Using a law designed to help 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
Seattle Times
By
SHAILA DEWAN
Carole Hinders at her Mexican restaurant in
Iowa. Because she had deposited less than $10,000 at a time in her bank
account, Internal Revenue Service agents seized her funds.
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 they had seized her funds, almost $33,000.
The Internal Revenue Service (IRS) agents did
not accuse Hinders of money laundering or cheating on her taxes. 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?” 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 help 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 filing a criminal complaint, and the owners are left to
prove they are innocent. Many simply give up and settle the case for a portion
of their money.
“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 IRS said 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, chief of Criminal
Investigation at the IRS, said in a written statement: “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 of
less than $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 affect seizures that have occurred.
IRS
seizures increase
The IRS 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,
D.C.-based public-interest law firm that is seeking to reform civil-forfeiture
practices, analyzed structuring data from the IRS, which made 639 seizures in
2012, up from 114 in 2005. Only one in five was prosecuted as a criminal case.
The practice has swept up dairy farmers in Maryland,
an Army sergeant in Virginia saving for his children’s college education and
Hinders, 67, who has borrowed money, strained her credit cards and taken out a
second mortgage to keep her restaurant going.
Her 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.
Owners who are caught up in structuring cases
often cannot afford to fight. The median amount seized by the IRS was $34,000,
according to the Institute for Justice analysis, while legal costs can easily
mount to $20,000 or more.
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, which are
reviewed by more than 100 multiagency task forces.
There is nothing illegal about depositing
less than $10,000 unless it is done specifically to evade the reporting
requirement. But often a bank statement is enough for investigators to obtain a
seizure warrant. In one Long Island case, 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.
Legitimate reasons
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
Hinders and the Long Island family pro bono. For example, he said, some
grocery-store owners in Fraser, Mich., had an insurance policy that covered
only up to $10,000 cash. When they neared the limit, they would make a deposit.
Hinders, said that she did not know about the
reporting requirement and that for decades, she thought she had been doing everyone
a favor.
“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 IRS.”
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 the company began using the excess cash to pay vendors, and
carried on for more than a decade.
More than two years ago, the government
seized $447,000, and the brothers have been unable to retrieve it. 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. The federal attorney’s office said that parties often voluntarily
negotiated to avoid going to court and that Joseph Potashnik, the Hirsches’
first lawyer, had been engaged in talks until just a few months ago. But
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,” 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, 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,”
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 his paychecks, he said, but he
worried that when he finally deposited it in a bank he would be forced to pay
taxes on the money a second time. 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
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.”