When Money-Laundering Laws Become “Smurfin’ Ridiculous”

While we’re on the subject of money laundering, let’s talk about “smurfing.”

That’s slang for the term “structuring,” which refers to the purposeful act of breaking up larger financial transactions into smaller amounts in order to avoid federal reporting requirements. For example, the Bank Secrecy Act requires banks to report any deposits, withdrawals, or transfers of more than $10,000. So, if you’re a discreet drug dealer who wants to deposit $100,000 in your bank account, you might decide to break up that deposit into $9,999 increments so that your bank doesn’t go notifying the federal government. If you did, you might think you’re being clever, but you’re probably not, because you’d be guilty of a felony punishable by fines and up to five years in prison. (Not to mention, the government would likely catch wind of it anyway because your deposits would probably cause the bank to generate a suspicious activity report.) If you did it while violating another federal law or as part of a pattern of illegal activity involving more than $100,000 in a 12-month period, your maximum sentence would rise to ten years.

So why can federal structuring laws be smurfin’ ridiculous? Because it’s not illegal to deposit $9,500 (or even $9,999) in your bank account for cryin’ out loud. It’s only illegal to do it because you don’t want your bank to report the deposit to the government. But even then, it doesn’t matter if you didn’t know that doing so was a crime, or if you weren’t trying to cover up any criminal activity, or if you’d earned all the money legitimately, or if you reported every penny of it at tax time. You’d still be guilty. And it gets worse, because if the government suspects you of structuring, it can apply the civil-forfeiture laws to seize all your money or other assets, even if it never charges you with the crime. See 31 U.S.C. § 5317(c)(2).

For examples of government overreach that ruined or nearly ruined people’s lives, consider these two.

In one case, a Russian immigrant was trying to buy a house, but two weeks before closing, she learned that her bank in Russia wouldn’t wire the purchase money because of a mix-up over her married and maiden names. Scrambling, she spent the next two weeks withdrawing her maximum daily limit from every ATM in town and depositing it in her domestic bank account. She was charged with structuring, convicted of a felony, and ordered to sell her home and surrender the proceeds to the government. She finally got the conviction reversed on appeal but only because prosecutors had converted her trial into a general referendum on her character by asking her a bunch of unfair, unrelated questions on cross-examination. I’m sure she thought it was all worth it in the end.

In the second case, a father and daughter were running a small but successful grocery store in suburban Michigan. Their insurance only covered losses up to $10,000, so they would make frequent deposits below that threshold. Sure enough, they were investigated, and the government went after them, seizing all the money in their bank account and commencing forfeiture proceedings to keep it. The government finally backed off, but only after a public-interest law firm roused up publicity about the case.

The takeaway? If you’re a gas station, convenience store, used-car dealership, or another business that typically handles a lot of cash, take care. Here’s what one lawyer had to say about it:

“The emphasis is on basically seizing money, whether it is legally or illegally earned. It can lead to financial ruin for business owners, and there’s a potential for abuse here by the government, where they use it basically as a means of seizing money, and I think we’ve seen that happen.”

Cash, it turns out, is not always king.