In one form or another, in one denomination or many, paper money has been used in the U.S. for over 300 years. However, recently the U.S. government has begun more closely scrutinizing cash transactions in U.S. banks as part of a larger U.S. effort to curb money laundering related to drug trafficking and other crimes. As a result, new bank rules regarding cash transactions are making it more difficult for U.S. and foreign businesses and individuals to deal with U.S. banks on a cash basis.
The United States Bank Secrecy Act requires banks in the U.S. to keep transaction records on any cash deposit or withdrawal of $10,000 or more. For example, these Currency Transaction Reports request information about the source of the cash. Banks are also required to file SARs or Suspicious Activity Reports. Federal regulations require banks to file SARs in a variety of circumstances, including transactions greater than $5,000 if the bank suspects illegal activity. In fact, a bank can file an SAR on any transaction it considers suspicious, even for amounts lower than $5,000, without informing the account owner of the SAR.
Unfortunately, these efforts by the U.S. government to combat criminal activities have led to new, strict procedures by U.S. banks relating to cash. For example, even depositing an extra $100 in your elderly mother’s account can be a problem under the new procedures. In 2015, one big American bank began requiring a valid ID to deposit any cash into another person’s account. Another large American bank will not let you deposit cash into an account which does not bear your name as an account holder.
The interest of the U.S. government in having better records on bank customers is best illustrated in the deferred prosecution agreement between the U.S. government and JP Morgan Chase. On January 6, 2014, JP Morgan entered into an agreement with the U.S. government arising out of the bank’s failure to maintain an effective anti-money laundering program, and failure to file a Suspicious Activity Report regarding certain accounts. As a result of the agreement, the U.S. government agreed not to bring charges against JP Morgan, and JP Morgan put additional programs in place to improve its anti-money laundering programs – including a rule that you cannot put $100 in currency into someone else’s account unless you are also listed on that account.
For business owners who routinely deposit large amounts of cash, be wary of poor business advice from non-accredited tax preparers or accountants. Attempts to save on taxes through creative accounting and the breaking down of deposits of cash have led to criminal prosecutions for tax evasion and structuring. Tax evasion is a concept familiar to many—attempts to pay less tax to state and federal authorities by underreporting income or overstating business expenses. The lesser known crime is the crime of structuring, which involves breaking down a larger amount of money into smaller amounts so that a bank does not file a Currency Transaction Report or “CTR”. An CTR is required to be filled out by banks and depositors any time more than $10,000.00 dollars is deposited or withdrawn.
Structuring often occurs with businesses that have a large cash base, convenience stores and restaurants for example. There is nothing illegal about depositing money as it comes in, but if the government believes that you are making deposits in a purposeful pattern designed to evade reporting, it becomes very difficult and costly to sort out. In order for the government to prove structuring they must show that an individual knows that a bank has to file a CTR, and that the same individual took an action (such as depositing less money) to cause a bank to be unable to fulfill its legal duty. Oddly enough, it does not require that the depositor of money have any criminal intent to violate a law. Furthermore, it does not matter if the money is legitimately earned and owned by the depositor. Causing the bank to not fill out the paperwork is enough to have violated U.S. law. In almost every case, the bank accounts are frozen, the assets seized and the individual is indicted of a federal crime, which could lead to potential time in custody.
The U.S. government is increasing its scrutiny of cash transactions and deposits in the U.S. This increasing scrutiny will make doing business in the United States more difficult for non-U.S. companies that are doing business on a cash basis with their subsidiaries, or that wish to deposit cash into the accounts of their employees. Parents that wish to deposit cash into the bank accounts of their children attending school in the U.S. may also face problems.
If you have questions about cash deposits or withdrawals you should contact legal counsel.
Ed Novak, Karen Dickinson and Melissa Ho are shareholders in Polsinelli‘s Phoenix office.
