Carole Hinder owned and operated a small restaurant called Mrs. Lady’s Mexican Food in Spirit Lake, Iowa for 38 years. Like some small restaurants, she required that all her customers pay in cash. As a result, she made frequent cash deposits in her local bank to avoid having to keep large amounts of cash at her business premises. Her deposits were always for less than $10,000. To her amazement, in 2013 the IRS seized all the money in her checking account, totaling almost $33,000, claiming she had violated the federal anti-money laundering law. The IRS also informed her that it was keeping the seized money, even though it wasn’t charging her with a crime.
What’s going on?
To help prevent money laundering by criminals and terrorists, and tax evasion, banks and other financial institutions are required to report large cash transactions to the IRS. They must file FINCEN Form 104, Currency Transactions Report, whenever a person engages in cash transactions involving more than $10,000 in a single day. The report must contain the person’s name, address, Social Security number, and other identifying information. Moreover, the bank must verify the person’s identity by demanding to see a driver’s license, passport, or other valid ID.
People often try to avoid being reported to the government by breaking up their transactions into multiple amounts that are all less than $10,000. This is called “structuring” and is illegal if done to avoid the reporting requirement. It also usually doesn’t work. Multiple currency transactions must be treated as a single transaction if the bank knows that: (1) they are made by or on behalf of the same person, and (2) they result in either cash deposits or cash withdrawals totaling more than $10,000 during any one normal business day. In addition, banks and other financial institutions must file a “Suspicious Activity Report” with the IRS if they suspect someone is trying to evade the reporting rules—for example, regularly engaging in currency transactions that are just below $10,000.
A fine of up to $250,000, or imprisonment up to five years, or both, may be imposed on a person who willfully violates the anti-structuring law. (31 USC Sec. 5322(a).) However, a person must be criminally prosecuted by the government to get fined or imprisoned. As a cheaper and easier alternative, in such cases the government often files a lawsuit and gets a court order allowing it to seize the money--a process called civil forfeiture. Civil forfeiture was designed to enable the government to take money or property suspected of being involved in a crime. However, with civil forfeitures, a person can have his or her money or property permanently taken without ever being convicted of or even charged with a crime. To get the money or property back, it is necessary to intervene in the lawsuit filed by the government against their property—a costly and difficult process.
IRS investigators apparently believed that Carole Hinder was engaging in illegal structuring when they saw that she had a pattern of making frequent cash deposits of less than $10,000, so they had her money seized. However, Hinder says she knew nothing about the anti-structuring law and had no intent to evade it. Making multiple cash deposits of less than $10,000 is not illegal if there is no intent to avoid the reporting requirement.
Fortunately, Carole Hinder’s story has something of a happy ending. Her case made The New York Times ("Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required" (Oct. 25, 2014)), which pointed out that Hinder was far from the only seemingly innocent businessperson who has had money seized by the IRS. The IRS made 639 seizures in 2012. Of these, 80% were never prosecuted as criminal cases.
The resulting uproar led the IRS to announce that from now on it will seize funds in structuring cases only where there are “exceptional circumstances justifying the seizure and forfeiture”—for example, where the money involved is believed to have been acquired illegally. However, the new policy does not apply to past cases, like those of Carole Hinder. Hinder has filed a lawsuit challenging the forfeiture of her checking account. Meanwhile, legislation is pending in Congress to curtail the federal government’s civil forfeiture powers.