Posts Tagged ‘Structuring’

SARs Leading to Forfeiture: The IRS Oversteps

Sunday, October 26th, 2014

There have been plenty of stories on civil forfeiture recently. Two poker players had their cash seized in Iowa while driving home from a poker tournament in Illinois. They had their funds returned, but have now filed a lawsuit against the Iowa police. The IRS has also been using forfeiture. The New York Times today spotlighted the IRS using forfeiture–one example is, coincidentally, from Iowa.

For those not aware, civil forfeiture occurs when an individual’s funds are seized but the individual is not necessarily charged with a crime. The police agency involved alleges that there’s a pattern of behavior that shows that the individual’s funds are being used illegally. In the IRS’s case, this all involves Suspicious Activity Reports (SARs).

When you deposit $10,000 or more of cash, a Currency Transaction Report (CTR) is completed. A copy is sent to the Financial Crimes Enforcement Network (FINCEN). FINCEN gets so many CTRs that few are investigated.

But let’s say you want to avoid a CTR so you deposit less than $10,000. If you do that often enough, a SAR will be generated. You’re not informed when a SAR is generated. Like a CTR, a SAR is also sent to FINCEN. Most SARs are also sent to IRS Criminal Investigation. There are far fewer SARs than CTRs, and most are investigated.

The New York Times story notes the case of a restaurant owner in Iowa who had about $33,000 seized solely because she made regular cash deposits of less than $10,000. While SARs were not mentioned in the story, it’s clear that’s the cause of what happened. A SAR was generated, someone from IRS Criminal Investigation looked at the pattern and referred it to the Department of Justice; the DOJ then filed a suit to seize the money.

The only good news from the article is that the IRS is apparently going to limit the practice. In a statement made to the Times, Richard Weber, head of IRS Criminal Investigation, said the practice will be curtailed.

Unfortunately, the IRS has recently not always practiced what they preached. If you have to regularly deposit reasonable sums of cash–say, $6,000 regularly–you probably should every so often make sure one of your cash deposits is $10,000 or more so a CTR is filed. It’s better safe than sorry. And even if the IRS won’t institute civil forfeiture, there’s an alphabet soup of government agencies that still can.

One other comment I’ll make on this: Perhaps we can see some bipartisanship on an issue. I saw this issue highlighted by both the left and the right today. When Congress gets around to extenders, maybe they’ll throw something in to limit this practice.

FBI Agent Structures His Gambling Into ClubFed

Thursday, December 19th, 2013

Law enforcement officers are supposed to know the law. That’s obvious, but one former FBI agent remembered half the law about currency (cash) deposits to his regret.

Travis Wilson is a former Special Agent of the FBI. Agent Wilson liked to gamble, and played at the casinos in California, Arizona, Nevada, and West Virginia. There’s nothing wrong with that. He left the casinos some nights with more than $10,000. Agent Wilson didn’t want his superiors at the FBI to learn of his gambling habit. Of course, there’s nothing illegal about gambling. And if Agent Wilson was a poker player and kept a log, it might have made a nice supplement to his income. That said, DOJ Inspector General Michael Horowitz is correct:

When a law enforcement agent conceals ongoing gambling activity it risks creating a security vulnerability. The DOJ OIG will partner with prosecutors and other investigative agencies to ensure that such conduct does not go unchecked within the Department of Justice.

So what was Agent Wilson to do? Deposit his cash, let his superiors know about his winning gambling habits? No, that would cause Currency Transaction Reports (CTRs) to be issued, and he didn’t want them to know about the gambling. Perhaps stopping the gambling would have been a good idea. No, that didn’t happen. Well, why not make smaller deposits (less than $10,000) so that no CTR would be issued; that would stop all the problems. No CTRs and his superiors wouldn’t know.

There’s a problem here, and it’s one that Agent Wilson should have known about: 31 USC ยง 5324. That’s structuring, and that’s a felony. That’s when you deliberately make smaller deposits to evade financial reporting (such as CTRs). Banks are required to have programs in place to automatically generate Suspicious Activity Reports (SARs). You may remember that SARs led to the downfall of former New York Governor Eliot Spitzer. And that’s almost certainly what happened here.

Agent Wilson should have known about structuring. But apparently he missed that lecture at the FBI Academy; instead, he’ll get some remedial education at ClubFed. He pleaded guilty to structuring $488,000 of deposits; he’s facing up to five years at ClubFed when he’s sentenced next March. He’s also a late nominee for the Tax Offender of the Year.

Escort Service Operator Charged with Structuring

Monday, October 8th, 2012

Here in Las Vegas, escort services and strip clubs are big business. They’re also (generally) cash businesses. A joint police task force has been looking into the operations. The local police are concerned about prostitution (it is illegal in Clark County, which includes Las Vegas); federal authorities are interested in tax evasion. One local man has found himself charged with structuring.

As I’ve reported before, structuring is deliberately making cash deposits under $10,000 so as to avoid currency transaction reports. It’s a felony.

Emmanouil Varagiannis has been charged with structuring. Mr. Varagiannis is the general manager of the Olympic Garden. He’s alleged to have made 208 cash deposits totaling more than $1.8 million…all under $10,000. The structuring apparently relates to Midnight Inc.; that entity, which does business as Midnight Entertainers, is an escort service.

The news story in the Review-Journal noted that the task force continues to probe allegations of prostitution and kickbacks to cab drivers who direct customers to specific strip clubs. It is worth noting that Mr. Varagiannis has only been charged with one count of structuring and has not been charged with anything else.

Best Structuring In a Supporting Role…

Sunday, March 7th, 2010

With the Academy Awards being broadcast this evening, it’s appropriate to look at a case from the movies. Cindy Ondracek and her husband owned a drive-in movie theater in Port Orchard, Washington; they also owned another cinema in Bremerton, Washington. The businesses were successful: they generated over $2 million in gross revenues, most of this in cash.

But Mrs. Ondracek and her husband didn’t like the idea of the government getting the cash. So Mrs. Ondracek structured her deposits. She deliberately deposited less than $10,000 to avoid currency transaction reporting rules. That in itself is a felony.

Mrs. Ondracek, though, took this one better: She and her husband failed to file tax returns for the years in issue (2002 through 2005). And she can’t claim ignorance: Her bank sent her a warning letting her know about the currency reporting rules.

Mrs. Ondracek pleaded guilty to not paying tax on the more than $197,000 of income that came from the theaters. The government calculates the lost tax revenue at $68,000. Mrs. Ondracek is on the hook for that, and will likely get to visit ClubFed.

Here’s my helpful hint for any would be Structurers: If you bank sends you a notice warning you about currency transaction reporting, it’s time to either come clean or find a good attorney fast.