legal corner
Failure to Report Cash Transactions Can Lead to Money-Laundering Charges In 2011 a Texas car dealer is convicted and sentenced to 188 months in federal prison for his role in a money-laundering scheme involving the sale and purchase of vehicles with large amounts of cash from alleged drug dealers and other criminals. In 2012 a Texas car lot is shut down by a task force involving federal, state, and local police making allegations of money laundering involving the sale of vehicles to a purported drug dealer for cash. In 2014 two car dealers in Phoenix are charged by federal prosecutors of being involved in a money-laundering scheme when they sold vehicles to undercover agents posing as drug dealers. In 2017 a South Texas bank is assessed a $2 million civil money penalty for not adequately assessing potential money laundering violations.
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ne of the realities of the car business, especially at the sub-prime level, is that some customers don’t have bank accounts. Instead of receiving payment for vehicles through traditional banking instruments, many dealers receive payment in cash or cash equivalents (more on that later).
Monitoring Money Laundering
The legitimate use of cash by those who for whatever reason don’t have bank accounts has run into conflict with the federal government’s efforts to monitor criminal and terrorist July/Special 2020
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D e a l e r
activities by following money trails. But unlike regular checks written on a bank account, cash or cash equivalents don’t leave paper trails that make it possible to trace the source of funds. As a result of a government finding that drug dealers and smugglers used cash in their transactions and needed to “launder” the large amounts of cash through seemingly legal activities, Congress enacted the Financial Crimes Enforcement Network (FinCEN). Included in the legislation is a requirement that anyone in a trade or business who receives certain large amounts of cash must report the fact to the Internal Revenue Service. After the terrorist attacks of September 2001, Congress enacted the USA Patriot Act of 2001 that increased the scope of the cash reporting rules to help trace funds used to finance terrorism. For one Dallas independent dealer, the seriousness of this law became a reality when local police, and state and federal agents “raided” his business, closed off access to the lot, and confiscated his computers and records, effectively shutting down his office and damaging his business for several days. The
by Michael
Dunagan
W.
TIADA GENERAL COUNSEL
After the terrorist attacks of September 2001, Congress enacted the USA Patriot Act of 2001 that increased the scope of the cash repor ting rules to help trace funds used to finance terrorism. officers carrying out the raid, who were armed with a search warrant, refused to tell him why he was the subject of such drastic tactics. Later, the dealer found out that a prior “sale” had been to an undercover officer who paid for a vehicle with over $10,000 cash. The police assumed that the dealer did not report the cash payment as required by FinCEN and would thus be liable for civil and criminal penalties. Thankfully, the dealer had in fact filed an IRS Form 8300. The dealer’s property was returned without an 11
