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September 2, 2015


Financial crime investigations, part 2: Money laundering and the BSA

In the first part of this post, we noted that the Criminal Investigation (CI) division of the IRS is involved in the investigation of several financial crimes that do not directly involve tax law. These crimes include fraud, money laundering and violations of the Bank Secrecy Act.

In our September 15 post, we gave an example of how allegations of money laundering and tax evasion can become bargaining tools for prosecutors when included in an already-long list of charges.

In this part of the post, let’s take a step back and look at how the CI took on the role it plays in investigating allegations of money laundering

When the CI was formed nearly a century ago, the only charge it was positioned to bring was tax evasion. There were no laws that required banks to keep track of or report cash transactions. This led to concern that drug traffickers and other involved in illegal activity were using cash to create accounts at financial institutions to purchase assets – in essence, to “launder” money that was the product of crime.

Of course, federal authorities famously prosecuted the Chicago crime figure Al Capone for tax evasion. That case still stands as Exhibit A showing that illegally obtained income is taxable.

But U.S. authorities still lacked a systematic way of enlisting financial institutions in the effort to prevent money laundering and tax evasion by building a paper trail.

Eventually, in 1970, Congress passed a law called the Bank Secrecy Act (BSA), requiring documentation of cash transactions over a certain size. This was followed by other laws requiring various monetary reports, including the Currency Transaction Report (CTR) and the Report of Foreign Bank and Financial Accounts (FBAR).

Under the BSA, banks have to report cash deposits that exceed $10,000. And it is a crime to “structure” deposits by breaking them up into smaller amounts to get around the reporting requirements.

The BSA does not only apply to banks. It also applies to money services business and to others as well. What has grown up over the years is a complex regulatory scheme that requires concerted compliance efforts and often counsel from a skilled tax attorney.

In an upcoming post, we will discuss how money laundering enforcement efforts can sometimes ensnare ordinary citizens. We will do this by revisiting a much-discussed case in which a family-run grocery store faced civil forfeiture for allegedly “structuring” its cash transactions.

Tax Evasion