Structuring Laws: When Does $10,000 Trigger Scrutiny?

Structuring laws are intended to make it easier for governments to track tax cheats, money launderers, illegal gambling operations, and other criminal enterprises. In the United States, structuring laws are governed by Federal Statute 31 USC 5324, which states that no person shall cause or attempt to cause a domestic financial institution or nonfinancial trade to fail to file a required financial report for transactions over $10,000. Structuring laws apply to transactions just under this $10,000 threshold, where individuals or entities conduct smaller transactions without requiring the financial institution to file a report with a government agency. These laws are intended to prevent money laundering and other financial crimes, but they have also been criticised for their potential to criminalise innocent behaviour.

What is structuring?

Structuring, also known as "smurfing" in banking jargon, is a financial practice that involves executing transactions in a specific pattern to avoid triggering financial institutions to file reports required by law. This practice is often associated with money laundering, fraud, and other financial crimes, as it helps individuals or entities avoid scrutiny from regulators and law enforcement.

Structuring typically involves parceling a large financial transaction into a series of smaller transactions, each usually below a statutory limit that does not require a financial institution to file a report with a government agency. For example, in the United States, the Bank Secrecy Act (BSA) mandates currency transaction reports (CTRs) for cash transactions exceeding $10,000. To circumvent this requirement, an individual might deposit $9,000 multiple times instead of depositing $90,000 at once.

Structuring can be done over multiple days, across different bank accounts, or by using multiple individuals ("smurfs") to make the transactions. It is a complex method used in money laundering and is considered a criminal offense, even if the funds involved are legally sourced.

Financial institutions play a crucial role in detecting and reporting suspicious activity related to structuring. They are required to establish programs and implement systems to identify potential structuring and file Suspicious Activity Reports (SARs) with the Financial Crimes Enforcement Network (FinCEN). These reports are crucial in combating financial crimes and ensuring compliance with anti-money laundering (AML) regulations.

While structuring itself is a dangerous offense, it becomes even more concerning when combined with illegally sourced funds. Criminals employ structuring to avoid anti-money laundering (AML) and counter-terrorist financing (CTF) compliance regulations, conceal the source of their income, and maintain a low profile to prevent the filing of SARs.

Why is structuring illegal?

Structuring is illegal because it is a form of money laundering, which is a criminal offence. Structuring involves breaking up large financial transactions into smaller sums to avoid scrutiny by regulators and law enforcement. This practice is also known as "smurfing", referring to the children's cartoon in which a large entity (the Smurf Village) is made up of several smaller ones (the Smurfs themselves).

In the context of money laundering, structuring is when criminals intentionally split larger amounts of money into a series of smaller transactions to avoid detection by authorities. This is done by making deposits just under the threshold that would require a financial institution to file a report with a government agency. For example, in the United States, a report must be submitted for all cash transactions exceeding $10,000. By making multiple deposits of $9,999, individuals can avoid triggering this requirement.

Structuring is illegal regardless of whether the funds involved are legally or illegally sourced. Even if the money was obtained legally, structuring is still considered a criminal offence because it is used to avoid anti-money laundering (AML) and counter-terrorist financing (CTF) compliance regulations. It is also used to conceal how the money was earned and to evade tax obligations.

The practice of structuring is specifically prohibited by the Bank Secrecy Act (BSA) in the United States, which requires banks to report any transactions over $10,000. The BSA also requires banks to report any suspicious activity that may be construed as structuring, such as making multiple deposits just under the $10,000 threshold. Financial institutions that fail to sufficiently police their customers or that notify customers of suspicious activity reports may face financial sanctions.

The consequences of structuring can be severe, including substantial fines and up to five years in prison. It can also lead to additional felony charges, such as tax evasion. Therefore, it is important for individuals and businesses to be aware of the regulations surrounding structuring and to avoid any attempts to circumvent the reporting requirements.

How does structuring apply to $10,000?

Structuring laws apply to transactions of $10,000 or more. In the United States, a report must be submitted for all cash transactions exceeding $10,000 processed by a financial institution. This is a requirement of the Bank Secrecy Act (BSA).

Structuring is the act of breaking up financial transactions to get around federal reporting requirements that kick in for transactions over a specific amount of money. In this case, the specific amount is $10,000. So, if you have $100,000 to deposit in your bank account, and you choose to deposit that money in increments of $9,999 so your bank won't automatically notify the federal government, you are guilty of structuring.

Structuring is illegal regardless of whether the funds are derived from legal or illegal activity. The law specifically prohibits conducting a currency transaction with a financial institution in a way to circumvent the currency transaction reporting requirements. The crime of structuring is also sometimes called "smurfing", referring to the children's cartoon in which a large entity (the Smurf Village) is made up of several smaller ones (the Smurfs themselves).

The definition of structuring for evading transactions in currency reporting is found in the US Code:

> No person shall, for the purpose of evading the reporting requirements of section 5313(a) or 5325 or any regulation prescribed under any such section, the reporting or recordkeeping requirements imposed by any order issued under section 5326, or the recordkeeping requirements imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508—structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions.

To be found guilty of structuring, it must be proven that the person knowingly structured a deposit and that the intent of the structure was to avoid transaction-reporting requirements.

What are the penalties for structuring?

Structuring is a federal crime in the United States, and those found guilty of it face serious penalties. Under U.S. Code, anyone who structures their transactions to evade reporting requirements can be imprisoned for up to five years, fined, or both. The fine can be up to $250,000, and the penalty may be doubled if the total amount of the transactions is over $100,000 in a 12-month period or if the structuring was done while committing another federal crime.

The Bank Secrecy Act (BSA) requires banks to report any deposits, withdrawals, or transfers of more than $10,000. This is done through a Currency Transaction Report (CTR). If a customer makes several transactions just under this amount, the bank may still report them for suspicious activity, especially if the transactions are made over several days. The bank is not allowed to inform the customer that they have been reported.

The consequences of structuring can be severe, and it is important to understand the regulations to avoid any legal issues.

How can structuring be detected?

Detecting structuring can be challenging, as those engaging in the practice attempt to avoid detection by financial institutions and law enforcement. However, there are several red flags and indicators that can help identify potential structuring activity. Here are some ways to detect structuring:

• Multiple cash deposits made on the same day across multiple branches or ATMs: This is a common tactic used by individuals to stay below the reporting threshold.
• Deposits just under the reporting threshold: For example, in the United States, deposits of $10,000 or more are subject to reporting. Individuals may make multiple deposits of just under $10,000 to avoid triggering a report.
• Suspicious and inconsistent explanations: Customers may provide vague or inconsistent explanations for multiple transactions or the opening of new accounts, which could indicate structuring.
• Multiple customers with similar characteristics: Financial institutions may detect multiple customers with the same or similar addresses, nationalities, or devices registering for new accounts within a short timeframe, which could indicate coordinated structuring activity.
• Unusually complex transactions: Structuring often involves complex transactions designed to obscure the true nature of the activity. Financial institutions should monitor for any unusually complex transactions or the use of multiple financial services to keep amounts below reporting thresholds.
• Monitoring systems and analytics: Financial institutions should implement robust monitoring systems and analytics to detect potential structuring activity. This includes transaction monitoring tools, AI-powered tools, and AML compliance software that can identify suspicious behaviour in real time.
• Shell companies and fictitious entities: Individuals may use shell companies or fictitious entities to disguise illicit funds as legitimate business transactions, making it difficult to trace the source of the funds.
• Money transfers to multiple accounts: Structuring often involves transferring funds to multiple accounts, especially those under the same name, to avoid scrutiny.
• Withdrawal patterns: In addition to deposits, structuring may also involve withdrawals in structured manners, such as making multiple withdrawals of smaller amounts from various bank branches to avoid mandatory reporting thresholds.

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