Former Speaker of the United States House of Representatives Dennis Hastert entered the well of a courtroom in the Northern District of Illinois earlier this week to enter a plea of not guilty to charges that he structured more than $900,000 in cash withdrawals from his own bank accounts and then lied to the FBI about them. The not guilty plea commences the formal criminal proceedings against him and raises real issues about our structuring laws and the types of criminal conduct they can reveal.
As we have pointed out before, federal laws and regulations require banks to prepare and file with the Financial Crimes Enforcement Network (FinCen) a Currency Transaction Report (a CTR or Form 104) for any transaction or series of transactions involving currency in an amount more than $10,000. See, Title 31, United States Code, Section 5313(a) and Title 31, C.F.R., Section 1010.310-313. This requirement originally was designed to target the movement of currency by drug traffickers and money launderers. More recently it has been used against suspected terrorists and those who would finance their operations. In short, it’s a potent tool for detecting criminal activity.
Many try to get around the CTR requirement and prevent the banks from filing the reports with FinCen. But, efforts to avoid that requirement by structuring transactions to keep the amounts below the $10,000 threshold violate federal law as well. See, Title 31, United States Code, Section 5324(a)(3). And the Speaker was indicted under this law.
According to the indictment, sometime in 2010 the Speaker began to meet with an individual known to us only as Individual A. The Speaker had known Individual A since A was very young. And, sometime during the relationship between the two of them, the Speaker engaged in what is described only as “misconduct . . . against Individual A . . . .”
In 2010 Individual A began meeting with Hastert, and the two discussed the mysterious misconduct Hastert had allegedly visited on him “years earlier.” These discussions led to an agreement that Hastert would pay Individual A $3.5 million to “compensate” for and “conceal” the prior misconduct. And while we don’t know what was said between the two, the facts in the indictment have the feel of extortion. The amount in settlement was huge; the payments were made in cash; and the payments were made in part to ensure that the alleged victim kept quiet. Only time and the scrutiny of a public trial will help us to understand the real nature of Individual A’s role in this scheme.
Hastert made fifteen $50,000 cash withdrawals over the course of two years before one of his banks began to ask questions. Then, Hastert made a fateful mistake. Rather than explain what he was doing or simply refuse to talk to bank officials, Hastert changed his MO. Three months after being questioned by bank officials, Hastert resumed withdrawing cash amounts from the bank. But, now he dropped those amounts below the $10,000 CTR threshold and aggregated these smaller amounts of cash in order to make the periodic $50,000 payments due to Individual A. He later stretched out the payment schedule and made periodic payments of $100,000. And my guess is that the banks, noticing the changed amounts shortly after warning the Speaker of the CTR requirements, filed a Suspicious Activity Report (SAR) or otherwise reported the Speaker to the FBI or IRS. By 2013 both agencies were looking at the Speaker’s bank transactions.
The investigation revealed more than 100 withdrawals of currency which the Government believes show evidence of structuring. They total more than $950,000 and occurred after the Speaker changed his MO when warned by the bank. When the FBI and the IRS confronted the Speaker, according to the indictment, he lied about the purpose behind the cash withdrawals.
This case raises some broad public policy issues that bear watching:
First, structuring cases, particularly in the context of asset forfeiture, have been in the news a lot lately. Department policy forbidding the seizure of funds where the only underlying provable charge is structuring have been scaled back dramatically and nearly eliminated. See, Memorandum of the Attorney General, Guidance Regarding the Use of Asset Forfeiture Authorities in Connection with Structuring Offenses, (March 31, 2015), and my news alert of May 19, 2015 on this website. That policy seemed to relegate structuring cases to a lower status. But, the Hastert indictment reminds us of the power of CTRs, SARs and the FinCen review process. They are designed to and do reveal underlying criminal conduct and are potent tools at the disposal of federal investigators. It was the Speaker’s effort to avoid these reporting requirements that finally revealed the scheme to pay off Individual A in return for continued concealment of past “misconduct.”
Second, we are left with the question of what the Department of Justice will do about Individual A, who apparently extorted the Speaker. Without knowing the facts it is difficult and dangerous to speculate on the nature of the past misconduct and why Hastert was willing to pay millions to conceal it. But, one can surmise that it is pretty damning. Hastert was willing to pay a king’s ransom to keep it under wraps. But, it doesn’t change the fact that Hatstert, too, is likely the victim of a crime. What will the Justice Department do if that is the case. Have they struck a deal with Individual A as a cooperator? Do they think that he or she has been victimized enough? More will be revealed as the discovery process unfolds, but this is a classic dilemma for prosecutors and investigators as they weigh and balance the goals of an investigation against the interests of victims and witnesses whose conduct is often a mixed bag of issues and contradictions.
Finally, there is the question of whether Hastert will face criminal charges for this past misconduct. Prosecutors have not brought charges based upon that portion of Individual A’s statement to them, and we know little about it at this point. It could be that the federal government doesn’t have jurisdiction over the alleged misconduct. Thus, the matter could be referred to a state prosecutor for review. It may be that the misconduct is immoral but not illegal. It may be that the offense is barred by a statute of limitations. It may be in the works. And it may be an issue that forms the basis of some type of plea deal. Time will tell as we watch this prosecution unfold.
