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Legal Corner: Failure to Report Cash Transactions Can Lead to Money-Laundering Charges
Failure to Report Cash Transactions Can Lead to Money-Laundering Charges
by
Michael W.
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.
One 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 activities by following money trails. But unlike regular checks written on a bank account, cash or cash
Dunagan
TIADA GENERAL COUNSEL
equivalents don’t leave paper trails that make it possible to trace the source of funds. As a result of a After the terrorist government finding that drug dealers and attacks of September smugglers used cash in their transactions and 2001, Congress needed to “launder” enacted the USA the large amounts of cash through seemPatriot Act of 2001 ingly legal activities, Congress enacted that increased the the Financial Crimes Enforcement Network scope of the cash (FinCEN). Included in the legislation is a rereporting rules to quirement that anyone in a trade or business help trace funds who receives certain large amounts of cash used to finance must report the fact to terrorism. the Internal Revenue Service.
After the terrorist attacks of September officers carrying out the raid, who 2001, Congress enacted the USA were armed with a search warrant, Patriot Act of 2001 that increased refused to tell him why he was the the scope of the cash reporting rules subject of such drastic tactics. to help trace funds used to finance Later, the dealer found out that a terrorism. prior “sale” had been to an under
For one Dallas independent cover officer who paid for a vehicle dealer, the seriousness of this law with over $10,000 cash. The police became a reality when local police, assumed that the dealer did not reand state and federal agents “raidport the cash payment as required ed” his business, closed off access to by FinCEN and would thus be lithe lot, and confiscated his computable for civil and criminal penalties. ers and records, effectively shutThankfully, the dealer had in fact ting down his office and damaging filed an IRS Form 8300. The dealer’s his business for several days. The property was returned without an
apology by the obviously disappointed officers.
FinCEN provides that any person (person is defined as an individual, company, corporation, partnership or other business entity) in a trade or business who receives more than $10,000 in cash in a single transaction, or a series of related transactions, must fill out an IRS Form 8300, reporting the identity of the person paying with cash, and send the form to the IRS. The form must be filed within 15 days of the
receipt of the cash.
With regard to the acceptance of payments in coin or currency, reporting is required if: (1) the cash payment is a lump sum exceeding $10,000; or (2) installments or other payments of cash received within one year of the initial payment total $10,000.
Cash Equivalents
In addition to currency, the rules also include in the definition of cash certain cash equivalents such as cashier’s checks, bank drafts, traveler’s checks, or money orders. These instruments often can’t be traced to the source of the funds they were purchased with. The acceptance of one of these instruments in full or partial payment for a vehicle (other than as a regular payment on an installment contract) is reportable if: (1) the face amount of the instrument is $10,000 or less (if the face amount is more than $10,000 and was paid for by currency, the issuing institution was required to report that transaction); and (2) a vehicle (or boat or other consumer-use personal property) purchased had a sales price of more than $10,000.
An exception to the reporting rules on cashier’s checks, bank drafts, traveler’s checks and money orders applies if the instrument is the obvious proceeds of a bank loan, or if one is given as a regular installment payment on a retail installment agreement or lease.
A report should also be filed if it appears that a purchaser is trying to avoid the reporting of a cash transaction by structuring payments that fall short of the $10,000 threshold. Banks are required to report to the IRS any transactions that involve an amount less than $10,000, if it appears the bank customer is intentionally keeping the deposit under $10,000 to avoid reporting. Such transactions are referred to as “structuring.”
A former Speaker of the U.S. House of Representatives spent 13 months in federal prison after being found guilty of “structuring” bank transactions to circumvent federal cash reporting laws, even though none of the individual transactions exceeded the $10,000 threshold. The money was used to pay blackmail to
keep certain criminal allegations quiet. It was found that withdrawals and deposits were purposely kept under the $10,000 triggering amount to avoid reporting requirements.
Form 8300s are to be mailed to the
FinCEN provides that any person in a trade or business who receives more than $10,000 in cash in a single
IRS at the address that appears on the form. Copies should be kept for five years. The rules require that written or electronic notices be sent to buyers informing them that the Form 8300 was filed. These notices should be
sent before January 31 of the year follow
person paying with
ing the year in which the Form 8300 was filed.
Dealers should be
cash, and send the form to the IRS.
aware that banks are also reporting cash deposits to the IRS. This means that when a dealer deposits large amounts of cash, the IRS will probably be informed. One dealer in South Texas recently found that he had drawn the attention of the IRS because several of his deposits contained large amounts of cash, although each was under $10,000.
Congress obviously intended the law to be taken seriously. The simple inadvertent failure to file might lead to an audit and an assessment of penalties. But a finding of intentionally failing to file a Form 8300 can include a fine of $250,000 ($500,000 for corporations) and/ or five years in prison. Under no circumstances should an agreement be made with a buyer to not report applicable cash transactions.
Some dealer management software packages offer cumulative cash payment monitoring and Form 8300 printing. While the rules governing filing Form 8300 are complicated and confusing (like the IRS Code, FinCEN contains rules, exceptions to the rules, and exceptions to the exceptions), a good faith effort to comply should be made.
Form 8300 can be obtained from banks or can be downloaded, along with detailed instructions, from the IRS website. IRS Publication 1544, which provides a detailed explanation of the reporting requirements, including some specific references to car transactions, is available at
Michael W. Dunagan is an attorney in Dallas, Texas who has represented the
the IRS site (www.irs.gov).
Texas Independent Automobile Dealers Association for over 40 years. He has written a number of books and hundreds of articles for trade journals and law reviews. His clientele includes dealers, banks, finance companies, auto auctions and credit unions.
