Tax Lawyer Blog

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BANK SECRECY ACT, An Overview

Passed in 1970, the Bank Secrecy Act (BSA) was the first set of laws specifically designed to combat money laundering.  In fact, it is sometimes referred to as the “Anti-Money Laundering Law (AML)” or “BSA/AML.”  The BSA has been amended over the years by the addition of other anti-money laundering laws, including the Patriot Act.  The BSA requires business and financial institutions to keep records and/or file reports of certain transactions and activity.  The records and reports are especially useful to government and law enforcement activities in detecting money laundering, tax evasion, terrorism and other criminal activities.

As a practical matter, the government knows everything that you do with a bank. The government requires banks to have sophisticated computer programs in place that are monitored by experienced knowledgeable people that look for every kind of possible wrong doing; whether the possible wrong doing is done with one branch of one bank, or different branches of the same bank, or done on different days or done with multiple banks.  The bottom line is that whatever scheme you can think up has already been thought up and guarded against and trying any of them will only result in the bank reporting you and your transactions to a variety of government agencies who can prosecute you on very serious felony charges which can result in many long years of imprisonment and extremely large monetary penalties.
 
Bank Reporting Requirements

While the BSA mandates reports or records from certain individuals and businesses, much of the law institutes reporting and recording requirements for banks and other financial institutions.  Every currency deposit, withdrawal, exchange of currency or other payment or transfer involving more than $10,000 must be reported on a Currency Transaction Report (CTR). While there are certain exemptions, such as transactions between a bank and other banks, governmental agencies or entities on the NYSE, etc., the financial institution is required to file a designation of exemption. 
 
Banks also must report any suspicious transactions or attempted transactions.  A Suspicious Activity Report (SAR), found here, must be filed if one or several related transaction involves $5,000 in non-fact to face transactions and $2,000 in face to face transactions and the bank knows or believes that the transaction:

  • Involves funds from illegal activities, or
  • Is intended to hide or disguise funds or assets from illegal activities in order to violate or evade any federal law or regulation or to avoid a transaction reporting requirement, or
  • Is designed to evade the regulations created under the BSA, or
  • Has no business or lawful purpose or is not the kind of transaction a particular customer normally engages in and, after looking at the background, facts, and possible purpose of the transaction, the bank cannot reasonably explain it.

Penalties for failing to Report Suspicious Acts

Financial Institutions are required to file these reports.  A fine of the greater of $25,000 or the amount of the transaction (not to exceed $100,000) will be imposed upon a bank that fails to file a CTR or SAR.  Even negligence on the part of a bank may cause it to be fined $500 for one violation or $50,000 for a pattern of negligence.  Conversely, there is no penalty for reports that are not necessary.

Privacy Issues

In 1986, as part of the Money Laundering Control Act, Congress stated that a financial institution would not be held liable for the sharing of information relating to suspicious activity.  As concerns grow regarding money laundering and terrorism, privacy rights become diminished.  Financial institutions report a client’s name, address, social security number, driver’s license number and more.  Any transaction of $10,000 or more will require that a customer’s information be shared.  Also, the language of the regulation may make it necessary to report totally legal transactions of $5,000 or more because the transaction is not the kind the customer normally engages in.  The reports are filed with the Treasury Department’s Financial Crimes Enforcement Network and thereafter they are available to the FBI, Secret Service, Customs Service, every U.S. Attorney’s Office and several other law enforcement agencies.  Agencies can access the reports without the normal evidentiary requirements that would normally need to be shown before gaining access to the information.

Money Laundering: An Overview

In our white collar crime/financial crime defense practice, we often see money laundering schemes.  Money laundering is a term used for the criminal practice of moving illegally-acquired funds through various transactions so that the money ends up “looking” like it came from some legal activity.  Money launderers attempt to hide the truth when it comes to the nature, location, source, ownership or control of funds.  Or they may move funds in order to avoid a transaction reporting requirement under State or Federal law (further concealing the funds).

Money laundering can be done with cash in hand, cash in accounts or any other type of fund or monetary instrument.  It may involve transferring funds between the United States and another country or it can be started and finished all within the same city.  It may involve terrorist activity or simple business people.

Elements

The U.S. Office of Comptroller of the Currency describes money laundering as involving three independent steps that may occur all at the same time:

1.      Placement: unlawful proceeds are placed into the financial system

2.      Layering: proceeds of criminal activity are separated from their original source by putting them through complicated transactions

3.      Integration: additional transactions, such as asset purchases, are used to make the funds appear legal 

Penalties

The penalties for money laundering are high.  The United States Code sets the criminal penalty for some types of money laundering to be a fine of the greater of $500,000 or twice the amount of money laundered in addition to imprisonment for up to twenty years.  Civil penalties in the amount of the money laundered or $10,000, whichever is greater may also be imposed.

Money Laundering: Who Has Done It?

Many people remember the rise and fall of Enron, a huge energy company that claimed revenues of almost $101 billion in 2000.  It turns out that certain executives and others in the business were actually employing a very complicated scheme of accounting fraud.  Enron officials pled guilty or were convicted of money laundering counts in addition to other felony charges.  Money laundering was an essential part of their “elaborate scam” of hiding debts, lying about profits and other illegal dealings.

In March of 2009, Bernard (“Bernie”) Madoff pled guilty to eleven felony counts, three of which were money laundering.  Madoff is a former stock broker and investment advisor that pulled off one of the biggest Ponzi schemes in history, with losses to his clients in the billions of dollars.

U.S. House Representative William Jefferson was convicted last summer on eleven of the sixteen corruption charges against him, including three counts of money laundering.  Federal agents found $90,000 cash in his freezer and the accusations centered on using his political office to solicit and receive more than $400,000 in bribes in connection with brokering business deals in Africa.  He could have spent up to 150 years in prison but was sentenced to thirteen.

Former House Majority Leader Tom DeLay was convicted on November 24, 2010 of money laundering and conspiracy to commit money laundering.  He was charged with illegally funneling $190,000 of corporate money through the Republican National Committee to help elect GOP candidates to the Texas legislature.  DeLay pled not guilty to the charges but now could face up to life in prison.  DeLay’s former associates were also charged in the case and their trials will be held later.

The amount of money being laundered in the world was estimated more than a decade ago to be  between 590 billion and 1.5 trillion dollars.  As a result, banks, federal and world officials are continually working together to implement more controls and methods for detecting money laundering. 

Money Laundering:  Trends and Common Schemes

·         Casinos:

The government is increasing security and reporting requirements as authorized by the Bank Secrecy Act.

·         Horse Racing

·         Securities Accounts:   Use of margin accounts, smaller deposits

·         Trade based Money Laundering:   invoice manipulation, front companies,

·         Trade Based – Other: Use of restaurants and bars, cash discounts,

·         Mortgages,

·         Insurance,

·         Shell Corporations,

·         Virtual Money Laundering

Our law firm brings particular strengths when representing the accused that face criminal and related civil enforcement proceedings.  We have over thirty years of experience contesting government allegations.     Our years of experience provide you with extensive criminal defense with your case in chief and related matters such as civil tax consequences of criminal investigations that arise in these types of cases.   As a result of our wide-ranging legal practice, we have the experience you need to represent you before the US Department of Justice, State of California, and a variety of regulatory agencies. We understand that the best result is to avoid any prosecution, and our significant government experience helps our clients navigate the difficult and frightening process of investigation. Our extensive experience with compliance programs helps us advise on the best practices to prevent criminal problems from developing. But if you face criminal charges, we have the extensive trial experience to mount a vigorous defense on your behalf.

Our law firm's broad range of substantive experience permits us to offer an integrated approach to a full range of tax, criminal and civil situations. Criminal and government enforcement activity usually does not appear in isolation; they are often accompanied by parallel proceedings, civil litigation, and/or other governmental agency investigations. Our legal team enables an efficient and comprehensive defense.    We invite you to contact our law firm to discuss your legal questions including criminal tax defense.   Please feel free to use our contact form or phone us at (415) 394-7200.