Bank Secrecy Act, Currency Reporting Requirements & Responding to Governmental Inquiries - Meadows Villa Waymen - Slides.PPT

The Bank Secrecy Act (“BSA”), Currency Reporting Requirements & Responding to Governmental Inquiries Presented By: Charles M Meadows, Jr., J.D., C.P.A Michael A Villa, Jr., J.D., LL.M and Max M Wayman, E.A., CFE 901 Main Street, Suite 3700 Dallas, TX 75202 214.744.3700 800.451.0093 fax 214.747.3732 cmeadows@meadowscollier.com mvilla@meadowscollier.com www.meadowscollier.com Copyright © Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P All rights reserved Two Common Reporting Requirements for Business Owners We will focus our attention on two common currency reports that account for many potential violations for small business owners: (1) Currency Transaction Reports, FinCEN Form 104, and (2) Reports of Currency Received in a Nonfinancial Trade or Business, FinCEN/IRS Form 8300 Meadows, Collier, Reed, Cousins, Crouch2 & Why the BSA Regulations Matter to Legal and Accounting Advisors? • If you are advising a client who is forming or operates a business entity that handles “currency”, or a client who is expecting cash gifts, you are in an ideal position to advise your client of the general reporting requirements and consequences for failing to report properly • Many of the examples we will discuss could have been avoided if these individuals had been advised prior to the alleged BSA violations • In addition, some of your clients may be entitled to an exemption from the reporting requirements and should be advised on these issues upon forming their business entity Meadows, Collier, Reed, Cousins, Crouch3 & BSA Enforcement Amendments to the BSA by the U.S Patriot Act in 2001 increased reporting requirements Therefore, enforcement of alleged BSA violations has increased as well • In 2000, banks filed 162,720 SARs nationwide, and 10,119 SARs in Texas • In 2009, banks filed 720,309 SARs nationwide, and 45,425 SARs in Texas ― See FinCEN SAR Activity Review – By the Numbers, Issue 14, (June 2010) Meadows, Collier, Reed, Cousins, Crouch4 & Suspicious Activity Report Filing Trend for the State of Texas For the Period April 1, 1996 through December 31, 2009 50,000 45,425 43,310 45,000 38,036 40,000 36,097 32,561 35,000 30,000 23,231 23,095 25,000 20,000 17,203 17,611 13,426 15,000 10,119 10,000 5,000 1996 1999 2000 2001 2002 2003 2004 2005 2006 2007 Meadows, Collier, Reed, Cousins, Crouch5 & 2008 2009 Characterizations of Suspicious Activity for the State of Texas For the Period April 1, 1996 through December 31, 2009 10% Check Fraud 36,589 47% BSA/Structuring/ Money Laundering 164,769 Additional Characterizations 32,370 9% Other 30,717 9% Check Kiting 10,954 3% Consumer Loan Fraud 17,258 5% Counterfeit Check 15,879 4% Mortgage Loan Fraud 15,866 4% 175 Bribery/Gratuity 202 Counterfeit Credit/Debit Card False Statement 19,701 6% Identity Theft 9,444 3% Terrorist Financing 458 Computer Intrusion 576 Counterfeit Instrument (Other) 1,423 Commercial Loan Fraud 2,195 Unknown/Blank 2,374 Mysterious Disappearance 2,618 Misuse of Position or Self - Dealing 3,085 Debit Card Fraud 3,263 Credit Card Fraud 4,222 Defalcation/Embezzlement 5,852 Wire Transfer Fraud 5,927 2,000 4,000 6,000 8,000 Note: The pie chart represents the top nine characterizations plus additional characterizations in total An individual SAR may cite more than one characterization Hence, the number of characterizations detailed here significantly exceeds the total number of SARs Meadows, Collier, Reed, Cousins, Crouch6 & Examples of Unexpected Recent Enforcement of the BSA • Increased enforcement ensnares unwitting bank customers and results in parallel civil and criminal investigations – Young couple received $40,000 in cash at their Greek wedding and deposited in sums under $10,000 – The IRS seized $400,000 from bank accounts belonging to New York restaurant owners – IRS seized $330,000 from three Dallas taxi cab companies on suspicion of structuring – IRS seized $240,000 from motel owners who deposited under $10,000 on a regular basis  Even if the source of funds is from a legitimate source and taxes were paid, there can still be a civil and/or criminal penalty for the structuring alone Meadows, Collier, Reed, Cousins, Crouch7 & Currency Transaction Reports, FinCEN Form 104 • Under 31 U.S.C § 5313, “financial institutions” must file a FinCEN Form 104 Currency Transaction Report (“CTR”) with the IRS reporting any deposit or withdrawal which involves a “transaction” in “currency” in excess of $10,000 • “Financial institution” includes, among others, banks, brokers and dealers in securities, and money service businesses • “Transaction in currency” means the physical transfer of currency from one person to another • “Currency” includes coin and paper money of the U.S or of any other country – 31 CFR § 103.11 Meadows, Collier, Reed, Cousins, Crouch8 & Prohibition on Avoiding the Currency Reports 31 U.S.C § 5324 provides that no person shall, for the purpose of evading the reporting requirements of § 5313: (1) Cause or attempt to cause a financial institution not to file a CTR; (2) Cause a financial institution to file a CTR that contains a material omission or misstatement; or (3) Structure or attempt to structure a transaction to avoid a reporting requirement Meadows, Collier, Reed, Cousins, Crouch9 & Civil & Criminal Penalties for Avoiding Form 104 Currency Reports • A civil penalty of up to the amount of currency involved in the transaction is imposed on anyone who causes or attempts to cause a bank to fail to file a CTR 31 U.S.C § 5321(a)(4) • A criminal fine of not more than $250,000 and/or imprisonment of not more than years may also be imposed 31 U.S.C § 5324(d)(1) • The criminal fine can be increased to $500,000 and/or imprisonment of 10 years in cases involving the violation of other laws or a pattern of activity involving more than $100,000 in a 12 month period 31 U.S.C § 5324(d)(2) Meadows, Collier, Reed, Cousins, Crouch10& Criminal Penalties Relating to Form 8300 Criminal penalties: • Willful failure to file a Form 8300 is a felony punishable by a maximum of years in prison and/or a fine of $25,000 ($100,000 in the case of a corporation) may be imposed 26 U.S.C § 7203 • Filing a false Form 8300 or assisting in the filing of a false Form 8300 are felonies punishable by a maximum of years in prison and/or a fine of $100,000 ($500,000 for a corporation) may be imposed 26 U.S.C § 7206 • Title 31 carries separate penalties for willfully violating Form 8300 reporting requirements and can result in: – A criminal fine up to $250,000 and/or imprisonment of years, or – A fine up to $500,000 and/or imprisonment of up to 10 years in aggravated cases involving the violation of other laws or a pattern of activity involving more than $100,000 in a 12 month period  31 U.S.C § 5322 Meadows, Collier, Reed, Cousins, Crouch24& Return Preparer • Tax Return Preparer – Any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax imposed by this title or any claim for refund of tax imposed by this title 26 U.S.C § 7701(a)(36)(A) – What should a tax return preparer be mindful of when receiving a governmental inquiry via summons or subpoena? • Circular 230 Consideration When Responding to the IRS – Section 10.22 Diligence as to Accuracy:  A practitioner must exercise due diligence in determining the correctness of oral or written representations made to Treasury Meadows, Collier, Reed, Cousins, Crouch25& Summons Authority • The IRS may issue a summons for the purpose of: (1) Ascertaining the correctness of any return; (2) Making a return where none has been made; (3) Determining tax liability; (4) Determining the liability of any transferee or fiduciary; and (5) Collecting such tax liability • The IRS may use a summons to: – Require the appearance of the taxpayers or witnesses to testify; and – Examine books, papers, records or other data Meadows, Collier, Reed, Cousins, Crouch26& Summons Enforcement • Government must satisfy four requirements to enforce a summons: – Legitimate purpose; – Information sought may be relevant to the investigation; – Information sought is not already within the IRS’s possession; – Administrative steps required by the Code have been followed  U.S v Powell, 379 US 48 (1964) Meadows, Collier, Reed, Cousins, Crouch27& “Relevant or Material” • Does the material sought “throw light upon” the correctness of the returns? – Liberally and broadly construed • Is the summons overbroad? – Requests for all records or documents may be overbroad and enforcement might be limited to specifically itemized requests U.S v Darwin Constr Co., 632 F Supp 1426 (D Md 1986) • Applicability of § 7525 (tax practitioner privilege) to summons response: – Does not apply in criminal proceedings – Courts have limited its application  Does not cover documents written in conjunction with the preparation of a tax return U.S v KPMG, 237 F Supp 2d 35 (DDC 2002) Meadows, Collier, Reed, Cousins, Crouch28& Grand Jury Subpoena • Grand jury’s investigative powers exceed the IRS summons power • Power to issue subpoenas demanding the appearance of witnesses and the production of documents – Grand juries are given broad subpoena power – Still must be reasonable in time, breadth, and particularize the documents it seeks See In re Grand Jury Subpoena on Allied Auto Sales, 606 F Supp (DRI 1983) Meadows, Collier, Reed, Cousins, Crouch29& Subpoena to Targets and Subjects • US Attorney’s Manual Ch 9-11.150 • Subpoenaing Targets of the Investigation – A grand jury may properly subpoena a subject or a target of the investigation and question the target about his or her involvement in the crime under investigation See United States v Wong, 431 U.S 174, 179 n (1977); United States v Washington, 431 U.S 181, 190 n (1977); United States v Mandujano, 425 U.S 564, 573-75 and 584 n (1976); United States v Dionisio, 410 U.S 1, 10 n (1973) – However, in the context of particular cases such a subpoena may carry the appearance of unfairness Because the potential for misunderstanding is great, before a known "target" is subpoenaed to testify before the grand jury about his or her involvement in the crime under investigation, an effort should be made to secure the target's voluntary appearance – If a voluntary appearance cannot be obtained, the target should be subpoenaed only after the grand jury and the United States Attorney or the responsible Assistant Attorney General have approved the subpoena In determining whether to approve a subpoena for a "target," careful attention will be paid to the following considerations:  The importance to the successful conduct of the grand jury's investigation of the testimony or other information sought;  Whether the substance of the testimony or other information sought could be provided by other witnesses; and  Whether the questions the prosecutor and the grand jurors intend to ask or the other information sought would be protected by a valid claim of privilege Meadows, Collier, Reed, Cousins, Crouch30& Advice of Rights to Targets and Subjects • • US Attorney’s Manual Ch 9-11.151 Advice of "Rights" of Grand Jury Witnesses – It is the policy of the Department of Justice to advise a grand jury witness of his or her rights if such witness is a "target" or "subject" of a grand jury investigation – A "target" is a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant An officer or employee of an organization which is a target is not automatically considered a target even if such officer's or employee's conduct contributed to the commission of the crime by the target organization The same lack of automatic target status holds true for organizations which employ or employed an officer or employee who is a target – A "subject" of an investigation is a person whose conduct is within the scope of the grand jury's investigation Meadows, Collier, Reed, Cousins, Crouch31& Obstruction of Justice • Obstruction of Justice is governed by 18 U.S.C § 1501, et seq • 18 U.S.C § 1512(c): • – Whoever corruptly— (1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to so, with the intent to impair the object’s integrity or availability for use in an official proceeding; or – (2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to so, – shall be fined under this title or imprisoned not more than 20 years, or both In November 2010, an Ohio accountant was sentenced to 11 years in prison for conspiring to commit mortgage fraud, money laundering, and obstruction of justice – • U.S v Sartain, 2:08-CR-180 (SD OH 2010) After learning of the IRS investigation into the tax, bank fraud and money laundering schemes, the accountant and other defendants, engaged in a scheme to obstruct justice by concealing computers, creating false documents, destroying or altering evidence, tampering with a witness, and lying to federal and local investigators – The accountant received 12 months for conspiracy to obstruct justice, which was ordered to run consecutively to his other sentences Meadows, Collier, Reed, Cousins, Crouch32& Accountant as Conspirator • 18 U.S.C § 371 Conspiracy to commit an offense or to defraud the United States – If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both – If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor – As seen in the Sartain case, conspiring with a client can possibly result in criminal charges that are as steep as those levied against the principals Meadows, Collier, Reed, Cousins, Crouch33& Conspiracy • A conspiracy is an agreement between two or more persons to join together to accomplish some unlawful purpose It is a kind of “partnership in crime” in which each member becomes the agent of every other member • The following must be proven: – That the defendant and at least one other person made an agreement to commit the crime alleged; – That the defendant knew the unlawful purpose of the agreement and joined in it willfully, that is, with the intent to further the unlawful purpose; and – That one of the conspirators during the existence of the conspiracy, knowingly committed at least one of the overt acts described in the indictment in order to accomplish some object or purpose of the conspiracy Meadows, Collier, Reed, Cousins, Crouch34& Charles M Meadows, Jr Partner Mr Meadows, who is Board Certified in Tax Law by the Texas Board of Legal Specialization is also a CPA, has over 35 years of experience in representing public/private corporations and individuals in litigation involving tax and white collar legal defense matters White Collar Legal Defense: Mr Meadows has represented entities and individuals accused of health care fraud, tax fraud, defense contracting fraud, securities fraud, customs violations, anti-trust violations, money laundering, insurance fraud, environmental fraud, and wire and mail fraud He has also successfully defended against large criminal and civil forfeiture cases Mr Meadows has appeared in trials in numerous Federal district courts around the country, including Illinois, New York, Iowa, Kansas, Georgia, Louisiana, Colorado and all districts in Texas He has successfully tried many white collar cases to verdicts of acquittal and resolved hundreds of other cases without the necessity for trial or indictment phone (214) 744-3700 toll-free (800) 451-0093 fax (214) 747-3732 cmeadows@meadowscollier.com Civil and Criminal Tax Litigation: Mr Meadows has represented taxpayers in tax controversies involving corporate and individual income taxes, estate and gift taxes, excise taxes and the proposed application of civil and criminal penalties under the Internal Revenue Code These clients include Fortune 100 corporations, private corporations, non-profit entities, individuals, and estates and trusts He has represented taxpayers before the Internal Revenue Service, Tax Court, Bankruptcy Court and the United States Court of Federal Claims In May 2009, Mr Meadows received the Jules Ritholz Memorial Merit Award from the American Bar Association Tax Section's Committee on Civil and Criminal Tax Penalties This prestigious award recognizes Mr Meadows' "outstanding dedication, achievement and integrity in the field of Civil and Criminal Tax Controversies." Mr Meadows is a frequent speaker for numerous professional organizations in the legal and accounting professions He was admitted to practice in Texas in 1972 Meadows, Collier, Reed, Cousins, Crouch35& Michael A Villa, Jr Associate Mr Villa’s practice areas are White Collar and Government Regulatory Litigation, Income Tax Litigation and Commercial Litigation He concentrates on resolving Federal tax controversies and white collar crime such as securities, tax and bank fraud He represents individuals, closely-held businesses and large corporations in IRS audits, appeals and litigation Mr Villa represents individuals and entities in business disputes and lawsuits involving fraud, breach of contract, breach of fiduciary duty, deceptive trade practices act violations, non-compete violations, business torts and other commercial disputes phone (214) 744-3700 toll-free (800) 451-0093 fax (214) 747-3732 mvilla@meadowscollier.com Prior to joining the firm in 2007, he worked in Washington, D.C as a Congressional intern to U.S Senator John Breaux (Retired) and worked as an Associate with a regional law firm in New Orleans, Louisiana In 2004-2005, he served as a Judicial Clerk to the Honorable James J Brady, U.S District Court, Middle District of Louisiana He received his LL.M in Taxation from New York University School of Law in 2007, his J.D and Bachelor of Civil Law from Louisiana State University Paul M Hebert Law Center in 2004 and his B.A from Louisiana State University in 2000 Mr Villa was admitted to practice in Texas in 2005 He is also licensed in the state of Louisiana and has been admitted to the Louisiana Bar Meadows, Collier, Reed, Cousins, Crouch36& Max M Wayman, EA, CFE Max M Wayman & Associates Mr Wayman graduated from Texas Wesleyan College in May 1974 with a Bachelor of Science degree and a double major in Business and Psychology He was selected to Who’s Who Among American Students in American Universities and Colleges, Outstanding College Athletes of America, and Outstanding Young Men of America Max began employment with the Internal Revenue Service in August 1974 and was promoted to a management level within the IRS Collection Division supervising numerous contact section employees Mr Wayman was promoted to Special Agent in the Intelligence Division (later known as Criminal Investigation Division) in 1977, and received specialized training at Glynco Naval Air Station, Georgia, in areas involving analyzing financial documents and transactions, search and seizure techniques, arrest techniques, locating witnesses, locating assets, indirect methods calculations, handgun marksmanship, self defense, and providing testimony at trial He has received numerous awards and recognitions from the IRS such as a Special Achievement Award from the IRS District Director for contributions to the Criminal Investigation Division Since leaving the federal government, additional awards and certifications have been received including selection to the IRS District Director’s Practitioner Liaison Committee (elected Vice Chairman), National Association of Certified Fraud Examiners, Enrolled Agent to practice before the Internal Revenue Service, and the Texas Board of Private Investigators Representation of clients has included direct involvement in the Whitewater investigation by Special Prosecutor Kenneth Starr and the Office of Independent Counsel, a one billion dollar embezzlement of a large bank in South America, international espionage, political scandals, and numerous cases involving allegations of conspiracy phone (817) 569-0200 metro (817) 429-2222 fax (817) 569-0217 maxw@mmwa.net 37 To ensure compliance with U.S Treasury Regulations governing tax practice, we inform you that any U.S federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under U.S Federal tax law, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein Meadows, Collier, Reed, Cousins, Crouch38& ... filing requirements for transactions that have no real use to law enforcement agencies 31 U.S.C § 5313(d )-( e) and 31 CFR § 103. 22(d) • Generally, no bank is required to file a CTR with respect to. .. / IRS Form 8300 31 CFR § 103. 30(a)(1)(ii); § 103. 30(e) Meadows, Collier, Reed, Cousins, Crouch1 5& Definitions Related to Form 8300 • Currency includes the coin and currency of the U.S or of... “Transaction in currency means the physical transfer of currency from one person to another • Currency includes coin and paper money of the U.S or of any other country – 31 CFR § 103. 11 Meadows,