Innocent Until Proven Guilty? Not to the Feds

Banks, brokerages, casinos, and other finance institutions are required to file Suspicious Activity Reports on their clients for ”…known or suspected criminal offenses, at specified thresholds, or transactions over $5,000 that they suspect involve money laundering or violate the Bank Secrecy Act“. With harsh penalties for failure to file, these financial institutions rat on their customers at the drop of a hat.

This had led to a proliferation of SAR filings, especially since 9/11.

Eliot Spitzer, the former NY Governor, is the higher profile victim so far of the Suspicious Activity Report flood. A cash deposit greater than $10,000 requires filing a “currency transaction report” so, as anyone with a brain would suspect, people try to avoid that hassle by depositing smaller amounts. Unfortunately, banks consider deposits under this amount “structuring,” as in, the deposit is designed to be under the limit and is suspicious. In other words, damned if you do and damned if you don’t. In practice, the majority of SARs are filed for this reason. The consequences are borne by the banks customers.

Since nearly anything can trigger an SAR filing, the Feds can pick and choose who to go after. Moreover, there doesn’t have to be any proof of criminal activity for the Feds to go in and snatch the funds. Aren’t you innocent until proven guilty? Not when it comes to your own money. But remember, it’s for your own good citizen!

Forbes magazine has two great articles on SARs and some example cases:

The young couple hauled in $40,000 in cash at their Greek wedding. They knew if they deposited $10,000 or more at once, the bank would have to file a "currency transaction report" and they'd have to wait in line to provide information. So they deposited their loot in smaller lumps. Soon, they were being investigated by Internal Revenue Service criminal agents and paying Chicago attorney Robert E. McKenzie $500-plus an hour to help them avoid seizure of their cash or worse. Carving up deposits to avoid a currency report is "structuring." Structuring is a felony. "It's scary. If you know of the $10,000 requirement and attempt to avoid it, you've committed a crime," says McKenzie, who convinced the irs to let the newlyweds go.

You don't have to be dealing drugs, cheating on your taxes or paying prostitutes to run afoul of the structuring law. Even if the money is from a legal source and used legally, the government can charge you with a crime and/or demand you forfeit cash. By contrast, with money laundering, the cash has to be related to an underlying crime.

A 'Wire' war vs. the drug war

An excellent and sensible Op/Ed by the creators of HBO's "The Wire."

If enough members of the public signal their disapproval of a law by refusing to enforce it, they might bring about its repeal. That's a happy thought, as long as it is not taken too far. As a rule, it still is better to pass laws in legislatures than in courtrooms.

It is also a good idea, before releasing people for non-violent offenses, to check to see whether they have histories as violent offenders and tendencies to do it again. Many do.

Yet, there is much that we should do to help today's at-risk youth and small-time criminals avoid becoming big-time criminals. For example, we can support neighborhood programs, many of which are church-based, that do a good job of putting kids on the right road. After all, the one thing that is so unsettling about the wasted lives portrayed on "The Wire" is our knowledge that they're not all fiction.