Thursday, February 12, 2015

Structuring Forfeitures Again in the News (2/12/15)

Forfeiture is again in the news with the recent hearing on IRS forfeiture practice.  William Hoffman, No Forfeitures Absent Illegal Source of Income, Koskinen Says, 2015 TNT 29-4 (2/12/15), no link available.  The problem is, of course, that the statute imposes forfeiture for making deposits into financial institutions in amounts intended to avoid the CTR filing requirement for $10,000 or more currency deposits.  The statute does not require that, for forfeiture, the currency be related in any way to or the fruits of illegal income.  So, mom and pops who simply don't want the reports going to the Government because of their own legitimate privacy concerns and other innocents can structure to avoid the reporting requirement.  (Of course, by defining the criminal violation as simply the act of structuring, one might say that these people are not quite so  innocent, since the law does require that they know the CTR filing requirement and act with intent to violate that law.)

After taking considerable heat on which we reported before, the IRS has hunkered back to a policy that generally (that's a fuzz word) will allow seizure only where the IRS has proof of illegal income.  So, under the new law, generally the innocents (meaning those without illegal income) can intentionally violate the structuring law without being subject forfeiture and presumably without being subject to structuring prosecution.  It seems to me that Congress should change the law rather than have the IRS not enforce the law as Congress wrote it or to signal to citizens that they can violate the law with impunity so long as they do use illegal funds.  Some changes to the  law are now in consideration, hence the House Hearings, but I am not sure the proposals fix the fundamental problem.

Here are a few quotes from the introduction to Mr. Hoffman's article:
IRS Commissioner John Koskinen said February 11 that the agency changed its civil asset forfeiture policy last October because an internal review found that it was applied inconsistently, and it decided it won't pursue cases in which serial bank deposits are just under the $10,000 threshold for reporting under the Bank Secrecy Act of 1970 unless there are indications that the funds were illegally obtained. 
That deposit practice, called structuring, may be linked to organized crime, drug dealers, and terrorism, Koskinen told the House Ways and Means Oversight Subcommittee. In each forfeiture case, the IRS prepares a search warrant for review by the appropriate U.S. attorney's office, he said. The warrant must then be approved by a federal judge before a seizure can take place, he noted. 
* * * *
The IRS conducted 146 civil asset forfeitures in fiscal 2014, accounting for about 5 percent of the workload of the IRS Criminal Investigation division, Koskinen said. The median value of assets seized was less than $34,000, Rep. Patrick Meehan, R-Pa., said, though the commissioner said the average is well over $100,000. In 60 percent of forfeitures, Koskinen added, no taxpayer challenged the IRS seizure, suggesting the depositor was probably involved in some illegal activity. 
"We came up with the decision that the right balance between law enforcement and trying to protect taxpayers was, when there was no evidence that the funds were from illegal sources, there would be no seizure," Koskinen said. The new policy has been communicated to IRS agents, and appropriate changes will be made to the Internal Revenue Manual by the end of the first quarter of 2015, he added. 
Following Koskinen's remarks, the subcommittee heard from angry small business owners who said their companies were hobbled or threatened with closure after the IRS seized their bank accounts claiming they had repeatedly made bank deposits of less than $10,000 to avoid reporting requirements under the Bank Secrecy Act.


  1. I am somewhat confused. I had understand that the actual structuring law (ie, 31 USC 5324) does not provide for confiscation of the account and that it requires the IRS to prove actual guilt before imposing any criminal sentence. Whereas here, I understand the IRS is saying it will no longer file a civil action against the property itself on the basis that it is forfeitable under applicable statutes. I would have thought the decision to file such an action would sit squarely in the discretion of the IRS/DOJ...

  2. Guest Esq.

    That is not just any old article, but DOJ's principles of Federal Prosecution of Business Organizations. This does offer good insight into the prosecutorial discretion brought to bear in considering criminal prosecution of organizations.

    Thanks for the link, which readers should find helpful.

    Jack Townsend

  3. Jack,
    This may be more a policy point, but it seems to me to be the elephant sitting in the room that runs through the comment section of every one of your blog posts regarding Swiss and
    HSBC shenanigans: US hypocrisy.

    While having absolutely no sympathy for UBS, HSBC, CS or any others--indeed recidivist many times over and counting--it seems more than a little hypocritical for the US to go after UBS because of "bearer bonds" when, for example, the US protects foreign (non-US) criminals and their related money-laundering and tax evasion from exposure and prosecution by allowing them to use anonymous LLCs to hold expensive Manhattan real estate without question to hide nefarious conduct.

    The NYT is carrying a series of excellent investigative reports on the topic. Here's the link:

    Substantively using anonymous LLCs to hold expensive real estate is indistinguishable from the
    bearer bonds controversy, except for the important difference is in the former money flows into the US with the US turning a blind eye to its dirty provenance, while we persecute our own citizens for technical money outflows, arguably far less egregious conduct.

    Why has Treasury not introduced the anti-money laundering "Know Your Customer" regs for
    real estate transactions, in effect allowing the US to be a center for money laundering? Is the US actively condoning non-US tax evasion and money laundering? Seems so, begging the question why. Our principles should and must be uniformly applied, not selectively; otherwise it looks an awful lot like the school-year bully up to his tricks. Is the US selectively protecting some while persecuting others (who are often not in a position to properly defend themselves).

    Hard to reconcile certainly and deeply undermining of US credibility on tax issues I suggest.

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