Despite provisions of currency reporting and the crime of structuring in the US Bank Secrecy Act, 1970 (BSA) neither the implementers nor the law enforcement agencies noted the importance of the measures; it was after passing of US Patriot Act, in 2001 that the law enforcement agencies started making use of this important tool.
The downfall of one of the New York Governor was duet to a bank reporting statement namely, SAR.1 It may be noted, BSA requirements make it difficult to legalise the crime proceeds. Many observers state, the government is still under utilising the information it possesses. In this perspective, the future of record keeping and reporting requirements of the BSA acquires an important role.
The crime of structuring is the outcome of over centralisation of the state, and hence chances are there for the misuse of legal provisions. The existing requirements of record keeping and reporting include: Cash Transaction Report2 (CTR) and where the amount exceed $10000, the financial institution must report the transaction. Each year over 16 million CTRs are filed. The completion of CRT requires the filer to report information that a money launderer or tax evader would not like to reveal. In addition to certain specified traders and businesses others are required to divulge information.3 The 8300 form has four parts, the first part requires identity of the person, the second part requires on whose behalf the transaction was conducted, the third part requires description of the transaction and the fourth part requires information about the participating business in the transaction. Where the trade or business feels that customer is evading information, he is required to file form 8300 indicating that transaction is of suspicious in nature. Initially form 8300 was part of tax code, but in 2001, US congress effectively detached it from tax code, and non disclosures under the said form are now part of BSA.
Where more than 10000$ are being transported, mailed or shipped, the relevant business is under an obligation to file FinCEN form 105 which used to be customs form 4790. This requirement is known as CMIR, and it places obligation directly on public at large. In FY 2007-08, 177,000 CMIR were filed. FinCEN form 105 has also four parts, first part requires identity of person deporting or entering USA, who mails or receives U$10000 or more, part two requires information about the person on whose behalf the amount was received, the third part requires filer to identify the total amount and forth part requires the attestation of the filer under penalty of perjury.4
BSA also impose record keeping requirements in respect of purchase of negotiable instruments,5 though strictly speaking it is not a record keeping requirement. The other record keeping relates to wire transfer, where 3000$ or more are being transferred this requirement comes into play.
Since its inception in the early 1990s, the recordkeeping requirement for domestic and international wire transfers has been the subject of intense debate. Prior to 9/11, the banking industry complained about the lack of consideration which Treasury officials had given to the costs of implementing the recordkeeping requirement for wires. These objections were put on hold after 9/11 and the legislative momentum shifted against the banks. With the Intelligence Reform and Terrorism Prevention Act of 2004, US Congress authorised the Treasury Secretary to prescribe new regulations requiring financial institutions to report all cross-border wires. United States has been under increased pressure from the Financial Action Task Force (FATF) either to lower the cross-border recordkeeping threshold or to eliminate it all together. So far, the US Treasury has done neither.
However, unfolding events lead the government away from traditional money laundering enforcement and back towards BSA enforcement. First, aside from cases involving drugs, guns, and violent crime, or those that involves professional money launderers.6 Prior to November 2001, the Federal Sentencing Guidelines (Sentencing Guidelines) meted out far more serious punishment for a § 1956 or § 1957 offense than for the underlying offense that generated the laundered funds. In November 2001, the Sentencing Commission significantly narrowed this sentencing disparity, especially in white collar cases where a defendant launders funds incident to committing the underlying criminal violations.
In United States v. Santos,7 the term "proceeds,"8 was interested to refer to "profits" as opposed to "gross receipts." Santos had a short shelf life.9 However, the US Congress tempered its rejection of Santos with the statement that the Department of Justice should not charge money laundering on facts similar to those presented in Santos. Thus, both Santos and US Congress's reaction to it have forced the government to rethink its assumptions about the reach of §§ 1956 and 1957. The practical consequence of these two developments ie; Sentencing Guideline reforms and Santos decision meant that §§ 1956 and 1957 are no longer the favoured prosecutorial tools that they once were.
Setbacks for the government in the area of traditional money laundering prosecutions10 added momentum to policy shifts. Consequently Title III of the PATRIOT Act included a number of significant reforms to the BSA. With the passage and implementation of these reforms, financial institutions bore both the added compliance costs and added scrutiny. Beginning in September 2002, the government returned to enforcing the BSA requirements aggressively, particularly the requirement that banks file suspicious activity reports disclosing crimes such as structuring.
There exist approximately 95 SAR review teams, to review SARs filed by banks, money services businesses, casinos, and other financial institutions. Structuring offenses are chief among the kinds of offenses that SAR review teams investigate. In fact, investigations into suspected structuring activity form something of a lowest common denominator.
A detection rationale underlies each of the reporting and recordkeeping requirements. In enacting the BSA, the US Congress responded to the increased use of financial institutions by those engaged in criminal activity. It expressly found that reports and records of certain financial transactions, particularly large and unusual currency transactions, are highly useful to law enforcement agencies and taxing authorities in criminal, tax, or regulatory investigations or proceedings. To assist law enforcement agencies in their efforts to combat money laundering, the financing of terrorist activities, and other crimes, US Congress did mandate the filing of CTRs, Form 8300s, and CMIRs.
Bankers have long suspected that law enforcement valued CTRs not so much because they helped to detect crime, but because they helped to deter it. In the early years of CTR filings, the banking community criticised law enforcement agencies for not using the data more actively, a task made difficult by the sheer volume of CTR filings.
On the other hand analysts have identified a strong link between, terrorist subjects and CTR and other BSA filings. A new rationale for reporting and recordkeeping requirements is emerging in the fine print of recent government reports. Increased public awareness of the BSA has effectively deterred large currency transactions in, and cross-border movements of, criminally-derived funds. Curtailing the flow of illicit funds is itself a worthy policy objective, and is one that underlies the money laundering statutes.11
Things changed in 1985, that February, the Bank of Boston pleaded guilty to and was fined $500,000 for violations of the Bank Secrecy Act. In the course of that criminal proceeding, the public learned that that Bank of Boston had exempted a known criminal organisation from the CTR filing requirements.12
Thus, one key issue that divided the Tobon-Builes and Anzalone lines of cases was the distinction between "imperfect" and "perfect" structuring. Imperfect structuring occurs when one transacts and structures currency transactions in an attempt to evade a currency transaction report, but the transactions, when aggregated, nonetheless triggers a financial institution's duty to file a CTR. Perfect structuring, in contrast, occurs when one structures currency transaction in such a way as to never trigger the bank's CTR filing obligation.
US Congress addressed the problem of structuring,13 and, in particular, addressed the emerging distinction between perfect and imperfect structuring. It did so by enacting an anti-structuring statute.14 To address the problem of "imperfect" structuring, US Congress forbade15 the act of causing or attempting to cause the non-filing of a required report, effectively adopting an aider and a better theory of liability against those who conduct transaction cause or attempt to cause a bank to fail to file a CTR.
US Congress also amended § 5324 to prohibit structuring as a means of evading certain recordkeeping and reporting requirements. In 1992, US Congress amended § 5324(a) to make it a crime to structure financial transactions to evade the reporting and recordkeeping requirement relating to the cash purchase of cashier's checks and similar instruments in amounts of $3000 or greater. In 2001, US Congress expanded the reach of § 5324(a) again by prohibiting structuring to evade the recordkeeping requirement relating to wire transfers in amounts of $3000 and greater.
The prohibitions apply to persons transporting large sums of currency into and out of the United States, including those individuals structuring cash amounts between different travellers to evade a CMIR filing.16
The criminal penalty provisions for violations of the BSA were originally codified17 which in proscribed misdemeanour provided for penalties for any person who wilfully violates any provision of the BSA.18 In the mid-1980s, US Congress abandoned the misdemeanour/felony dichotomy of former law in favour of the felony/aggravated felony dichotomy that exists today.19
The crime of structuring takes place by evading a CTR.20 "Imperfect" structuring happens when a dealer of money attempts to defeat a financial institution's reporting or recordkeeping requirement in a transaction or series of transactions that nonetheless implicate that duty.21 Structuring occurs when a person "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, in any manner, for the purpose of evading the reporting requirements.22
The key to understanding the difference between imperfect and perfect structuring is the aggregation rule. For purposes of CTR filings, bank and nonbank financial institutions have a duty to aggregate multiple cash transactions made in a single business day on behalf of the same person, even if made at different branches, and even if made into or out of different accounts of the same person.
A structuring has manifold elements, and these elements include multiple currency transactions in different financial institutions.23 However, the state has to prove that the accused knew the all of evading of reporting or record keeping.
In structuring cases direct evidence includes: i) admissions; ii) teller conversations; circumstantial evidence includes, prior experience inferring knowledge, intent based on pattern and purposes of high dollar case transaction.24
Structuring cases involve many issues such as: lawful source of structured funds; difference between legitimate and illegitimate funds, identifying the unit of prosecution.
Generally, in defence, the following propositions are raised: mistaken identity, bank policy defence, advice of counsel defence, and constitutional challenges.
In such cases sentencing is based on the level of offence such as base level, specific offence, and safe harbour provisions; in addition there are other forms of sanctions such as, asset forfeiture, tracing etc. However, these are issues in forfeiture such as protection under excessive fines clause, alternative pre-trial restraint theory and civil penalty enforcement. But the central premise of the BSA in structuring cases requires a renewed emphasis on all these efforts.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates)
1. Suspected Activity Report.
2. Cash Transaction Report or CTR is filed under FinCEN Form 104 and 103.
3. For example a person involved in trade or business who receives cash worth more than $10000 has to reveal the information required by form 8300.
4. In addition there is requirement to file SAR, and it often reports suspected structuring.
5. Under 31 USC 5325.
6. Prosecutions for violations of 18 USC §§ 1956 and 1957 are not what they used to be.
7. US v Santos, 397 US 46.
8. As defined under 18 USC § 1956.
9. US Congress rejected the Santos holding in the Fraud Enforcement and Recovery Act, enacted in May 2009.
10. Under §§ 1956 and 1957.
11. Particularly 18 USC § 1957.
12. That event led to US Congressional hearings in April 1985 that awakened the banking community and their regulators to the need to enforce BSA requirements.
13. In the Money Laundering Control Act of 1986.
14. 31 USC § 5324.
15. See § 5324 (a)(1).
16. Subsection 5324(c)(3) proscribes structuring to evade a CMIR.
17. 31 USC §§ 1058 and 1059.
18. Section 1059, in turn, proscribed felony penalties for certain aggravated violations, including serial misdemeanour violations.
19. What was formerly punished as a misdemeanour under former § 1958 was, after legislative amendments in 1984, made punishable by a five-year term of imprisonment and a fine of $250,000.
20. Evading a CTR under subsection 5324(a)(3) termed "perfect" structuring, occurs when an individual structures cash transactions in such a way that the transactions, taken together or apart, never implicate the financial institution's duty to file a report or keep a record. Perfect structuring typically involves one of two fact patterns.
21. See subsection 5324(a)(1).
22. Though the regulation defining structuring is not essential to the enforcement of § 5324, it has nonetheless been relied upon by courts in defining the reach of § 5324.
23. Financial institutions include a domestic financial institution and knowledge and intent.
24. However such cases are fraught with many challenges such as pattern being retied must be very strong and Trier of facts must be wary while relying on a strong pattern.
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