On December 23, 2014, the United States Attorney for the Eastern District of North Carolina filed a Complaint for Forfeiture In Rem seeking to forfeit $107,702.66 belonging to Lyndon McLellan, the owner of L&M Convenient Mart in Fairmont, North Carolina.  By all accounts, L&M Convenient Mart is a small business catering to a rural community; it is a very typical small town business like thousands located all across the United States.

According to the Government, Mr. McLellan’s money was forfeitable because it was a portion of “structured transactions” stretching back to at least 2008.  Indeed, the Government alleges in recent filings that L&M had engaged in “a pattern of 301 deposits into its seized bank account [over a three year period], totaling more than $2 million, which appeared to be structured to evade a Currency Transaction Report (CTR) threshold of $10,000.”  The Government noted that 116 of these transactions involved deposits between $9,077 and $9,999.  And so, at the time of the filing of the Complaint, Mr. McLellan looked well on his way to losing his $100,000.

But something happened on the way to the courthouse:  the Justice Department changed the rules of the game for its own prosecutors.  Under its new policy, announced March 31, 2015, unless criminal charges are brought, prosecutors cannot seek warrants to seize bank accounts involved in structuring unless the prosecutor first develops probable cause showing additional federal criminal activity.  Memorandum of the Attorney General, Guidance Regarding the Use of Asset Forfeiture Authorities in Connection with Structuring Offenses, (March 31, 2015) (which attaches a substantive memorandum prepared by the Acting Chief of the Department of Justice’s Asset Forfeiture and Money Laundering Section).  In other words, the prosecutor was now required to have proof of criminal activity beyond the mere act of structuring itself in order to seize and forfeit allegedly structured funds.  For Mr. McLellan, the Government would have to show some criminal activity explaining the cash and its structured deposits.  And that the Government apparently could not do.

But the United States Attorney continued to pursue Mr. McLellan.  Apparently relying on a loophole in the Department’s policy – the policy is not retroactive - prosecutors refused to dismiss the Complaint for forfeiture.  And so Mr. McLellan was out of luck. 

But over the last few months, Congress began asking questions, and the media took up Mr. McLellan’s cause.  And, facing mounting pressure, the Government gave up and moved to dismiss its own Complaint on May 13, 2015.

The Department of Justice’s new policies, and the decision to drop the claim for Mr. McLellan’s money, may hearten many.  But small businesses and banking institutions should not take their eye off the ball.  Structuring remains illegal, and banks will still be required to file Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs).  See, 31 C.F.R. sections 1010.311 and 1020.320.  And federal agencies and prosecutors will still be reviewing financial transactions looking for patterns and scenarios that suggest structuring to avoid reporting and in aid of other criminal activity.  See, Acting Chief of Asset Forfeiture and Money Laundering Section Memorandum at 2.  Bankers, business people and others should keep that in mind as transactions are concluded, daily receipts are deposited or closings are completed.

Moreover, while the IRS and the Department of Justice have re-prioritized their work and have de-emphasized “structuring only” cases, their policies, particularly those at the Department of Justice, continue to allow for exceptions where, among other things, there is “serial evasion of the reporting or record-keeping requirements; the causing of domestic financial institutions to file false or incomplete reports; and violations committed, or aided and abetted by persons who are owners, officers, directors or employees of domestic financial institutions.”  So, don’t allow the recent policy changes, or the media and political outcry in the McLellan case, to distract you from the continuing legal reality and risks.