The Currency and Foreign Transactions Reporting Act of 1970, referred to as the Bank Secrecy Act, requires U.S. financial institutions to file reports of currency transactions exceeding $10,000.

Title 31 of U.S. Code Section 5324(a) states that no person shall, for the purpose of evading the reporting requirements, cause or attempt to cause a U.S. financial institution to fail to file a report required or structure.  Whoever violates the structuring law can be fined, imprisoned, or both.  Any property involved in violation of this law may be seized and forfeited.

In October 2014, a new policy was instituted by IRS Criminal Investigation (CI) that it would no longer pursue the seizure and forfeiture of funds related to legal source structuring.

In the same month the policy changed, the New York Times reported that CI had been seizing funds in structuring investigations without filing a criminal complaint.  Property owners were left to prove their innocence, and many gave up trying.  This audit by the Treasury Inspector General for Tax Administration (TIGTA) was initiated to evaluate the IRS’s use of seizures against property owners suspected of structuring transactions to avoid Bank Secrecy Act reporting requirements.

The audit found that most of the seizures for structuring violations involved legal source funds from businesses.  While current law does not require that the funds have an illegal source (e.g., money laundering or criminal activity other than alleged structuring), the purpose of CI’s civil forfeiture program is to interdict criminal enterprises.  As a result, $17.1 million was seized and forfeited to the Government in 231 legal source cases.  CI primarily relied on patterns of banking transactions to establish probable cause to seize assets for structuring violations.

In most instances, interviews with the property owners were conducted after the seizure to determine the reason for the pattern of banking transactions and if the property owner had knowledge of the banking law and had intent to structure.  CI procedures required agents to give subjects advice of rights in Title 26 cases (i.e., Internal Revenue Code) but not in Title 31 cases.  In only five of the 229 interviews conducted, noncustodial statements of rights, such as the right to remain silent, were provided.

For 54 investigations, the property owners provided realistic defenses or explanations, and for 43 of those cases, there was no evidence they were considered by CI.  In 202 interviews, the property owners were not adequately informed of important information, such as the purpose of the interview, by CI during the interview.  The outcomes for legal source cases lacked consistency.  In 37 investigations, the Government appeared to have bargained non-prosecution to resolve the civil case.

CI also needs to improve its process for identifying grand jury information, the audit concluded.

TIGTA recommended that the Chief, CI, establish controls to ensure that CI is selecting cases that meet the IRS’s goals and policies, return funds forfeited from legal source cases with no illegal activity, ensure that reasonable explanations are considered when interviews are conducted, ensure appropriate referrals to IRS’s Examination function, and improve the process for designating grand jury information.

In response to the report, CI agreed with and implemented changes for five of the nine recommendations and partially agreed with another.  CI disagreed with establishing guidance on bargaining non-prosecution and procedures that strive for fair and consistent outcomes, and did not agree to improve its grand jury information designation process.

To view the report, including the scope, methodology, and full IRS response, go to:
https://www.treasury.gov/tigta/auditreports/2017reports/201730025fr.pdf.