IRS-CI Investigations into Legal Source Structuring
As a general rule, structuring occurs when, instead of conducting a single transaction in currency in an amount that would require a report to be filed or record made by a domestic financial institution, the violator conducts a series of currency transactions, willfully keeping each individual transaction at an amount below applicable thresholds to evade reporting or recording.
Agents with IRS-CI often alleged that individuals who are “structuring cash deposits or withdrawals” might be doing so in an attempt to conceal the existence and source of the funds from the U.S. Government.
While the structuring activities violate 31 U.S.C. §5324, the activity should be treated as a possible indicator that another violation of law might have occurred.
For this reason, authorized investigative activities should be performed to determine the source of the funds and if there are other related violations of law that should be investigated prior to initiating a seizure of funds related to the criminal activities.
IRS-CI agents also investigate criminal violations of the federal anti-money laundering and Bank Secrecy statutes and partner with state, local and county law enforcement agencies through IRS-CI led Financial Crimes Task Forces (FCTFs).
Attorneys for Legal and Illegal Source Structuring Investigations
if you learn you are under investigation for legal or illegal source structuring investigations being conducted by the IRS-CI, contact an experienced criminal defense attorney at Sammis Law Firm.
We can help you understand the rules regarding the use of asset forfeiture in connection with structuring offenses.
When there is insufficient evidence to show a willful intent to structure, we might convince the prosecutor to return property seized pursuant to a seizure warrant.
We also gather evidence that might show insufficient admissible evidence to prevail at either civil or criminal trial for violations of the structuring statute or another federal crime for which forfeiture of the seized assets is authorized.
When exculpatory or mitigating evidence is presented, it might case the prosecutor to direct the seizing agency to promptly initiate the process to return the seized funds.
We help our clients fight for the return the full amount of the seized money or other valuable property.
Call 813-250-0500.
Investigations into “Illegal Source” Structuring Cases
For “illegal source” structuring cases, the IRS-CI policies remained unchanged. IRS-CI policy encourages initiating a Title 26 criminal tax investigation in cases where legal source income is suspected of being involved in alleged structuring activity.
As explained in United States v. Mounkes, 204 F.3d 1024, 1030 (10th Cir. 2000), structuring activity can be treated as an affirmative act of any of the following crimes:
- evasion under 26 U.S.C. § 7201.
- evidence of willfulness for an overt act of conspiracy (18 U.S.C § 371); or
- it may support Title 31 violations.
The 2014 IRS-CI Memo on Legal Money Source Structuring
October 17, 2014, the IRS-CI published a memorandum for special agents in charge of criminal investigations. The memo was authored by Rebecca A. Sparkman Director, Operations Policy and Support Criminal Investigation with the help of the Global Financial Crimes Director, CI Senior Staff, and CT Counsel.
The memo explained IRS-CI policy policy changes concerning seizure and forfeiture activities involving “legal source” structuring investigation.
The memo discussed changes to IRS-CI policies for Legal Source Structuring Investigation. Many of these investigations involved the IRS-CI led Financial Crimes Task Forces (FCTFs).
Under that IRS guidance, IRS-CI will not pursue seizure and forfeiture of funds associated only with “legal source” structuring unless:
- there are exceptional circumstances justifying the seizure and forfeiture; and
- the case has been approved at the Director of Field Operations (DFO) level.
The policy changes were intended to ensure that IRS-CI focuses their limited investigative resources on identifying the most serious violations.
DOJ’s Policy Directive 15-3 of the Asset Forfeiture and Money Laundering Section
In 2014, M. Kendall Day, Chief of the Asset Forfeiture and Money Laundering Section of the Department of Justice (DOJ) in Washington, D.C., published a memo known as “Policy Directive 15-3.”
The memo provided guidance to Heads of Department Components, United States Attorneys, regarding the use of asset forfeiture authority in structuring offenses under Title 31, United States Code, Section 5324(a) which prohibits evasion of certain currency transaction-reporting and record-keeping requirements, including structuring schemes.
This memorandum is not intended to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. does not provide defendants or subjects of enforcement action with a basis for reconsideration of any pending civil action or criminal prosecution. Instead, it applies to the exercise of prosecutorial discretion in future cases.
On October 17, 2014, the Internal Revenue Service-Criminal Investigation (IRS-CI) issued guidance on how it will conduct seizures and forfeitures in its structuring cases, and specifically in what it calls “legal source” structuring cases.
Under the new policy, the IRS-CI vowed to no longer pursue the seizure and forfeiture of funds associated solely with “legal source” structuring cases unless certain criteria were met, including approval by the Director of Field Operations.
The DOJ guidance applies to all federal seizures for civil or criminal forfeiture based on a violation of the structuring statute, except those occurring after an indictment or other criminal charging instrument has been filed.
Specifically, the guidelines apply to all structuring activity including:
- “imperfect structuring” chargeable under 31 U.S.C. § 5324(a)(1); or
- “perfect structuring” chargeable under 31 U.S.C. § 5324(a)(3)
The memo address the Department of Justice’s independent review of the federal asset forfeiture program, specifically including a review of how forfeiture was used in structuring cases.
When Can Prosecutors Move to Seize Structured Funds?
Under the new policy, prosecutors were not allowed to move to seize structured funds unless:
- probable cause exist to show:
- structured funds were generated by unlawful activity; or
- structured funds were intended for use in, or to conceal or promote, ongoing or anticipated unlawful activity; or
- criminal charge were filed; or
- the prosecutor obtained the appropriate approval.
For any case in which seizure was effected prior to the issuance of this memorandum, the forfeiture may continue so long as it otherwise comports with all other applicable law and Department policy.
For purposes of the policy discussions, the term “unlawful activity” includes instances in which the investigation revealed no known legitimate source for the funds being structured.
The term “anticipated unlawful activity” does not include future Title 26 offenses.
Under the new DOJ policy, the basis for linking the structured funds to additional unlawful activity must receive appropriate supervisory
approval and be memorialized in the prosecutor’s records.
To avoid prematurely revealing the existence of the investigation of the additional unlawful activity to the target of the investigation, the prosecutor was not required to have evidence linking the structured funds to the additional unlawful activity listed in the seizure warrant application.
Unless these criterial were met, the prosecutor needed approval from their respective U.S. Attorney. The U.S. Attorney was not permitted to delegate this approval authority unless the U.S. Attorney is recused from a matter or absent from the office.
In those limited circumstances, the U.S. Attorney was permitted to designate an Acting United States Attorney to exercise this authority, in the manner prescribed by regulation including 28 C.F.R. § 0.136.
For Criminal Division trial attorneys or other Department components not partnering with a U.S. Attorney’s Office, approval must be obtained from the Chief of the Asset Forfeiture and Money Laundering Section (AFMLS). The Chief of AFMLS was also not permitted to delegate this approval authority.
The policy required that the U.S. Attorney or Chief of AFMLS may grant approval if there is a compelling law enforcement reason to seek a warrant. Those reasons might including:
- serial evasion of the reporting or record keeping requirements;
- the causing of domestic financial institutions to file false or incomplete reports; and
- violations committed, or aided and abetted, by persons who are owners, officers, directors or employees of domestic financial institutions.
If the U.S. Attorney or Chief of AFMLS approves the warrant, the prosecutor must send a completed “Structuring Warrant Notification Form” to AFMLS by e-mail at AFMLS.Structuring@usdoj.gov.
Rules for Settlements in Forfeiture Proceedings Concerning Structuring
When prosecutors and law enforcement agents decide to engage in settlement negotiations regarding returning a portion of any funds involved in a structuring investigation, civil action, or prosecution, they must comply with the requirements set forth in the Asset Forfeiture Policy Manual and the United States Attorneys’ Manual.
Those requirements are found in the Asset Forfeiture Policy Manual (2013), Chap. 3; United States Attorneys ‘ Manual § 9-113.000 et seq.
In addition, settlements must be in writing, include all material terms, and be signed by a federal prosecutor. Informal settlements, including those negotiated between law enforcement and private parties, are expressly prohibited.
The memorandum is intended solely as a guide to the exercise of investigative and prosecutorial discretion, and does not alter in any way the Department’s authority to enforce federal law.
In fact, neither the guidance in the memo nor any state or local law provides a legal defense to a violation of federal law, including any civil or criminal violation of 31 U.S.C. § 5324(a).
Additional Resources
Applicable Sections of Internal Revenue Manual sections
Suspicious Activity Report Review Team
FCTF Standard Operating Procedures
Charging Imperfect Structuring: 31 U.S.C. § 5324(a)(1) or (a)(3) or Both?, Money Laundering Monitor, at 1 (Oct.-Dec. 2014) (available at AFMLS Online).
Financial Crimes Task Forces (FCTFs) – Led by IRS-CI during investigations into law violations, FCTFs focus on complex criminal investigations of Bank Secrecy violations and anti-money laundering.
Policy Manual (2013), Chap. 3; United States Attorneys ‘ Manual § 9-113.000 et seq.
Civil or Criminal Violations of 31 U.S.C. § 5324(a)