Study: Few IRS Anti-Structuring Law Seizures Involved Criminal Enterprises

By:
Chris Gaetano
Published Date:
Apr 5, 2017
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The Treasury Inspector General for Tax Administration (TIGTA) said in a recent report that most of the assets seized by IRS Criminal Investigation for violations of anti-structuring laws involved funds that were legally sourced, even though the goal of such seizures is to disrupt criminal enterprises.

Under the Bank Secrecy Act, any currency transactions over $10,000 needs to be reported by financial institutions to the government. Some people, however, will structure their transactions specifically to avoid tripping this reporting requirement. For instance, someone might deposit money just under that amount several times over the source of a day, or across several different financial institutions. Structuring transactions for this reason is illegal and can lead to fines, imprisonment or both, and any property involved in violating this law may be seized and forfeited. 

While, technically, these seizures do not have to be connected to a criminal activity like money laundering, that's their main purpose. Despite this, TIGTA pointed out that most of the time when the IRS seized funds related to structuring activities, the funds themselves came from a lawful source and had no connection to illegal enterprises. TIGTA, looking at 306 investigations with $55.3 million in asset seized between 2012 and 2014, determined that 252 of them involved legal source funds and 26 involved illegal activity or illegal sources of funds. Of these, 210 involved businesses that often deal with currency transactions like retail, wholesale, service, automobile, restaurants and gas stations. 

The anti-structuring provisions, however, do not distinguish between legal or illegal sources, with investigators needing only to show probable cause of a structuring violation even if there was no evidence that the funds were involved in any type of illegal activity. TIGTA postulated that one of the reasons why the IRS pursued these legal source cases could be the use of "quick hit" seizure after identifying the structuring activity, basically a seize first and ask questions letter approach, followed by negotiations to have the funds returned. 

"Using this approach, the Government recognized the benefit of quickly identifying the criminal activity, seizing funds, and reaching a negotiated resolution of these types of matters and using its resources on other investigations. This type of quick hit action was emphasized in the Suspicious Activity Report Review Team’s standard operating procedures," said TIGTA. 

The IRS also had an inconsistent record of addressing legal source cases. For 54 investigations, the property owners provided realistic defenses or explanations, and for 43 of those cases, there was no evidence they were considered by Criminal Investigations. In 202 interviews, the property owners were not adequately informed of important information, such as the purpose of the interview, by the IRS during the interview. The outcomes for legal source cases lacked consistency. In 37 investigations, the government appeared to have bargained nonprosecution to resolve the civil case.

TIGTA recommended that the Chief, Criminal Investigations, establish controls to ensure that Criminal Investigations is selecting cases that meet the IRS’s goals and policies, return funds forfeited from legal source cases with no illegal activity, ensure that reasonable explanations are considered when interviews are conducted, ensure appropriate referrals to IRS’s Examination function, and improve the process for designating grand jury information. In response to the report, Criminal Investigations agreed with and implemented changes for five of the nine recommendations and partially agreed with another. Criminal Investigations disagreed with establishing guidance on bargaining nonprosecution and procedures that strive for fair and consistent outcomes, and did not agree to improve its grand jury information designation process.

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