The first half of Super Bowl XX between the Chicago Bears and New England Patriots is painful to watch, for everyone except die-hard fans of Da Bears. Chicago looked like it was playing fifteen guys on defense, and all of them were at or near the line of scrimmage.
Several weeks earlier, the Miami Dolphins provided the perfect blueprint for beating the seemingly un-beatable Bears: quick passes to outside receivers. But New England quarterback Tony Eason kept employing slow-developing pass plays to backs and tight ends. The result wasn’t pretty. For some reason, New England coach Raymond Berry eschewed a fundamental principle in offensive football tactics, to-wit, “take what the defense gives you.”
In discussing the indictment of former House Speaker Dennis Hastert, and specifically the seemingly superfluous charges of evading cash reporting requirements, a former Treasury Department prosecutor used similar language. According to Peter Djinis, “the most attractive route to take when you can’t prove the underlying crime is to go with the activity that’s in front of you.” In this case, that activity was a violation of 31 USC 5321(a)(4) – structuring transactions to avoid the reporting requirement.
The Bank Secrecy Act
In 1969, General William Westmoreland confidently announced that the country had “turned the corner” in Vietnam. Just a few months later, Charlie launched his massive Tet Offensive. Congress felt the sting of betrayal and was in no mood for more secrets. It was this climate that produced the Bank Secrecy Act of 1970, with its key requirement that any cash transaction of more than $10,000 must be reported.
$10,000 in 1970 is the rough equivalent of $90,000 in 2015. When the law was passed, only guys who wore fedoras and had surnames that ended in vowels would have made cash transactions of that size. Today, not so much. Moreover, Congress added to the requirements over time, first in 1986 and again in 1992, when the aforementioned Mr. Hastert was behind the wheel.
As a result, the internet is full of horror stories about people who deposited sums under $10,000 and were subsequently charged with willful evasion of the reporting requirement. Given the relatively low monetary threshold ($10,000 is the weekly gross receipts for many SMBs) and low standard of proof, many people are understandably nervous when they walk to the teller’s window.
Elements of the Offense
Essentially, the government must prove both knowledge of the law and intent to circumvent the requirement, and prosecutors nearly always use circumstantial evidence.
- Knowledge: Typically, there is direct notice, either via a 1052 letter or an “educational visit” from a friendly revenue agent. Indirect notice includes industry knowledge, previously-filed reports, or college courses in finance, accounting, and related fields.
- Willfulness: Multiple transactions within a short period of time is probably the biggest red flag; since none of these key terms are really defined anywhere, a jury can basically draw its own conclusions. Failure to maintain records is something of a dark pink flag.
The maximum penalty is five years’ imprisonment plus civil forfeiture of the deposit or withdrawal.
Besides the anti-money laundering angle, there is an income tax angle to the BSA. Large cash transactions that are unreported to the Treasury Department almost certainly never show up on a 1040.
One option is to close your business, join a monastery, and take a vow of poverty, but that’s more of a fallback plan for most people.
Don’t try to outsmart the T-men by splitting your $8,000 weekly deposit into two or three little chunks. Such behavior is clear indication of willfulness and will most likely be Exhibit A in the government’s indictment.
In fact, you may want to do the opposite. If you have nothing to hide, and I do mean absolutely nothing, keep the cash in the safe an extra couple of days, make a $10,000 deposit, and file the report. But most of us have at least one skeleton in the closet or otherwise want to avoid the Service’s spotlight. In that instance, make deposits at irregular intervals.
In either event, at the first sign of trouble, call an attorney. The sooner I know about the problem, the sooner I can help.