This post should not be considered as legal advice. This post originally appeared in the April 28th issue of the Delmarva Farmer.
A Maryland dairy’s 2012 encounter with the U.S. Department of Justice (DOJ) has made the news again. The dairy had run afoul of a Federal law designed for banks to report cash deposits over $10,000. DOJ initially seized the dairy’s bank account containing $63,000. Later, DOJ claimed that $295,220 of the dairy’s deposits had been in violation of this law. As part of settlement agreement with DOJ, the government took 10 percent, or $29,500, of the tainted deposits. Because of stories like this one, the DOJ recently announced changes to when Federal officials would be able to seize bank accounts running afoul of Federal laws related to filing currency transaction reports (CTRs).
Federal law currently requires all financial institutions to file a CTR with the Internal Revenue Service (IRS) for all transactions greater than $10,000 (31 U.S.C. § 5313 (a)). But what if you go to the bank this morning and deposit $5,000, then go to a different branch and deposit $6,000 later that day? This would be considered one transaction totaling $11,000, because Federal regulations clarify that multiple transactions in one business day are treated as a single transaction (31 C.F.R. § 1010.313).
Now consider you broke the transaction up over two days or over a span of days. This potentially would be considered “structuring” because you attempted to cause the bank to avoid filing a CTR (31 C.F.R. § 1010.314). Transactions such as these can lead to a bank filing a “Suspicious Activity Report” (SAR) (31 C.F.R. § 1020.320(a)(2)(ii)). A bank is required to file a SAR when it believes the transaction is being conducted in a way to avoid Federal reporting requirements (i.e., filing a CTR).
The U.S. Attorney General recently announced changes to how the Federal government operates the seizure of bank accounts when it comes to structuring financial transactions. The guidance applies to all civil and criminal seizures involving structuring. Under the guidance, if no criminal charges have been filed then law enforcement must have probable cause that the money was generated by an unlawful activity or that the structured funds will be used to help an illegal activity. Probable cause is apparent facts which would lead an average person to believe the accused has committed a crime.
Law enforcement can also seek a warrant to seize funds through the proper channels. The warrant would need to be approved by the respective U.S. Attorney General in the state and approved by the Chief of the Asset Forfeiture and Money Laundering Section. Once approved by these two individuals, law enforcement could seek a court to approve the warrant. If the warrant is approved and law enforcement later determines there is insufficient evidence, then the full amount of the seized money (not just a portion) has to be returned within 7 days. Once seized, law enforcement has 150 days to file either criminal charges or a civil complaint against the asset. If nothing is filed in that time period, then the full amount of the seized funds must be returned.
Along with the limits on when DOJ can seize bank accounts, the law has exemptions to CTRs for “qualified business customers” which farm producers may want to consider applying for especially if they are in a cash-heavy business. A qualified business customer would not be required to file a CTR on deposits over $10,000, but the bank would still be required to file a SAR when it believes a transaction is suspicious. The Financial Crimes Enforcement Network (FinCEN) has developed guidelines for when a business can be considered a qualified business customer. For more information on the exemptions, see http://go.umd.edu/CashStructure.
DOJ’s recent change in account seizure rules will potentially prevent another incident faced by a Maryland dairy. This rule change will limit the reach of account seizures to only those being used for criminal activities. Even with the change in seizure policy, businesses which regularly make large cash deposits should talk with an attorney or accountant about qualified business customer exemptions.