CID AGENT COMES?

Avoiding Federal Fingerpointing of the Finances of Cash Heavy Businesses in the Money-
Laundering and Terrorism Era of Law Enforcement When Professionals and Small Businesses
Get Charged for Violating Federal Money Laundering Laws
Written by: Michael Lowe, Esq. on February 5, 2014
What is the responsibility of an American business owner in making deposits in the company
bank accounts to keep them from being flagged as an alert of potential wrongdoing, i.e., to
avoids a Currency Transaction Report (CTR) being sent by the financial institution, as required
by federal regulation, to the United States Treasury and the Internal Revenue Service?
Hopefully, this article will provide help to countless businesses that deal with lots of cash
payments in their ordinary course of operations each day and who want to avoid the suggestion
that theyre doing something illegal or wrong, or a
more formal investigation by the federal authorities.
In other words, this article hopes to educate
individuals and businesses on how not to deposit cash
in staggered manner or in structured cash deposits
that can make the business owner criminally liable for
structuring, and what they can face if they are
targeted for violation of federal structuring laws.
Many Legitimate Businesses Deal With
Lots of Cash Payments Today
Lots of folks that own small to medium size businesses
receive large amounts of cash. This cash eventually
gets deposited in the business bank account. The
amounts received in cash can vary depending on the
type of business.
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For example, a Pharmacy, Doctors Office, or Dental Office will likely receive cash payments in
small increments from a large number of customers or clients. This is the most common way
that cash in collected in a small to medium size business. Other businesses occasionally receive
large payments from big clients in cash. This scenario is a less common, of course.
There are special federal reporting rules that apply to each of these cases. For example, a
business owner who receives more than $10,000 cash from a single customer (whether paid in
increments or lump sum) will be required to fill out an IRS Form 8300 which is found on the
Internal Revenue Service website. This paper is not geared to explain this situation, since it is
more uncommon with regard to federal criminal prosecutions for violation of the laws requiring
reporting of certain financial transactions to the Federal Government.
Overview of Business Owner Responsibility from a Criminal
Defense Lawyers Perspective
Here, the focus is upon the business owners responsibility to not make deposits in bank
accounts so as to prevent the bank from triggering a Currency Transaction Report (CTR) to the
United States Treasury and the Internal Revenue Service (IRS). Since I have a great deal of
experience defending so called structuring cases in Federal Court, I will also explain how the
Federal Sentencing Guidelines apply to these types of prosecutions. I will also describe the
types of evidence upon which the United States Attorneys Office will likely rely to prove their
case in court. Finally, I will clarify plea negotiation considerations for these types of cases and
how an experienced defense attorney can navigate the negotiation with the United States
Attorneys Office so that his client receives the lowest possible Federal Sentencing Guideline
calculation and ultimately the best sentence possible.
What is Structuring?
Structuring is lawyer jargon (legalese) for a process whereby a person or business (not exempt
under title 31, section 5313(d),(e)) makes a series of cash deposits in one or many bank
accounts in increments of $10,000 or less so as to cause the depositing bank to likely not make
a CTR to the Federal Government. The person intentionally breaks down cash into a series of
smaller deposits so the deposits fly under the radar of deposit amounts that the bank must
report to the federal government. Hopefully, the federal government never knows about all this
cash that is slowly drifting through the banks processes (if the plan works).
Banks have to report big cash deposits to the federal government as a way to fight crime.
Specifically, money laundering.
Congress has set the amount of $10,000 as the minimum amount of cash being presented in a
single deposit to a financial institution governed by United States law which must be reported
to the federal government as part of the federal authorities fight against money laundering of
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ill-gotten gains. Deposits of $10,000 or more arent private: under federal law, the IRS and the
U.S. Department of Treasury will be informed of this transaction.
The Money Laundering Control Act and Currency and Foreign Transactions
Reporting Act
The law that imposes the CTR requirement upon the Bank derives from the Money Laundering
Control Act of 1986 and the earlier enacted Currency and Foreign Transactions Reporting Act
(Bank Secrecy Act) of 1970, two laws passed by Congress many years ago as the federal
government responded to more and more U.S. financial institutions being used as
intermediaries by criminals with cash on hand. Money-laundering is the target. Of importance
here, regarding federal reporting requirements placed upon banks are Title 31 USC Section
5313(a) and Code of Federal Regulation (CFR) title 31, section 1010.3131.
The reporting requirement, Section 5313(a), applies to domestic financial transactions. Section
5313(a) reads:
(a) When a domestic financial institution is involved in a transaction for the payment, receipt, or
transfer of United States coins or currency (or other monetary instruments the Secretary of the
Treasury prescribes), in an amount, denomination, or amount and denomination, or under
circumstances the Secretary prescribes by regulation, the institution and any other participant in
the transaction the Secretary may prescribe shall file a report on the transaction at the time and
in the way the Secretary prescribes. A participant acting for another person shall make the
report as the agent or bailee of the person and identify the person for whom the transaction is
being made.
To thwart banks getting around this federal reporting requirement, there is a corresponding
anti-structuring provision, 31 U. S. C. 5324, and penalties are delineated for those who
willfully violate these laws in 31 U. S. C. 5322 which includes the following punishment:
(a) A person willfully violating this subchapter or a regulation prescribed or order issued under
this subchapter (except section 5315 or 5324 of this title or a regulation prescribed under
section 5315 or 5324), or willfully violating a regulation prescribed under section 21 of the
Federal Deposit Insurance Act or section 123 of Public Law 91508, shall be fined not more than
$250,000, or imprisoned for not more than five years, or both.
Examples of Cash Transactions Gone Rogue: The Small
Doctors Office Structuring Scenario
Here is an example of what happens here in real life. Say that you own and operate a small
Doctors Office. You collect cash payments and co-pays from patients. Lets say that instead of
depositing this money in your business operating account, you keep the money in a safe
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deposit box or under your mattress; it doesnt really matter where it is. Let say you do this for
several years and accumulate approximately $650,000 in cash.
Now imagine that you want to buy a sweet piece of real estate so that you can break ground on
your new Doctors office. You negotiate a purchase price of $650,000. You want to use all that
stashed cash to buy the property.
Of course, the United States Treasury Department and the IRS dont know you have that cash
and you want to keep it that way so you wont have to pay any income tax on that cash. If you
decide to deposit the cash in the bank, you know that if you show up to your Bank of America,
Wells Fargo or Chase Bank with $650,000 in cash or to get a cashiers check, the Bank will file
the CTR. You will likely get an IRS Criminal Investigation Division Special Agent (IRS CID)
knocking on your door in short order.
Instead you decide that it would be great if your family and friends could help you out. Maybe
you could convince them to take some of your money and deposit the money in numerous
bank accounts under different names over the course of a year. You instruct your family
members and friends that are helping you out with this endeavor, to only make deposits
$10,000 or less, and do it in a way that makes it less likely the Bank will file a CTR.
Now picture youve deposited all of that loot and you want to show up to closing with enough
money to pay cash for the land. You show up with several dozen cashiers checks drawn upon
numerous different bank accounts all of which add up to the purchase price of $650,000.
Little do you know that the title company is a little suspicious. Someone at the title company
calls their favorite IRS agent to make a report concerning the transaction. You dont know about
the call. You buy the land and the title is transferred into your name. The next thing you know
the IRS is contacting you about the source of the funds.
WHAT WILL HAPPEN NOW? IRS INVESTIGATIONS OF STRUCTURING CASES:
ENTER THE U.S. ATTORNEYS OFFICE
The IRS will likely investigate you in conjunction with the United State Attorneys Office. These
are the attorneys who represent the federal government in criminal trials; they are the federal
prosecutors who try structuring cases.
The IRS and the federal prosecutors will investigate their new Doctors Office case, as reported
by the Title Company phone call, for at least two different violations of criminal law.
You may receive a US Attorneys Office Target Letter, like this one.
This letter will come from an Assistant US Attorney in connection with one of two different
proceedings, a forfeiture suit and a grand jury criminal investigation. If the money is subject to
forfeiture, you can expect that the US Attorneys Office will file a lawsuit in federal court and
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serve you with it. The procedure typically used to freeze the assets is called a Warrant for
Arrest of Property in Rem. This is how the federal government goes after the money itself,
so the government can take it as you forfeit your ownership and legal right to the cash.
The US Attorneys Office will also file a Civil Complaint and will seek a forfeiture of the property
you purchased with the structured funds claiming a violation of 31 U.S.C. section 5317(c) and 18
U.S.C. sections 981 and 984. Here, they are going after the land that you bought with the cash
which you planned to be the site of the new Doctors Office.
You will also likely be subject to a Grand Jury investigation of federal criminal law violations,
and you may be asked to provide discovery to the Federal Grand Jury or even to give testimony
to the Federal Grand Jury. Of course, you would need to hire an experienced Federal Criminal
Defense Lawyer, like me, to help you. (This is particularly important when Grand Jury
proceedings are involved since individuals may not get the same protections in a grand jury
proceeding that they may receive in a criminal trial or police investigation.)
BUT IMNOT A CRIMINAL! IM A PROFESSIONAL, WHY ARE THEY
COMING AFTER ME?
The above Doctors Office scenario is fictional, I made it up. It does not reflect, in any way, a
real case that Ive handled, although I have represented professionals facing similar allegations.
I understand what might be going through your mind when you find yourself in this sort of
situation. Ive heard it many times: But I earned that money legitimately. I am not a criminal! I
dont do anything illegal. I am just a Doctor or a Dentist or a Pharmacist or a Lawyer. I am not
involved in any criminal transactions. I am not a drug dealer!
I know you earned the money legitimately. Your federal accusers may know it, too. The only
concern the U.S. Attorneys Office will have is whether you violated a couple of laws (Title 31
USC 5324 or Title 18 USC section 371) in conjunction with the aforementioned statute. Its how
you handled the cash that is the issue here, not how you earned it.
As the United States Supreme Court explained in the case of Ratzlaf v. U.S., 510 U.S. 135
(1994): Undoubtedly there are bad men who attempt to elude official reporting
requirements in order to hide from Government inspectors such criminal activity as
laundering drug money or tax evasion. But currency structuring is not inevitably
nefarious.
Well, you say, prove it! They cant prove I did this! That might be true, but my experience is that
these cases are very easy to prove (The Feds call it Low Hanging Fruit). Its mostly a paper
case.
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The Feds look at the deposit amounts, the dates and the locations of the bank deposit runs. The
FBI or IRS talk to witnesses like bank employees, your CPA, and the other folks that might have
helped to make the deposits. The U.S. Attorneys Office isnt going to take the case unless it
comes to them on a silver platter and thats exactly what the IRS Special Agent is trying to
accomplish in their investigation. Banks keep lots of records; building a paper trial in these
cases isnt that hard to do.
WHAT PROFESSIONAL SMALL BUSINESS OWNERS CAN FACE: SERIOUS PRISON
TIME
Back to the Doctors Office Scenario. Lets assume the IRS Special Agent has done his job and
the case has been made against you. What do you do? What do your family members do that
may also be investigated for the same thing?
This is where having an experienced Federal Criminal Defense Attorney can make all of the
difference between spending the next 10 years incarcerated behind bars in the federal Bureau
of Prisons system (BOP), or getting probation, or a short trip your local Prison Camp. Because
time behind bars in a federal facility is in your future if the
federal prosecutor gets his or her way.
Choose wisely, the lawyer might say to you. Your choice? Trial
or negotiate a deal with the Feds.
If you elect to go to trial and win, great. But if you go to trial and
you lose, did you know that you will likely be facing up to ten
years in the BOP? Thats right, under 31 USC 5324(d)(2), if the
Assistant United States Attorney (AUSA) can show you made or conspired to make at least
$100,000 in structured deposits as a part of a pattern of illegal activity over the course of 12
months and those funds were sourced from illegal activities (e.g., Mail Fraud, Wire Fraud,
Conspiracy to Distribute or Manufacture Cocaine or Methamphetamine), your cap goes from
five years in the BOP to 10 years in the federal prison system.
FEDERAL SENTENCING GUIDELINES FOR STRUCTURING CASES
What choice should you make? This is where you need to consult with a smart lawyer that
understands how the federal sentencing guidelines will apply in your case, and how the
sentencing process works in the federal prosecutorial system, BEFORE you start negotiating
with the U.S. Attorneys Office. In the federal system, in order to try and keep federal sentences
all across the land as fair as possible by being as uniform as possible (so the same crime gets
punished the same in Oregon as Texas, for example), a series of sentencing guidelines has
been created.
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The federal judge is not limited to the specific guidelines; she can make her own calls on a case.
However, these guidelines are very influential and powerful. Federal sentencing guidelines will
be the general rule that is followed, unless the defense lawyer can show an exception should
apply.
Having a lawyer at your side as soon as possible in these situations is extremely important in
structuring situations. Why? Imagine that you and your lawyer negotiate a plea deal with the
AUSA assigned to you case. In the Doctors Office Scenario, for example, say you agree to plead
guilty as long as no charges are filed against your best friend, who helped you out in your land
purchase plan.
If you plead guilty in federal court to a federal judge, then you will go with your lawyer to see
the United State Probation Officer (USPO) assigned to write the Presentence Report in your
case.
WHAT IS A PRESENTENCE REPORT?
Here, the federal Probation Officer must write a report and make a recommended guideline
calculation for the Judge to consider before he or she sentences you. Most USPOs will write
their report in a way that maximizes the total offense level.
That is, the federal probation officer will look to the so called relevant conduct and the USPO
will apply as many guideline enhancements that he can find in the United States Sentencing
Guidelines (USSG). (You can read the Guidelines online here.)
Now, I know you are going to say: But the USSG are only advisory. And youd be correct. But,
my experience is that most Judges will give the USSG calculation a great deal of deference.
Having an advocate on your side when you are dealing with the probation officer as well as in
the sentencing hearing before the federal judge is both critical and comforting.
FEDERAL SENTENCING GUIDELINES IN A STRUCTURING CASE
So what are the guideline provisions that typically come into play in these so called Structuring
cases? Lets start off with the applicable guideline provisions.
In the factual Doctors Office scenario described above, one could plead guilty to potentially
two different criminal violations. One could plead guilty to a violation of the substantive law in
Title 31 section 5324(d)(1) or sections 5324(d)(2). Since the latter section deals with an
enhanced ten year statutory cap, its unlikely you would want to plead to that section.
So, most lawyers will plead their client to the 5324(d)(1) violation. However, that would be a
mistake in my opinion in many cases. This will take a little while to explain, so bear with me.
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When we calculate your guidelines in USSG 2S1.3 we start off with a level 6 and then add the
appropriate theft table level as shown in USSG section 2B1.1.
Thats right, the USSG treat all of the money structured in the same way as if all of that
deposited money were stolen or embezzled. Then we add 2 levels under USSG 2S1.3(b)(2) if
you were convicted under Title 31 and more than $100,000 if a 12 month period was
structured.
Well, that doesnt seem fair does it? Do I have to plead to a Title 31 violation? The answer is,
maybe not.
In the scenario Ive described, you could also plead in to an 18 U.S.C. section 371 Conspiracy
violation. That is, you could also plead guilty to Conspiracy to Structure Cash Bank Deposits,
not an actual substantive count for Structuring.
Conspiring to do something isnt the same thing as doing it, so there are two different statutes
involved here.
If your lawyer is sharp enough to do this, he just saved you two levels off of your sentence,
which could mean more than a year in some cases. Whats more, your lawyer may have saved
you up to 8 levels off of your sentence.
In the Doctors Office scenario Ive described above, the source of the funds was lawful.
Remember, we are talking about a Doctors Office; not wire fraud money, drug money, or
racketeering cash.
If you dont plead to a Title 31 count and the source of the funds were legit, then you could also
receive a 6 level reduction under USSG 2S1.3(b)(3). Now lets do the math in the best case
scenario for the Doctors Office structuring example above.
BEST CASE SCENARIO IN SENTENCING FOR THE DOCTORS OFFICE
We start off with a level 6 and add 14 levels pursuant to USSG 2B1.1(b)(1)(H) because the total
amount structured falls between $400,000 and $1,000,000. We would then reduce by 6 levels
under 2S1.3(b)(3) which yields total of level 14, and then take an additional three levels off for
acceptance of responsibility under USSG section 3E1.1 (a),(b) which now yields a total of level
11.
Assuming you have no criminal history, we are talking about a zone B sentence anywhere
from 8 to 14 months. In zone B, the judge will likely be looking to give you home confinement
or a combination of home confinement and actual confinement under the recommendations in
USSG section 5C1.1.
Thats a great result. Now lets look at this case from a worst case perspective.
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WORST CASE SCENARIO IN SENTENCING FOR THE DOCTORS OFFICE
In my experience, United States Attorneys like to initiate structuring violations against folks
they believe may also be involved in other illegal conduct. That is, the Federal Prosecutor wants
to catch someone for structuring even though he/she really believes them to be guilty of some
other crime they cannot actually prove beyond a reasonable doubt in front of a jury.
Remember how the federal government finally put Al Capone behind bars for tax evasion after
not being able to gather enough facts to prove him guilty of any other crimes? That same
strategy is still used all the time by the Feds.
From that perspective, lets assume the AUSA will claim that you derived the structured cash via
some other criminal conduct. In the Doctors Office case, that might be Medicare fraud,
Medicaid fraud, prescription fraud or any other wire or mail fraud violation the AUSA can come
up with.
Now we go to the federal sentencing guideline enhancements. Remember, the federal
probation officer will be looking for ways to increase your sentence, not reduce your sentence.
Thats why you pay the lawyer big bucks when you are guilty; to help get a lower sentence.
Negotiation here often involves getting the least amount of punishment as possible, not a get
out of jail free card. The more experienced in negotiating these deals, the better your lawyer
will be arguing for the lowest sentence possible.
The USPO will likely claim at least 2 different USSG enhancements in this type of case. First, you
will likely see an enhancement under USSG Section 2S1.3(b)(1)(A), wherein the federal
probation officer is going to argue that you knew the source of the structured cash was illegal
or unlawful activity.
Mind you, they arent going to need to prove beyond a reasonable doubt that you committed
another crime. They only need to show by a preponderance of the evidence that you knew the
loot came from unlawful activity. In making a recommendation, the probation officer doesnt
have the same high burden of proof that the prosecutor would have had to meet at trial.
The second enhancement you will likely see in a case like this Doctors Office scenario, is a 2
level role adjustment under either USSG section 3B1.3 because you are a Medical Doctor and
you used your position of Public Trust to commit the offense or used some other special skill to
conceal it. You may also see another 2 to 4 level enhancement for a role adjustment for being a
leader organizer in the Conspiracy to commit Structuring under USSG 3B1.1 Aggravated Role.
In summary, the worst case scenario described above, would result in a guideline sentence
many, many years higher than the best case scenario described.
CONCLUSION
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From the above, you can see that these cases are very fact dependent, no two structuring cases
are the same, and they can be very complex. How the money was generated is a separate issue
from how the money was moved through the financial institution. Many professionals are
surprised to discover that they are charged with federal structuring violations when they have
earned their cash in legitimate ways.
Regardless of where the cash was made, if anyone in Texas is being investigated for violation of
structuring statutes, then they will need a lawyer that know all of the facts, has done a
reasonable investigation, and has the necessary experience to navigate the Federal Criminal
Justice system in the most advantageous manner on their behalf.
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About the Author: Michael Lowe is a Texas trial attorney practicing criminal defense law in the
Dallas area for many years after first serving as a felony prosecutor for the Office of the District
Attorney for Dallas County. He is Board Certified by the State Bar of Texas in Criminal Law. Mr.
Lowe has tried to verdict over 150 criminal trials so far in the state and federal systems.