Why it matters
In response to recent criticism, the Commissioner of the Internal Revenue Service (IRS) John A. Koskinen announced that the agency will adopt a “common sense” approach in how it handles funds that have been structured to avoid the reporting threshold for cash transactions in excess of $10,000. Many criminals manipulate cash transactions to fall below the reporting threshold, the Commissioner noted, and the IRS adopted a policy of seizure and forfeiture of the assets in accounts related to such potential Bank Secrecy Act (BSA) violations. Controversy arose over the policy when assets were seized by law enforcement where they were structured but not derived from or associated with any other illegal activity. At a hearing of the House Committee on Ways and Means Subcommittee on Oversight, Commissioner Koskinen pledged that the IRS will no longer seize the bank accounts from otherwise law-abiding business owners simply because they structured transactions to avoid the federal reporting requirements. Instead, the IRS will focus on accounts where evidence indicates that the structured funds were derived from illegal sources, the Commissioner said. This revised approach should minimize the impact on financial institutions whose customer accounts are seized without any underlying evidence of illegal activity.
Detailed discussion
The BSA mandates that financial institutions report cash transactions conducted by the same person that, individually or in the aggregate, exceed $10,000 on any single day. Known as Currency Transaction Reports (CTRs), the reports are used in conjunction with other data sets such as Suspicious Activity Reports (SARs) to highlight potential red flags for regulators and law enforcement organizations.
Speaking before the House Committee on Ways and Means Subcommittee on Oversight, Internal Revenue Service (IRS) Commissioner John A. Koskinen explained that criminals often manipulate cash transactions in order to fall below the $10,000 threshold to avoid CTR reporting requirements.
“This intentional manipulation of the CTR filing threshold is referred to as structuring,” the Commissioner explained. “The Money Laundering Control Act of 1986 criminalized structuring for the purpose of evading the reporting requirements and made a person who willfully violated the law subject to possible fines and imprisonment. Ignorance of the law is not a defense to criminal structuring.”
A pattern of cash deposits or other transactions may trigger closer scrutiny and provide circumstantial evidence that a bank account holder acted with this illegal purpose, Koskinen said, and an investigation can result in prosecution.
“A critical tool to combat criminal activity is the seizure and forfeiture of assets related to those criminal activities,” he added, and the IRS adopted a policy of seizure and forfeiture of assets found in accounts with structured activity.
The agency faced criticism in recent months claiming that its efforts were overinclusive and that law enforcement organizations were seizing funds that while structured, were neither derived from nor associated with any other illegal activity.
Due to these concerns—and after a review of structuring cases over the last year—Commissioner Koskinen told lawmakers the IRS would change course. Going forward, the agency will no longer seize bank accounts based solely on the fact that transactions were structured to avoid federal reporting requirements.
“Specifically, the IRS 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 by a senior headquarters executive within [the IRS],” Commissioner Koskinen said. “While the act of structuring to evade BSA requirements—whether the funds are from a legal or illegal source—s against the law, [IRS] special agents will view this act as an indicator that other, more serious crimes may be occurring.”
Seizure and forfeiture in “illegal source” structuring cases will continue, he added.
“To be clear, structuring is a felony no matter the source of the funds, and federal law allows for seizures as a permissible tool,” Commissioner Koskinen told the Committee. But the new policy “will help ensure consistency” in how structuring investigations and related seizures are conducted. “[T]he IRS concluded that it will focus its resources on cases where evidence indicates that the structured funds are derived from illegal sources. We have tried to take a common sense approach to how we operate in this area,” he concluded.
To read Commissioner Koskinen’s prepared remarks to the Committee, click here.
