Bank Deposits, Structuring, and Asset Forfeitures

Stephen J. Dunn
Contributor
Apr 19, 2014,02:29pm EDT
This is a version of an article originally published in the Winter 2014 issue of the White Collar Crime Committee Newsletter, Criminal Justice Section, American Bar Association. For the original article, including full legal citations, click here.

A business receives a call from its bank that the IRS has seized all of the business’ funds on deposit at the bank. Cash needed to operate the business—and pay outstanding checks—is suddenly gone. The business received no advance notice that the government was targeting its bank accounts. Such seizures of business bank accounts are occurring with increasing frequency.

The Bank Secrecy Act, 31 USC § 5313(a), provides that when a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments as the Secretary of the Treasury prescribes), in an amount or denomination, or under circumstances as the Secretary prescribes by regulation, the institution and any other participant in the transaction as the Secretary may prescribe shall file a report of the transaction at the time and in the way the Secretary prescribes.

Regulations require each financial institution to file a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of $10,000 or more, except as otherwise provided by the regulations. Multiple currency transactions shall be treated as a single transaction if the financial institution has knowledge that they are by or on behalf of any person and result in either cash in or cash out totaling more than $10,000 during any one business day. “Financial institution” includes all of the institution’s domestic branch offices. It also includes any recordkeeping facility, wherever located, containing records relating to the financial institution’s domestic offices. A required report must be filed by the financial institution with the Internal Revenue Service within 15 days after occurrence of the reportable transaction.

31 USC § 5324(a) provides that no person shall, for the purpose of evading the reporting requirements of § 5313(a) or any regulation thereunder, cause or attempt to cause any domestic financial institution to fail to file a report required by § 5313(a) or any regulation thereunder, or structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions. “Structuring” for this purpose means arranging one’s cash banking transactions with specific intent to evade the currency transaction reporting requirements of 31 USC § 5313(a) and regulations thereunder. An example of structuring would be a business with cash of $17,000 to deposit, breaking it into two deposits, one of $9,000 and the other of $8,000, with specific intent to evade the bank’s currency transaction reporting requirement.

If a depositor appears to breaking its deposits into amounts less than $10,000, the bank must also report such “suspicious transactions” to the U.S. Treasury. IRS agents will then review the account and, if they conclude that the depositor has engaged in structuring, obtain a warrant and seize the account balance.

It is not enough that a depositor arranges cash deposits in amounts less than $10,000. To structure, the depositor must arrange cash deposits in amounts less than $10,000 with specific intent to evade the bank’s currency transaction reporting requirement. It is not structuring, for example, if a depositor keeps its cash bank deposits under $10,000 on the mistaken belief that by doing so the depositor avoids a reporting requirement that it would otherwise have.

Congress enacted 31 USC §§ 5317 and 5324 as part of the Omnibus Drug Act of 1986. The legislative history of the Omnibus Drug Act of 1986 makes clear that Congress intended the that Act as a weapon in the war on drug trafficking. But the government is applying §§ 5317 and 5324 beyond the bounds intended by Congress, where there is no drug trafficking, as if structuring alone were a forfeitable offense.

To curtail the unbounded forfeiture authority asserted by the government, and to provide procedural safeguards for the lawful exercise of forfeiture authority, Congress passed 18 USC §§ 983 and 984 as part of the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”). The legislative history of the CAFRA makes clear that Congress intended the civil asset forfeiture authority of 31 USC § 5317(c)(2) as a weapon in the war on drug trafficking. 18 USC § 983(a)(3)(A) specifically mentions “the underlying offense.”

After seizing bank accounts under asserted authority of 31 USC § 5317(c)(2), IRS special agents typically inquire about the depositor’s income tax returns. This is an absolute abuse of the forfeiture authority. Congress has provided elaborate due process for the assessment or collection of taxes. IRS special agents charged with enforcing the Bank Secrecy Act have no authority to access tax information without the taxpayer’s consent. They request such consent by asking the taxpayer to sign Form 8821, Tax Information Authorization. A taxpayer should never sign Form 8821.

A 31 USC § 5317(c)(2) seizure can apply to bank deposits, but not to withdrawals, as the property allegedly “involved in the violation” of § 5324(a)—the withdrawn funds—is no longer in the account.

Initial Meeting With Client

The client should be asked to bring to the initial meeting any and all documents they have concerning the matter. This would include the pertinent bank statements, as well as a Notification of Law, if the special agent issued one. A Notification of Law is a document informing a depositor of the law against structuring, and that the government may seize a bank account balance believed to be involved in structuring. Sometimes the IRS issues a Notification of Law to a depositor before seizing its bank balances, and sometimes it does not, e.g., United States v. $255,427.15 in U.S. Currency, 841 F. Supp. 2d 1350, 1357 (S.D. Ga. 2012), and sometimes it does not. E.g., United States v. Funds from Fifth Third Bank Account, 2013 U.S. Dist. LEXIS 157447 (E.D. Mich. 2013).

Before the initial meeting, an informal claim should be drafted, to be finalized and signed at the initial meeting. A claim need not take any particular form. A claim shall—

(i) identify the specific property being claimed;

(ii) state the claimant’s interest in such property; and

(iii) be made under oath, subject to penalty of perjury.

An informal claim should satisfy the above three requirements.

At the initial meeting—

The client should be asked why they made deposits as they did. For example, a grocery store’s insurance policy covered cash only up to $10,000. The bank was across the street, and the store made frequent bank deposits, never allowing more than $10,000 cash to accumulate.
The client should also be asked if they were aware of the law against structuring. For example, a proprietor of Chinese restaurants was under the mistaken impression that if she deposited more than $10,000 in cash at one time, she would have a obligation to file a report with the government. Filling out a bank transaction report in English can be a formidable challenge to an individual who is not a native English speaker.
The client should be asked if they received any warning from the government that the client’s bank balances might be seized. Sometimes such warning comes in the form of a Notification of Law.
The client should be asked if they are able to pay for legal representation in pursuing recovery of the seized funds. Realistically, a claimant will incur $50,000-$100,000 in attorney fees and costs litigating to recover seized funds. The client needs to understand that there is no guarantee of success. If the client is unable to finance the litigation, a public interest law firm such as the Arlington, Virginia-based Institute for Justice, may be willing to take on the case for attorney fees they may be able to recover from the government.
An informal claim for return of the seized property should be finalized, and then signed by the claimant.
Informal Claim

Immediately after the initial meeting with the client, an informal claim should be filed for the client. The claim should be filed by FedEx, UPS, or USPS Priority Mail; USPS certified mail is unreliable. The filing of an informal claim starts running the 90 days in which the government must file a complaint for forfeiture.

The filing of an informal claim is critically important. In United States v. Funds from Fifth Third Bank Account, 2013 U.S. Dist. LEXIS 157447 (E.D. Mich. 2013), the government filed its complaint for forfeiture on the 91st day after the guard at the entrance of the IRS processing facility signed a USPS certified mail receipt for the claimant’s formal claim. The Court rejected the government’s argument that the claim was not filed not when the guard signed for it, but two days later when it arrived at the office of the IRS forfeitures coordinator. The Court said that whether the complaint for forfeiture was timely filed would have been a close question but for the fact that the complaint was filed 127 days after the IRS guard had signed a USPS certified mail receipt for the claimant’s informal claim.

Time

Within 60 days after seizing property, the government must send written notice of the seizure to interested parties, except that the government need not provide such notice if within the 60 days the government commences a civil asset forfeiture proceeding concerning the property, or obtains an indictment containing an allegation that the property is subject to forfeiture. If the government does not timely send such written notice, and the court does not grant an extension of time for sending it, then the seized property shall immediately be returned to the person from whom it was seized, without prejudice to the government’s right to commence a forfeiture proceeding at a later time, except that the government need not return contraband.
A person may file a written claim to the property by the deadline set forth in the letter informing the person of the seizure, except that such deadline may not be earlier than 35 days after the date the letter is mailed. A person not having received such a letter may file a claim within 30 days after publication of final notice of the seizure.
Not later than 90 days after a claim is filed, the government shall file a complaint for forfeiture in the U.S. District Court, or return the property pending the filing of a complaint, except that the U.S. District Court in which the complaint will be filed may extend the time for good cause or upon agreement of the parties. It is inconceivable that a party would agree to extend the time for filing a complaint. A motion to extend time must be filed before the initial 90-day period expires. United States v. Funds from Fifth Third Bank Account, 2013 U.S. Dist. LEXIS 157447, at *23.
An action to forfeit property not traceable to the alleged offense may not be commenced more than year after the date of the alleged offense. For example, assume that on November 28, 2012 the government seizes $135,000 from a business’ bank account for alleged structuring of cash deposits. Further assume that on April 18, 2013, the government files a civil forfeiture action as to the $135,000. Investigation reveals that in the year preceding April 18, 2013, cash deposits to the account totaled only $100,000. The government’s civil forfeiture action can apply to only the $100,000 deposited into the account in the year preceding April 18, 2013. The remaining $35,000 must be immediately distributed to the account owner.
Hardship Distribution

If continued possession of the seized property pending final disposition of the forfeiture proceedings will cause substantial hardship to the claimant, such as preventing the functioning of a business, preventing an individual from working, or leaving an individual homeless, and the claimant satisfies the other conditions of 18 USC § 983(f), the claimant is entitled to distribution of the seized property to alleviate the hardship. If the government does not release the property within 15 days after the claimant requests a hardship distribution, the claimant may petition the U.S. District Court for a hardship distribution. The District Court must issue a decision on a hardship petition within 30 days after the petition is filed.

Affirmative Defenses

In answering the complaint for forfeiture, affirmative defenses considered by claimant’s counsel should include:

Failure to state a claim upon which relief can be granted. Complaints for forfeiture I have seen fail to aver the mens rea necessary for a seizure and forfeiture under 31 USC § 5324(a).
The complaint for forfeiture was filed beyond the 90 days allowed by 18 USC § 983(a)(3)(A), (B).
The law providing for civil asset forfeitures, 31 USC § 5317(c)(2), does not apply where, as here, there is no drug trafficking.
Executed without notice or an opportunity to be heard afforded to the claimant, the seizure(s) deprived the claimant of property without due process of law, in violation of the Fifth and Fourteenth Amendments to the United States Constitution.
The seizure(s) in controversy violated the Eighth Amendment Excessive Fines Clause.
The seizure of fungible property such as money is not lawful to the extent it exceeds deposits to the claimant’s bank account made within one year before the filing of the complaint for forfeiture.
Judicial Claim

The claimant must file a claim for the seized property with the court in which the case in pending. The claim must:

(A) identify the specific property claimed;

(B) identify the claimant and state the claimant’s interest in the property;

(C) be signed by the claimant under penalty of perjury; and

(D) be served on the attorney designated by the government.

The claim must be filed not later than 60 days after the filing of the complaint for forfeiture. See Rule (G)(5), Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions.

Discovery

The affidavit in support of the seizure warrant should be requested in discovery. The affidavits I have seen fail to allege the mens rea necessary for a seizure and forfeiture under 31 USC § 5324(a).

If the client says that they received no notice of the seizure, this should be confirmed in a request for admission. If the government says that it did provide notice of the seizure, then interrogatories and a request for production of documents should be propounded on this.

The deposition of the seizing special agent should be taken.

Beware of discovery requests from the government for the client’s tax returns and supporting records. I have even seen the government request that the claimant sign a Form 8821 authorizing the government to access IRS files on the claimant in discovery in a civil forfeiture case. As noted above, it is an absolute abuse of the government’s forfeiture authority to use that authority to enforce tax laws.

Motion for Summary Judgment

At the close of discovery, there may not be a genuine issue of material fact, and the claimant may be entitled to judgment as a matter of law under Rule 56 of the Federal Rules of Civil Procedure.

The Court granted summary judgment for the claimant in United States v. Funds from Fifth Third Bank Account, 2013 U.S. Dist. LEXIS 157447 (E.D. Mich. 2013), dismissing the case with prejudice. I represented the claimant in that case. Based upon that result, the government conceded two other forfeiture cases–United States v. $35,651.11, 2013, U.S. Dist. LEXIS 161766 (E.D. Mich. 2013), and United States v. Thirty-Three Thousand Two Hundred Forty-Four Dollars and Eighty Six Cents in U.S. Currency from TCF National Bank, No. 2:13-cv-13-13990 (E.D. Mich. 2013). I was local counsel in the latter two cases.

Attorney Fees and Costs

When the case is finally decided, whether by summary judgment or trial, a successful claimant should move to recover attorney fees and costs under 28 USC § 2465. This is especially important in achieving justice for the client, and in informing the government of the legal limits of civil asset forfeitures. The claimant was awarded all of their attorney fees and costs in United States v. Funds from Fifth Third Bank Account, 2014 U.S. Dist. LEXIS 27783 (E.D. Mich. 2014).

Conclusion

Entrepreneurs should make bank deposits as suits their business, without regard to the $10,000 floor for a Currency Transaction Report (“CRT”) under the Bank Secrecy Act. The obligation to file a CRT is upon the bank, not the depositor. Endeavoring to keep bank deposits under $10,000 needlessly subjects the deposits to risk of seizure by the federal government.