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Disclosure: I am not a lawyer and this post is in no way trying to provide legal advice. The goal of this post is to educate and help you find relevant information so you can decide for yourself what action to take.
What You Need to Know About Money Orders, Manufactured Spend & Structuring
Yesterday there were a couple of controversial posts about manufactured spending with money orders. In those posts (which have now been heavily edited) the authors described some best practices for buying money orders and liquidating them. Despite the authors not really knowing, some of what they wrote may have described a practice known as structuring. PF Digest also wrote a follow up with some of the information I am going to describe below.
Since I know a lot of people might be interested in buying and liquidating money orders now that Bluebird/Serve are mostly dead, I thought I would help by laying out some resources everyone should probably read before they do this. I am not advocating that people buy money orders, nor am I saying not to.
Bank Secrecy Act
The Bank Secrecy Act of 1970 is the root of what we are talking about today. It established a wing of the treasury department called FinCEN which is mandated by Congress to track and carry out regulatory responsibilities established in the act. According to their website, here is their mandate:
- Maintaining a government-wide data access service with a range of financial transactions information
- Analysis and dissemination of information in support of law enforcement investigatory professionals at the Federal, State, Local, and International levels
- Determine emerging trends and methods in money laundering and other financial crimes
- Serve as the Financial Intelligence Unit of the United States
- Carry out other delegated regulatory responsibilities
So why does this act exist? I remember reading it had to do with money laundering and the drug trade, but that doesn’t matter. It exists to stop money laundering in any form. Part of the way it achieves this is by putting the burden of reporting and detecting suspicious activity on the banks. Again from the FinCEN website:
The Currency and Foreign Transactions Reporting Act of 1970 (which legislative framework is commonly referred to as the “Bank Secrecy Act” or “BSA”) requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.
Types of Reports
The law requires the banks to report information they find in a variety of ways. Here are the three main types of reports that are filed. (Taken from Wikipedia):
The CTR must report cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either in one transaction or a combination of cash transactions. It is filed electronically with the Financial Crimes Enforcement Network (“FinCEN”).
Monetary Instrument Log (MIL)
The MIL must indicate cash purchases of monetary instruments, such as money orders, cashier’s checks and traveler’s checks, in value totaling $3,000 to $10,000, inclusive. This form is required to be kept on record at the financial institution, and produced at the request of examiners or audit to verify compliance. A financial institution must maintain a Monetary Instrument Log for five years.
The SAR must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements by not filing CTR or MIL, for example. A SAR must also be filed if the customer’s actions suggest that he is laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud or mysterious disappearances. The bank should not let the customer know that a SAR is being filed. These reports are filed with the Financial Crimes Enforcement Network (“FinCEN”). This requirement and its accompanying implied gag order was added by the Annunzio-Wylie Anti-Money Laundering Act § 1517(b) (part of the Housing and Community Development Act of 1992, Pub.L. 102–550, 106 Stat. 3762, 4060).
Banks can heavily be fined or even lose their charter if they fail to report suspicious activity. In other words, they will report anything that they are required to and they should.
How They Find Suspicious Activity
The banks use a variety of methods to detect suspicious activity and those who try to avoid reporting. One of the main methods used is Anti-money laundering software. This software analyzes transactions and customer history to give the bank an idea when something suspicious arises. Any sort of activity that differs from the norm should be caught. As technology progresses this type of software grows more advanced as well. In other words, it is hard to hide stuff without it being seen.
Which brings me to structuring. The definition of structuring is simple in my mind. Structuring is defined as anything you do to avoid any sort of reporting requirement. Let me give you a more formal definition. This is from Wikipedia:
Structuring, also known as smurfing in banking industry jargon, is the practice of executing financial transactions (such as the making of bank deposits) in a specific pattern calculated to avoid the creation of certain records and reports required by law, such as the United States’ Bank Secrecy Act (BSA) and Internal Revenue Code section 6050I (relating to the requirement to file Form 8300).
This isn’t a minor thing either. Structuring in and of itself is a serious crime. Since it is so serious, here is a link to the actual U.S. code regarding structuring. I’ll highlight some things below, but I highly suggest giving it a read.
No person shall….
cause or attempt to cause a domestic financial institution to fail to file a report required under section 5313(a) or 5325…
cause or attempt to cause a domestic financial institution to file a report….that contains a material omission or misstatement of fact
structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions.
Fairly straightforward. Notice it makes no mention as to whether or not your activities were legal or not. You could be depositing money very legitimately, but if you simply structure in any way you have committed a crime.
So what is the punishment for structuring?
Whoever violates this section shall be fined in accordance with title 18, United States Code, imprisoned for not more than 5 years, or both.
Whoever violates this section while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period shall be fined twice the amount provided in subsection (b)(3) or (c)(3) (as the case may be) of section 3571 of title 18, United States Code, imprisoned for not more than 10 years, or both.
So huge fines if your are LUCKY and up to 5 years in prison. (Or Both!)
But It Gets Worse
So what can happen if the government suspects you are structuring? Well let’s look at the example of Lyndon McLellan. He is a convenient store owner who was suspected of structuring his deposits. He committed no other crime, but had his assets frozen by the IRS when they suspected him. Despite a supposed recent change in the rules, this seems to happen a lot.
I found this tidbit in the Fox News article linked to above interesting:
From 2005 to 2012, the IRS seized more than $242 million from alleged structuring violations in more than 2,500 cases, according to an Institute for Justice study. In more than 830 of those cases, no other criminal activity was alleged.
So basically 1 in 3 structuring cases involved no other criminal activity. That could be a store owner like Mclellan or a manufactured spender like you. Now there is some good news. In the past year or so both the IRS and DOJ have changed their policies to no longer go after structuring cases where no other criminal activity is alleged. Unfortunately those are the policies but the enforcement doesn’t seem to be so black and white. (In other words, I wouldn’t count on them not going after you.)
Money Orders & Manufactured Spend
Which now brings me to the point of this article. If you are going to be purchasing money orders for manufacturing spend then you should be aware of this stuff. Be aware of what the banks are required to report and DO NOT IN ANY WAY try to evade reporting. I am not a lawyer, but here is what I wouldn’t do:
- Deposit over $10,000 in a short period of time in smaller amount or spread across different institutions.
- Purposely deposit less than $10,000 just to avoid the reporting requirements.
- Anything else that even remotely feels like I am avoiding the reporting requirements.
This article isn’t about teaching you how to avoid bank shutdowns or to get a bank to allow you to deposit a lot of money. The truth is that banks don’t like people who deposit a lot of money orders because they need to monitor and report you and it creates a hassle for them. They would just rather shut you down even if your activities are legal.
Because of shutdowns, some people would advocate using multiple accounts and depositing smaller amounts in them to avoid scrutiny of the bank. Just remember that previous sentence included the word “avoid” and thus is a dangerous practice in my personal opinion. Again, this is all my personal opinion and not legal advice.
I am very sorry to write such a lengthy post, but I thought a more thorough look at this subject was possibly needed before people decide to engage in the practice of purchasing money order for manufacturing spend. If you decide to do it, be prepared for strange looks, scrutiny from the bank and even the possibility of being investigated. No matter what though, don’t structure. Or since this is just a personal opinion, I’ll say that I won’t be structuring.
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