US Bank Secrecy Act of 1970: Currency reporting and crime of structuring

Despite provisions of currency reporting and the crime of structuring in the Bank Secrecy Act, 1970 neither the implementers nor the law enforcement agencies noted the importance of the measures. It was after the passage of the US Patriot Act, in 2001 that the law enforcement agencies started making use of this important tool. In fact, one of the New York Governors fell due to a bank reporting statement namely, SAR and its importance re-emerged. BSA requirements make it difficult to legalise the crime proceeds. The available information is still being under-utilised. The future of record-keeping and reporting requirements of the BSA is very noticeable and important.

The crime of structuring is the outcome of over centralisation of the state powers, and hence chances are there for the misuse of existing legal provisions. The reporting requirements under the Bank Secrecy Act include: Cash Transaction Report (CTR).1 The completion of CRT requires the filer to report information that a money launderer or tax evader would not like to reveal. In addition, certain specified traders and businesses are required to divulge information to be reported.2 This 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 business participating in the transaction. Where the trade or business feels that customer is evading information, and then he is required to report the information.3

Where more than US $10,000 are being transported, mailed or shipped, the relevant business is under an obligation to report.4 This reporting places an obligation directly on public at large. This form 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. In addition, there exists requirement to file SAR, and it often reports suspected structuring.5

The other record-keeping requirements relate to wire transfer, and a transfer of US $3,000 or more is required to be reported. The record-keeping requirement for domestic and international wire transfers has been the subject of intense debate.6 Prior to 9/11, the US banking industry complained about the costs of implementing the record-keeping requirement for wires. These objections were put on hold after 9/11, and the legislative momentum shifted against the banks. The US Congress authorised the Treasury Secretary to prescribe new regulations requiring financial institutions to report all cross-border wires after submitting a feasibility report to the Congress.7 The United States had been under increased pressure from the Financial Action Task Force (FATF) either to lower the cross-border recordkeeping threshold or eliminate it all together.8

Aside from cases involving drugs, guns, and violent crime, or those that involve professional money launderers, there were limited prosecutions.9 Prior to November 2001, the Federal Sentencing Guidelines (Sentencing Guidelines) meted out far more serious punishment for a section 1956 or section 1957 offence than for the underlying offence 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.

The term “proceeds,”10 was explained by the US Supreme Court. According to the court the said term refers to “profits” as opposed to “gross receipts.”11 Santos case had a short shelf life; Congress rejected the said case.12 The events forced the government to rethink its assumptions about the reach of sections 1956 and 1957.13

Setbacks for the government in the area of traditional money laundering prosecutions under sections 1956 and 1957 merely added momentum to policy shifts that were already underway. In Title III of the US PATRIOT Act, a number of significant reforms to the BSA were made. 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 are now approximately ninety-five SAR review teams, to review SARs filed by banks, money services businesses, casinos, and other financial institutions. Structuring offences are chief among the kinds of offences that SAR review teams investigate. In fact, investigations into suspected structuring activity form something of the lowest common denominator.

A detection rationale underlies each of the reporting and record-keeping requirements. In enacting the BSA, the Congress responded to the increased use of financial institutions by those engaged in criminal activity. Various investigative reports found that 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.14

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.15

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.16

In 1985 the Bank of Boston pleaded guilty to and was fined US $500,000 for violations of the Bank Secrecy Act. The public learned that that Bank of Boston had exempted a known criminal organisation from the CTR filing requirements. That event led to Congressional hearings in April 1985 and the events awakened the banking community and their regulators and they realised that how important it was to enforce BSA requirements.

Imperfect structuring occurs when one transacts structured currency transactions in an attempt to evade a currency transaction report, but the transactions, when aggregated, nonetheless trigger a financial institution’s duty to file a CTR obligation. Perfect structuring, in contrast, occurs when the stricter of transaction his/her currency transactions in such a way as to never trigger the bank’s CTR filing obligation.17

These developments set the stage for legislative action,18 Congress addressed the problem of structuring, and, in particular, addressed the emerging distinction between perfect and imperfect structuring.19

Congress also amended20 section 5324 to prohibit structuring as a means of evading certain recordkeeping and reporting requirements. In 1992, Congress amended section 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 US $3,000 or greater. In 2001, Congress expanded the reach of section 5324(a) again by prohibiting structuring to evade the recordkeeping requirement relating to wire transfers in amounts of US $3,000 and greater.21

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.22 In the mid-1980s, Congress abandoned the misdemeanor/felony dichotomy of former law in favour of the felony/aggravated felony dichotomy that exists today. What was formerly punished as a misdemeanor under former section 1958 was, after legislative amendments in 1984, made punishable by a five-year term of imprisonment and a fine of $250,000.

The crime of structuring to evade a CTR under subsection 5324(a)(3) 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:

“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.23 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. Though the regulation defining structuring is not essential to the enforcement of section 5324, it has nonetheless been relied upon by courts in defining the reach of section 5324.

The key to understanding the difference between imperfect and perfect structuring is the aggregation rule. For purposes of CTR filings, bank and non-bank 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 four elements, and these elements include multiple currency transactions in different financial institutions, financial institutions include a domestic financial institution and knowledge and intent. For establishing such cases direct evidence is needed and this evidence include: i) admissions; ii) case pull back and teller conversations; and circumstantial evidence includes, prior experience inferring knowledge, intent based on pattern and purposes of high dollar case transaction. However such cases are fraught with challenges such as pattern being retied must be very strong and Trier of facts must be wary where the state relies on a strong pattern.24

In defence of such cases, generally the propositions raised are: mistaken identity, bank policy defense, advice of counsel defense, and constitutional challenges. Sentencing in such cases is based on the level of offence such as base level, specific offence, safe harbour provision in addition there are other forms of sanctions such as, asset forfeiture, tracing. However, there are issues in forfeiture such as protection under excessive fines clause, alternative pre-trial restraint theory and civil penalty enforcement.

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates, Karachi) 1. Filed under FinCEN Form 104 and 103, where the amount exceeds $10000, the financial institution must report the transaction. Under the system it is estimated that each year 16 million CTRs are filed.

2. Under form 8300 a person involved in trade or business who receives cash worth more than $10000 has to reveal the information required by submitting form 8300. 3. While submitting form 8300, the filer has to indicate that transaction is suspicious in nature and non disclosure creates liability under Bank Secrecy Act, 1970.

4. The business is required to file FinCEN form 105, previously it used to be Customs Form 4790, this requirement is known as CMIR. It is reported that during 2007-08 177000 CMIR were received.

5. BSA also impose record keeping requirements in respect of case purchases of negotiable instruments under 31 USC 5325, though strictly speaking it is not a record keeping requirement.

6. Since its inception in the early 1990s.

7. See provisions of Intelligence Reform and Terrorism Prevention Act, 2004.

8. So far the treasury has done nothing.

9. See 18 USC §§ 1956 and 1957.

10. Under USC § 1956.

11. US v Santos, 553 U.S. 507 (2008).

12. See the Fraud Enforcement and Recovery Act, 2009: However, 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.

13. The practical consequence of these two developments-Sentencing Guideline reforms and Santos-is that §§ 1956 and 1957 are no longer the favoured prosecutorial tools that they once were.

14. To assist law enforcement agencies in their efforts to combat money laundering, the financing of terrorist activities, and other crimes, Congress has mandated the filing of CTRs, Form 8300s, and CMIRs.

15. Analysts have identified a strong link between, terrorist subjects and CTR and other BSA filings.

16. More particularly 18 U.S.C. § 1957.

17. Money Laundering Control Act of 1986 was enacted.

18. It did so by enacting an anti-structuring statute, 31 U.S.C. § 5324. To address the problem of “imperfect” structuring, Congress forbade in § 5324(a)(1) 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.

19. 31 USC § 2324.

20. Id.

21. Section 5324(c)(3) of 31 USC proscribes structuring to evade a CMIR.

22. The criminal penalty provisions for violations of the BSA were originally codified in 31 U.S.C. §§ 1058 and 1059. Section 1058 proscribed misdemeanor penalties for any person who wilfully violates any provision of the BSA. Section 1059, in turn, proscribed felony penalties for certain aggravated violations, including serial misdemeanor violations.

23. “Imperfect” structuring, has been defined under subsection 5324(a)(1)

24. Nevertheless, structuring cases involve many issues such as: lawful source of structured funds; difference between legitimate and illegitimate funds, identifying the unit of prosecution