Cato’s Caleb Brown interviews Larry Salzman of the Institute for Justice in this podcast about the federal practice of seizing and keeping small businesses’ bank accounts when it claims to find a pattern of deposits below the $10,000 reporting threshold. Earlier here, etc.
I’m a little late in getting to this, but last month Radley Balko wrote the definitive blog post on the appalling state of federal bank structuring law, which makes it a felony to arrange bank transactions in quantities of less than $10,000 so as to avoid reporting requirements that kick in at that threshold. He hits virtually every point we’ve made in this space over the past couple of years, including the trend toward “freestanding” structuring prosecutions not arising from any underlying criminal activity, the close connection to forfeiture law, the enlistment of banks as a covert surveillance/informant network not disclosed as such to customers, Congress’s removal of willfulness as a condition of the offense, the unusual concentration of cases coming out of the state of Maryland, the white-knight role played of late by the public-interest law firm Institute for Justice, and of course the jarringly atypical leniency extended to the most famous structurer of all, New York’s Eliot Spitzer.
The immediate news event that prompted the coverage, summarized by Eugene Volokh: a Seventh Circuit decision, in U.S. v. Abair, reversing and remanding for retrial the conviction of an Indiana woman convicted for withdrawing her own money from her bank in violation of the statute so as to finance her purchase of a house; the government took the house from her in forfeiture.
Headline, from WWJ: “Sterling Heights Gas Station Owner Says IRS Grabbed $70K From His Bank Account For No Reason” Mark Zaniewski, “owner of Metro Marathon in [suburban Macomb County], said the IRS emptied out his bank account twice over the course of a week this spring.” No charges have been filed; Larry Salzman of the Institute for Justice, representing Zaniewski, says the accounts were seized on suspicion of bank “structuring” (knowingly arranging deposits to fall below $10,000), even though some deposits were over that threshold. Salzman says his client has been waiting seven months for his cash and in the mean time is unable to get a hearing before a judge. IJ recently took on a structuring case involving a grocer in nearby Fraser, Mich. Earlier on structuring and its intersection with forfeiture law here, here, here, etc.
Update via Dan Alban on Twitter: “BREAKING: IRS voluntarily dismisses Michigan forfeiture cases, will return seized money to owners of family grocery store and gas station. Doesn’t get feds out of IJ’s separate constitutional lawsuit re: right to prompt hearing, Dehko v. Holder.”
The Institute for Justice is defending the owners of a grocery store in Fraser, Mich. who saw their bank account seized under forfeiture law on suspicion of structuring deposits (keeping them below $10,000 on purpose to avoid reporting). Video here. We’ve been covering the results of structuring law, and its intersection with forfeiture powers, for a while now, and its nice to see the issue attracting the notice of a group as formidable and high-profile as IJ.
In news that reached me after my Baltimore Sun op-ed yesterday was already in print, owners Randy and Karen Sowers of Middletown, Md. have settled the federal charges against their South Mountain Creamery over “structuring” of bank deposits. They “will get back a little more than half of $62,936 seized by the government earlier this year, according to court documents filed late Tuesday. … ‘I didn’t do anything wrong, but we had to settle because we had no other choice,’ Sowers said.” [Courtney Mabeus, Frederick News-Post; earlier here, etc.]
“Structuring,” as readers may recall, is the federal criminal offense of splitting up bank deposits so as to keep them under a threshold such as $10,000 above which banks have to report transactions to the government. Structuring is unlawful whether or not it occurs in conjunction with any other legal offense, as opposed to being motivated by, say, a desire to keep a low profile in general or a sentiment that the government already keeps tabs on too many innocent activities. Nor is there any requirement that the person be aware that there is a law banning structuring; someone who gets wind that transactions over $10,000 are reportable, and decides “What’s up with that? I’ll just make $9,000 deposits”), has broken the Bank Secrecy Act. Indeed, the federal government instructs banks to report suspicious patterns of sub-threshold deposits, and not to warn customers that it is doing so.
So who can engage in structuring and get by with it? Well, it might have a bit to do with who you are:
* On the one hand, as Courtney Mabeus reports in today’s edition of the Frederick News-Post, federal prosecutors yesterday filed a six-page complaint against dairy farmers Randy and Karen Sowers, who own the successful South Mountain Creamery in Middletown, Md. On February 29 Treasury officials showed up at their farm to question them about bank deposits; 45 minutes into that interview, according to the Sowerses, they learned that the federal government had just seized their bank account and the $70,000 in it. The family does a lot of business at farmer’s markets and its cash receipts over a ten-month period exceeded $320,000, the feds say. The News-Post account includes no mention of the family being under suspicion of any offenses other than what U.S. Attorney Rod Rosenstein describes as follows: “The holding back of cash receipts in excess of $10,000 indicates a knowledge of the Currency Transaction Reporting requirement and an attempt to evade it.” The couple is now speaking out about their plight to a wider public; they have hired attorney David Watt, though how they intend to pay him given the seizure of their bank account is not clear from the article. (Update Apr. 21: see also Apr. 18 coverage in Baltimore City Paper; & welcome Radley Balko readers)
* On the other hand, if you are former New York Attorney General Eliot Spitzer, you might not find the federal structuring laws so intimidating. Spitzer had good reason to be intimately familiar with the bank reports system since he had relied on its output in conducting white-collar investigations, and he was “smurfing” deposits in furtherance of conduct that was itself illegal, as he knew well, having crusaded in favor of longer sentences for “johns” as part of his appeal to New York City feminist and legal-services groups. But as Harvey Silverglate points out, “Spitzer, with the help of a high-powered legal team, was able to convince the Justice Department’s lawyers to drop the charges.” Now he goes on TV to denounce the federal government’s failure to prosecute persons in high places.
Maybe they’re too busy going after the dairy farmers.
P.S. The Supreme Court, in a majority opinion by Justice Ruth Ginsburg [Ratslaf v. U.S., 1994], admirably “interpreted the ‘willfully’ element for a currency structuring violation under 31 U.S.C. Sec. 5324 to require proof that the defendant knew the structuring was illegal. Congress responded rather promptly to the Court’s holding by dropping willfulness from the statute.” [White Collar Crime Prof, h/t Sam Bagenstos] (& welcome Prof. Bainbridge, Amy Alkon, Hans Bader readers; & see update.)
To read Alan Dershowitz on the Spitzer affair, you might think the criminal laws against “money laundering, structuring and related financial crimes” mostly go unenforced when sums are in the “thousands, not millions, of dollars” and do not arise from “organized crime, drug dealing, terrorism and large-scale financial manipulation”. Alas, plenty of targets of these laws could tell you otherwise, as Forbes found when it went collecting examples from proprietors of cash businesses like restaurants and motels and even a couple who says their legal troubles arose after they divided up for deposit $40,000 they’d received in gifts at their big wedding. (Janet Novack, “My Big Fat IRS case”, Forbes, Apr. 7; earlier; similar from Dershowitz on CNN transcript).
A helpful reader sends along the following information about the offense of “structuring”, which federal investigators are reportedly looking at closely in connection with the Spitzer affair:
If Spitzer structured cash transactions to evade reporting requirements, he may be guilty of a felony. 31 U.S.C. 5324 prohibits certain actions by any person who acts with the purpose of evading the reporting requirements of Section 5313 (Currency Transaction Reports). The definition of structuring for purposes of currency transaction reporting is found at 31 C.F.R. 103.11(gg). The elements of the structuring regulations are:
A person acting alone, in conjunction with others, or on behalf of others,
Conducts or attempts to conduct,
One or more transactions in currency,
In any amount,
At one or more financial institutions,
On one or more days,
For the purpose of evading the reporting requirements of 31 C.F.R. 103.22 (requiring CTRs).
The definition is specifically written to include those transactions which occur beyond a single business day and transactions which are conducted through more than one financial institution, but only if the purpose of the transaction(s) is to evade the reporting requirements.
The reader adds: “The IRS Manual on the BSA structuring provisions is here.”
More: Kerr @ Volokh, WLS @ Patterico, Daniel Gross @ Slate , Mark Steyn (“Almost every white-collar federal offense – wire fraud, mail fraud – boils down to ‘paying for the train ticket'”), American Lawyer, ABC News, as well as my new piece @ NRO.
Yet more, from Eric Turkewitz: “It seems likely that an amount in excess of $10,000 must be at issue if this is what was being investigated, which means more of a mess than Eliot already has. And to tickle the bank to act, it may be a sum well in excess of that amount, because I wouldn’t think an investigation would be opened if they simply saw two transactions of, say, $6,000 each a few days apart. There could be substantially more at play here.”
- Calvin’s refuge: how Swiss banking confidentiality undermined state despotism [Matt Welch, who also discusses how the gruesome FATCA law is proving to be the first component of an multilateral effort by OECD governments to curtail account privacy]
- Dodd-Frank compliance costs and the rapid decline of community banks [Marshall Lux and Robert Greene/Kennedy School, Carrie Sheffield, Jeff Sovern with a scoffing view; WSJ]
- “The IRS seized $242 million based on suspected structuring in more than 2,500 cases from 2005 to 2012.” [Jacob Sullum, new Institute for Justice report (PDF) by Dick Carpenter II and Larry Salzman and summary] More: new structuring case against Dubuque, Iowa widow raises question of whether feds have really followed through on promise not to press structuring charges where income is otherwise legal [AP/WHEC]
- “House Investigators: DOJ Forced Banks to Donate to Left-Wing Groups” [Joel Gehrke, NRO]
- “FDIC retreats on Operation Choke Point?” [Todd Zywicki] Rep. Luetkemeyer likely to keep up the pressure on regulators [Kevin Funnell]
- “Fed Officials Accused of Perjury in AIG Bailout Trial” [Lawrence Cunningham, Concurring Opinions]
- “Standard & Poor’s Settlement Shows Futility Of Fighting Government Policy” [Daniel Fisher, earlier]
“’How can this happen?’ [Arnolds Park, Iowa restaurant owner Carole] Hinders said in a recent interview. ‘Who takes your money before they prove that you’ve done anything wrong with it?’
The federal government does.”
For years I’ve been writing about the injustice of federal deposit-structuring law, from the South Mountain Creamery case in Maryland on up, and more recently the Institute for Justice has embraced the issue. Now that the New York Times has put a reporter on the case [Shaila Dewan, Oct. 25], the IRS says it will roll back its enforcement of the law to cases where there is other criminality — an excellent first step, although only a first step, since other federal agencies can also generate cases that result in seizures and prosecutions under structuring law.
As always, if you’re a small merchant fearful of this law, don’t go to your bank expecting helpful advice:
In May 2012, the bank branch Ms. Hinders used was acquired by Northwest Banker. JoLynn Van Steenwyk, the fraud and security manager for Northwest, said she could not discuss individual clients, but explained that the bank did not have access to past account histories after it acquired Ms. Hinders’s branch.
Banks are not permitted to advise customers that their deposit habits may be illegal or educate them about structuring unless they ask, in which case they are given a federal pamphlet, Ms. Van Steenwyk said. “We’re not allowed to tell them anything,” she said.