SOL:
THE BOTTOM LINE... IF YOU DON'T HAVE A PAPER TRAIL TO SHOW WHERE THE
MONEY CAME FROM THEN THIS WOULD SEND UP A RED FLAG AND CREATE SUSPICIONS
THAT THEY COULD USE TO SEIZE YOUR BANK ACCOUNT. EXAMPLE: I WITHDREW
$1000 FROM MY CREDIT UNION IN CASH FOR VACATION AND LATER DECIDED TO GET
TRAVELERS CHECKS AT MY OTHER BANK. MY BANK ACCOUNT ALLOWS ME FREE
TRAVELERS CHECKS AS A SENIOR, BUT THEY COULDN'T SELL ME THE TRAVELERS
CHECKS WITH CASH BECAUSE THE BANKS ARE REQUIRED TO HAVE A PAPER TRAIL. I
HAD TO DEPOSIT THE $1000 INTO MY BANK CHECKING ACCOUNT AND WRITE A
CHECK FOR THE TRAVELERS CHECK.
Photo
Carole Hinders at her modest, cash-only Mexican restaurant in Arnolds Park, Iowa. Last year tax agents seized her funds. CreditAngela Jimenez for The New York Times
ARNOLDS
PARK, Iowa — For almost 40 years, Carole Hinders has dished out Mexican
specialties at her modest cash-only restaurant. For just as long, she
deposited the earnings at a small bank branch a block away — until last
year, when two tax agents knocked on her door and informed her that they
had seized her checking account, almost $33,000.
The Internal Revenue Service agents
did not accuse Ms. Hinders of money laundering or cheating on her taxes
— in fact, she has not been charged with any crime. Instead, the money
was seized solely because she had deposited less than $10,000 at a time,
which they viewed as an attempt to avoid triggering a required
government report.
“How
can this happen?” Ms. Hinders said in a recent interview. “Who takes
your money before they prove that you’ve done anything wrong with it?”
The federal government does.
Using
a law designed to catch drug traffickers, racketeers and terrorists by
tracking their cash, the government has gone after run-of-the-mill
business owners and wage earners without so much as an allegation that
they have committed serious crimes. The government can take the money
without ever filing a criminal complaint, and the owners are left to
prove they are innocent. Many give up.
Photo
“They’re
going after people who are really not criminals,” said David Smith, a
former federal prosecutor who is now a forfeiture expert and lawyer in
Virginia. “They’re middle-class citizens who have never had any trouble
with the law.”
On
Thursday, in response to questions from The New York Times, the I.R.S.
announced that it would curtail the practice, focusing instead on cases
where the money is believed to have been acquired illegally or seizure
is deemed justified by “exceptional circumstances.”
Richard Weber, the chief of Criminal Investigation at the I.R.S., said in a writtenstatement,
“This policy update will ensure that C.I. continues to focus our
limited investigative resources on identifying and investigating
violations within our jurisdiction that closely align with C.I.'s
mission and key priorities.” He added that making deposits under $10,000
to evade reporting requirements, called structuring, is still a crime
whether the money is from legal or illegal sources. The new policy will
not apply to past seizures.
The
I.R.S. is one of several federal agencies that pursue such cases and
then refer them to the Justice Department. The Justice Department does
not track the total number of cases pursued, the amount of money seized
or how many of the cases were related to other crimes, said Peter Carr, a
spokesman.
But the Institute for Justice,
a Washington-based public interest law firm that is seeking to reform
civil forfeiture practices, analyzed structuring data from the I.R.S.,
which made 639 seizures in 2012, up from 114 in 2005. Only one in five
was prosecuted as a criminal structuring case.
The
practice has swept up dairy farmers in Maryland, an Army sergeant in
Virginia saving for his children’s college education and Ms. Hinders,
67, who has borrowed money, strained her credit cards and taken out a
second mortgage to keep her restaurant going.
Their
money was seized under an increasingly controversial area of law known
as civil asset forfeiture, which allows law enforcement agents to take
property they suspect of being tied to crime even if no criminal charges
are filed. Law enforcement agencies get to keep a share of whatever is
forfeited.
Critics
say this incentive has led to the creation of a law enforcement
dragnet, with more than 100 multiagency task forces combing through bank
reports, looking for accounts to seize. Under the Bank Secrecy Act,
banks and other financial institutions must report cash deposits greater
than $10,000. But since many criminals are aware of that requirement,
banks also are supposed to report any suspicious transactions, including
deposit patterns below $10,000. Last year, banks filed more than
700,000 suspicious activity reports. Owners who are caught up in
structuring cases often cannot afford to fight. The median amount seized
by the I.R.S. was $34,000, according to the Institute for Justice
analysis, while legal costs can easily mount to $20,000 or more.
There
is nothing illegal about depositing less than $10,000cash unless it is
done specifically to evade the reporting requirement. But often a mere
bank statement is enough for investigators to obtain a seizure warrant.
In one Long Island case, the police submitted almost a year’s worth of
daily deposits by a business, ranging from $5,550 to $9,910. The officer
wrote in his warrant affidavit that based on his training and
experience, the pattern “is consistent with structuring.” The government
seized $447,000 from the business, a cash-intensive candy and cigarette
distributor that has been run by one family for 27 years.
There
are often legitimate business reasons for keeping deposits below
$10,000, said Larry Salzman, a lawyer with the Institute for Justice who
is representing Ms. Hinders and the Long Island family pro bono. For
example, he said, a grocery store owner in Fraser, Mich., had an
insurance policy that covered only up to $10,000 cash. When he neared
the limit, he would make a deposit.
Ms.
Hinders said that she did not know about the reporting requirement and
that for decades, she thought she had been doing everyone a favor.
Photo
“My
mom had told me if you keep your deposits under $10,000, the bank
avoids paperwork,” she said. “I didn’t actually think it had anything to
do with the I.R.S.”
In
May 2012, the bank branch Ms. Hinders used was acquired by Northwest
Banker. JoLynn Van Steenwyk, the fraud and security manager for
Northwest, said she could not discuss individual clients, but explained
that the bank did not have access to past account histories after it
acquired Ms. Hinders’s branch.
Banks
are not permitted to advise customers that their deposit habits may be
illegal or educate them about structuring unless they ask, in which case
they are given a federal pamphlet, Ms. Van Steenwyk said. “We’re not
allowed to tell them anything,” she said.
Still
lawyers say it is not unusual for depositors to be advised by financial
professionals, or even bank tellers, to keep their deposits below the
reporting threshold. In the Long Island case, the company, Bi-County
Distributors, had three bank accounts closed because of the paperwork
burden of its frequent cash deposits, said Jeff Hirsch, the eldest of
three brothers who own the company. Their accountant then recommended
staying below the limit, so for more than a decade the company had been
using its excess cash to pay vendors.
More
than two years ago, the government seized $447,000, and the brothers
have been unable to retrieve it. Mr. Salzman, who has taken over legal
representation of the brothers, has argued that prosecutors violated a
strict timeline laid out in the Civil Asset Forfeiture Reform Act, passed in 2000 to curb abuses.
The office of the federal attorney for the Eastern District of New York
said the law’s timeline did not apply in this case. Still, prosecutors
asked the Hirsches’ first lawyer, Joseph Potashnik, to waive the CARFA
timeline. The waiver he signed expired almost two years ago.
The
federal attorney’s office said that parties often voluntarily
negotiated to avoid going to court, and that Mr. Potashnik had been
engaged in talks until just a few months ago. But Mr. Potashnik said he
had spent that time trying, to no avail, to show that the brothers were
innocent. They even paid a forensic accounting firm $25,000 to check the
books.
“I don’t think they’re really interested in anything,” Mr. Potashnik said of the prosecutors. “They just want the money.”
Bi-County
has survived only because longtime vendors have extended credit — one
is owed almost $300,000, Mr. Hirsch said. Twice, the government has made
settlement offers that would require the brothers to give up an
“excessive” portion of the money, according to a new court filing.
“We’re just hanging on as a family here,” Mr. Hirsch said. “We weren’t going to take a settlement, because I was not guilty.”
Army
Sgt. Jeff Cortazzo of Arlington, Va., began saving for his daughters’
college costs during the financial crisis, when many banks were failing.
He stored cash first in his basement and then in a safe-deposit box.
All of the money came from paychecks, he said, but he worried that when
he deposited it in a bank, he would be forced to pay taxes on the money
again. So he asked the bank teller what to do.
“She said: ‘Oh, that’s easy. You just have to deposit less than $10,000.'”
The
government seized $66,000; settling cost Sergeant Cortazzo $21,000. As a
result, the eldest of his three daughters had to delay college by a
year.
“Why
didn’t the teller tell me that was illegal?” he said. “I would have
just plopped the whole thing in the account and been done with it.”
A version of this article appears in print on October 26, 2014, on page A1 of the New York edition with the headline: Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required.
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