4.26.13. Structuring

(1) A financial institution may structure transactions between itself and other financial institutions to prevent the filing of BSA required reports or it may structure transactions between itself and its customers to circumvent the requirement to file BSA reports. The financial institution may:

1. Consistently make deposits of currency into a bank account below $10,000 when available currency is greater than $10,000.

2. Make currency deposits into multiple bank accounts, at multiple financial institutions, all less than $10,000 but aggregating to greater than $10,000, so, no financial institution is required to make a report.

3. Cash a check greater than $10,000 for a customer, provide currency less than $10,000 on that day and direct the customer to return the following day for the remainder of the currency.

4. Direct a customer wishing to conduct a wire transmittal of greater than $10,000 to conduct an immediate transaction of less than $10,000 and return the following day to make a second transaction.

5. Structure a reportable customer transaction so, it is below the reporting threshold without the customer’s knowledge.

(1) Examine the institution’s BSA AML program and its implementation. All elements of an AML program, as mandated by 31 CFR Part 1020, Rules For Banks, 31 CFR Part 1021, Rules for Casinos and Card Clubs, 31 CFR Part 1022, Rules for Money Service Businesses, 31 CFR Part 1025, Rules for Insurance Companies, and 31 CFR Part 1027, Rules for Dealers in Precious Metals, Precious Stones, or Jewels, (PMSJ) must be examined. The details of such an examination are discussed in IRM 4.26.6, Bank Secrecy Act Examiner Responsibilities.

1. Check specifically for the presence of a monitoring methodology to detect structuring. If a methodology is in place, evaluate its effectiveness against your own testing.

2. Analyze the headquarter’s monitoring system to determine if transactions for all agent and branch locations are analyzed to identify customers going from location to location to circumvent the BSA requirements.

3. Examine potentially structured transactions that have been identified by the monitoring methodology. The presence or indication of structuring that is undetected by the financial institution, despite the presence of an AML program with all the required elements, may indicate a weakness in the program.

   Note: While the presence of a functional monitoring methodology is not in and of itself sufficient to verify the absence of structuring, the presence of a sound monitoring program can lead to a determination that, from a risk evaluation viewpoint, participation by the financial institution in structuring may be less likely. Conversely, the absence of a monitoring methodology may be an indication of an environment where structuring is likely.

(2) Determine if the financial institution has a monitoring system in place to identify any unusually complex transactions using multiple financial services.

1. Does the monitoring system identify these transactions at the point of sale? A customer may seek to move funds by wiring a portion and purchasing money orders or travelers’ checks for the balance.

2. If not, how do they compare the activity of one financial service (such as, money transmission) against another to look for unusual activity conducted within a relatively short period of time?

3. If no monitoring system exists, consider requesting and evaluating data within a time frame that will allow the examiner to compare transactions for different services offered by a financial institution at the same location, or in a headquarters’ examination, at locations in close physical proximity.

(3) Select a random sample of transactions and trace them through the records.

1. Has the financial institution or customer broken down the transaction into smaller transactions?

2. Has the customer used multiple financial services to keep the amount of currency paid/received below a reporting requirement?

3. Determine whether any financial transactions are being regularly made to owners and/or employees.

4. Transaction testing should identify any potentially structured transactions. The unusual activity should be provided to the MSB to determine if they made an initial identification of the activity and their decision process as to whether the transaction or pattern of transactions was conducted to circumvent BSA requirements.

(4) Review voided transactions to ensure the transactions were cancelled and not merely voided in the accounting records and a subsequent transaction conducted right below BSA recordkeeping or reporting requirements. This can be accomplished by tracing voids to any records prepared by third parties, such as issuers of money orders and travelers’ checks.

(5) Analyze the pattern in which currency is deposited into all bank accounts. Does the financial institution consistently make deposits at $10,000 or below?

(6) Eliminate legitimate reasons for the pattern in which deposits are made. For example, if the financial institution’s insurance policy limits the coverage on the amount of currency which may be retained at the store; multiple deposits may be made during one day to remain below this threshold.

(7) Review daily cash reconciliations, if available. Compare the currency available to deposit from the report to the actual currency deposited. Is the fluctuation of currency on hand realistic for the pattern of business? Does currency fluctuate to keep the deposit at or below $10,000?

(8) Scan transaction records for sales where the fees are waived. Is this legitimately part of a marketing plan by the institution? If not, why is it being done? Is there any pattern to the transactions?

(9) Review prior examination file for issues related to potential structuring and documents which identify the financial institutions knowledge of the structuring law. This may help prove knowledge. Also compare the volume of services. Does the increase in volume correlate to know growth in the business? Is it consistent with other business in the area and with the known customer base?

(1) To successfully structure a series of transactions, the customer may:

1. Obtain the cooperation of the owners of the financial institution.

2. Obtain the cooperation of an employee.

3. Conduct transactions at a lower dollar amount to avoid any identification requirements.

4. Conduct transactions at multiple agents of a larger financial institution. (An individual may go to multiple money transmitter locations that happen to be agents for the same company)

   Note: If the company has a centralized computer system and aggregates transactions of all agent/branch locations and duly reports the currency transaction, this would be called "imperfect" structuring.

5. Use multiple third parties as initiators or recipients of transactions to complete the transactions.

   Note: This practice is called "smurfing", where transactions, such as money transfers, are conducted repeatedly in small amounts by third parties to avoid the suspicion of the financial institution(s).

6. Conduct transactions at several different financial institutions.

   Note: This is called "perfect" structuring because while the total of the transactions exceeds $10,000, the total amount transacted at each financial institution on a single business day is under $10,000. Thus, no financial institution had a duty to file a CTR.

7. Conduct numerous small transactions over several days.

(2) There is a balance between the need to disguise the transaction and the need to move large sums of funds inherent in any structuring enterprise. Fees that are charged for the transaction, the time involved in handling small transactions, the potential need to involve others, and the need to place the transactions with more than one financial institution to remain anonymous, all work against the customer seeking to structure transactions. However, the relative lack of sophisticated compliance systems compared to depository financial institutions and the lack of a requirement to "know your customer" has made MSBs an attractive vehicle through which individuals structure funds.

(3) Various examination methods can and should be employed to detect structuring by customers. All the methods described in the subsections below should be utilized, if possible. The examiner should always be prepared to adjust the examination plan to consider any method that would assist in revealing structured transactions.

(4) One method is to analyze transactions at risk-based thresholds. These thresholds are determined by considering these factors:

1. What is the largest transaction amount that can be conducted without requiring identification of the customer? The need for anonymity will cause the customer to consider the thresholds that trigger a recordkeeping requirement for the financial institution. Many financial institutions have established lower thresholds to mitigate their risk by securing the identification of customers conducting smaller, more frequent transactions which may indicate structuring. The major money transmitter companies require identification at amounts well below $3,000. Although their only BSA requirement is to secure proper identification to file an accurate CTR, check cashers will often establish controls well below $10,000 as part of their internal risk management.

2. What is the impact of the maximum face value of a single transaction? If the maximum value of a single money order is $500, consider how many money orders may be purchased at one time and remain below the identification requirement. Some financial institutions may establish dollar limits on the amount of transactions they will allow a customer to conduct within one business day. For example, wire companies may establish limits or require additional information as to the source of funds and business purpose for non-traditional transactions. A major retailer may set a limit for the purchase of money orders at $2,999 to reduce their risk of failing to secure the identification required by the regulations. While such limits appear to eliminate reportable transactions or recordkeeping requirements, they simply require the customer to be more sophisticated in the methods employed to circumvent these limits. These lower limits may require added due diligence by the financial institution when identifying suspicious activity. The examiner should be especially alert to the potential use of agents or nominees in these situations.

3. What does the institution consider to be the average transaction size per individual transaction for each category of service offered? The examiner should do a trend analysis on the data sample to see if there are significant variations in the average transaction sizes. This can lead to indications of structuring.

(5) Another method is to eliminate legitimate activities from the scope of records to be examined. Most activity through a financial institution is legitimate. During the initial interview, the examiner should determine what transactions could be eliminated from the scope of the examination. Consider legitimate transactions either by amount, characteristics, range of transaction values, and the frequency of customer activity within a day as well as over time. For example:

1. Who is the primary customer of a check casher? If the primary customers are presenting payroll checks, then it should be possible to eliminate checks with odd dollar amounts (because of withholding) and at a certain maximum amount. If the primary customers are presenting government assistance checks, there is a pattern present in both the amounts and when these are presented that should make it possible to eliminate them.

2. What is an average family to family value range of wire transfer? Most wire transfers are for family support. Relatives in the United States work and send money back to their home country for the support of their family. Most wire transmitter companies know what the average family member to family member transaction is. Is it possible to profile legitimate activity and exclude it from the examination? Money transmitter companies will often plan with other businesses, such as utility companies and cable companies, where they will collect their customer payments and transmit these funds to them daily. Is it possible to exclude these transactions?

3. What is the average number and dollar range of money orders purchased by customers who are using money orders as replacements for checks?

4. What is the average amount of travelers’ checks sold to a typical customer?

5. Were there any "specials" being offered by the financial institution which may be the motive for what appears to be structured transactions? For example, for a two-week period a wire remitter is offering a special rate of $20 to wire funds below $4,500. A customer needs to wire transmit $12,000 and the regular fee would be $100. The customer breaks up the transaction by conducting three $4,000 transfers at a total cost of $60. The customer is structuring the transactions to save $40, not to circumvent the BSA requirements.

(1) The safety of the employee conducting a structuring interview is a factor in considering the location of the interview. Interviews of customers should be held in an IRS office.

(1) The examiner must consider the following:

• Who has knowledge of the transactions?

• What are the potential violation(s)?

• What are the elements of the violation(s) that must be proven?

• What records are available to prove the violation(s)?

• Who is in possession of those records?

• How will those records be obtained?

• Who must be interviewed to explain those records?

• Can a pattern be identified in the transactions to support a determination that it is an ongoing activity?

• What is the total value of all structured transactions?

(2) To make a proper determination, certain information must be obtained from the interview; however, the initial interview questions need to focus on determining whether the financial institution, an employee, or a customer is responsible for the unusual or complex transaction which initially indicated structuring. Interview questions should address:

• What are the circumstances behind the transactions?

• Were sufficient funds initially available to conduct a series of transactions which would constitute an apparent violation (for example, above the $10,000 reporting threshold for reporting)? It is necessary to show that the transaction could have been conducted as a single transaction and the person took actions to break it up to avoid a currency transaction report.

• When did these transactions initially begin?

• How often were these types of transactions conducted?

• Did anyone else conduct transactions on their behalf?

• If the person admits that transactions are structured, for what purpose were they structured?

• What was the source or likely source of the funds used? Are they from a legal source? In some instances (especially if funds are derived from a criminal source), it may only be possible to eliminate legitimate sources and by inference conclude that the remaining sources are illegal.

• What is the person's knowledge of the BSA?

(3) Examiners should try to put the person being interviewed at ease when discussing the general background of the transactions. Only after the examiner has an understanding of the reason the transactions occurred the way they did, the source of the funds, and the business purpose for the transactions, should the examiner ask about knowledge of the BSA. Asking about knowledge of the BSA initially may make the person defensive and less willing to provide a complete explanation of the activity.

(1) When a financial institution's owners or officers are the subject of the structuring interview, knowledge of the BSA requirements should have been established in the initial interview. The examiner should have determined, through a series of open-ended questions, the extent of the subject’s knowledge of the law. While the subject may have shown knowledge during a prior visit(s), the examiner should be prepared to address the subject’s lack of recall of the BSA as a possible defense.

(2) After the examiner has interviewed the owners/officers as to the specifics of the potentially structured transactions, the examiner may need to ask additional questions to clarify their knowledge of the BSA requirements, including tying down their knowledge of what structuring is.

(3) If the subject of the interview is an employee, knowledge of the BSA requirements may be determined from reviewing training material and records under the financial institution’s AML program requirements. Additional interviewing may be required to determine the overall understanding of the BSA requirements and knowledge of the background of the transactions.

(4) If the subject of the interview is a customer, the interview should be limited to determining whether the financial institution provided guidance on structuring transactions to circumvent the BSA requirements.

(5) The 1994 Money Laundering Suppression Act (PL 103-325, tit. iv) established that the government needs only to show that the transactor knew that there was a BSA reporting requirement but did not need to show that the transactor knew that structuring was illegal. The law was enacted after the Supreme Court decision in Ratzlaff v. United States (510 U.S. 135 (1994)), which held that, under the law then in existence, the government had to show the transactor knew structuring was illegal.

(6) The examiner should establish the subject’s knowledge of the BSA through a series of open-ended questions. The examiner should also establish that the subject had such knowledge at the time the transaction(s) occurred. Examples of open-ended questions are:

• What do you know about currency transaction reports?

• When did you acquire this knowledge?

• Who told you and what were the circumstances?

• What do you believe the law says about breaking a transaction into smaller amounts to avoid the currency report?

(7) Examples of poor interview questions (because they are not open-ended) are:

• Did you know that a Currency Transaction Report would be filed if you cashed a check for over $10,000?

• Did you know that a record would be made if you sent a wire transfer of more than $3,000?

• Did you know that it is illegal to structure a transaction to avoid the Currency Transaction Report?

(8) The presence or indication of structuring that is undetected by the financial institution, despite the presence of an AML program with all the required elements, may indicate a weakness in the program.

(1) A structuring violation on the financial institution should be pursued only if the results of the interview establish that all the following were true:

1. The transactions, either the financial institution’s own transactions or its customer’s, were structured to avoid a currency transaction report.

2. The person(s) involved had knowledge of the BSA.

3. No legitimate purpose existed for structuring the transaction(s).

4. The amounts involved are material.

(2) If you have established all of the elements as listed above, a referral for potential civil enforcement should be considered on Form 5104, Report of Apparent Violation of Financial Recordkeeping and Reporting Regulations, or a referral for possible criminal investigation should be made using Form 2797, Referral Report of Potential Criminal Fraud Cases, as appropriate. See IRM 4.26.8, Special Procedures.

(3) Structuring violations on the financial institution are cited on the Letter 1112, Title 31 Violation Notification Letter. The Letter 1112 package includes standard paragraph language to be used on the Letter 1112.

(4) Work papers relating to the structuring issue should be included in the open examination file.

(5) If there are indications of structuring by an employee or customer and it is determined that the financial institution is not involved, the examiner must consider the following:

1. If evidence of the employee and/or customer structuring warrants a referral to CI, then the examiner should forward a Form 2797 to CI as outlined in IRM 4.26.8. The Memorandum of Interview and documents which substantiate the violation must be sent with the Form 2797. No additional examination work should be conducted on the individual.

2. If evidence of the employee and/or customer structuring does not warrant a criminal referral but may be sufficient for a civil referral to FinCEN, the examiner’s manager should contact the IRS BSA FinCEN liaison. If FinCEN determines a referral is warranted, the examiner must forward a Form 5104 to FinCEN as outlined in IRM 4.26.8.

3. If a referral to CI or FinCEN is not warranted, the examiner should forward a Prime Lead Memorandum to IRS CI detailing the employee and/or customer structuring. For additional information see. IRM 4.26.11.11.5, BSA Information Reports, and IRM 25.1.12.9, BSA Leads to CI.

4. If the evidence found in a BSA examination indicates customers may have structured their transactions with the non-bank financial institution and that the purpose for structuring was a potential violation of IRC 7201, Attempt to evade or defeat tax, or IRC 7206, Fraud or false statements, a Form 5346, Examination Information Report, should be prepared.

5. If none of the above actions are warranted, the examiner cannot pursue the employee/customer structuring. See IRM 4.26.13.3.3.

(1) If the structuring interview is to determine whether the business was involved in structuring, the interview should be held at the place of business.

(2) When the interview is with a customer, the safety of the Service employee will be the primary factor in selecting the site of the interview. The interview will normally be conducted in an IRS office.

(1) The interview is like a BSA structuring interview. See IRM 4.26.13.3.4.2, BSA Structuring Interview. The primary difference is that the examiner must establish the subject’s knowledge of IRC 6050I.

(2) The interview must ascertain the business’ knowledge of the actual transactions. Do they know the customer? Did the customer provide any information as to why he/she was conducting the transaction in this unusual way? You need to determine if there is a legitimate reason for the pattern in which the transactions occurred.

(3) The interview will include questions to determine the subject’s knowledge of the BSA. In trying to structure a transaction to avoid the filing of a Form 8300 a violation of the BSA may have also occurred. Actions taken to avoid any BSA reporting or recordkeeping requirement will be developed, but only if such actions are part of a potential failure to file a Form 8300 or structuring under IRC 6050I(f).

(1) The techniques for establishing the subject’s knowledge of the Form 8300 reporting requirements are the same as for a BSA structuring interview. See IRM 4.26.13.3.4.3, Establishing Knowledge of the BSA.

(1) Consult a Fraud Technical Advisor for a possible criminal referral if the results of the interview establish:

1. The transactions were structured to avoid a Form 8300 report or the filing of a false or incomplete report.

2. The person(s) involved had knowledge of IRC 6050I.

3. The amounts involved are material.

4. There are multiple structured transactions or a single transaction where the source of the funds is from an illegal activity.

5. There is an indication of a violation of another statute.

(2) Consider civil penalties if the results of the interview(s) establish:

1. The transactions were structured to avoid a Form 8300 report or the filing of a false or incomplete report.

2. The person(s) involved had knowledge of IRC 6050I.

(3) Where more than one person participated in the structuring violation and sanctions are contemplated against each person:

1. The elements of a violation must be shown for each person.

2. A separate examination file must be established for each person.

(4) Waiving penalties under the provisions of IRC 6724, Waiver; definitions and special rules, may not be appropriate in structuring cases.

(5) See additional information in IRM 4.26.11.9.10, Lead Sheet #405, Fraud Awareness.

(1) If the subject of the interview is the trade or business, then the work papers relating to the structuring issue should remain with the Form 8300 examination.

(2) If the subject of the structuring interview is an employee or customer and it is determined that the trade or business is not involved, examiners should first consider whether a referral to IRS Criminal Investigation (CI) is warranted. If not, the relevant information concerning the customer or employee should be copied and a separate case file should be prepared. The separate case file should be completed following the guidance at IRM 4.26.11.10.3, Penalty Cases.

(3) When the evidence found in a Form 8300 examination indicates that customers may have structured their transactions with the nonfinancial trade or business and their purpose for structuring was a potential violation of IRC 7201, Attempt to evade or defeat tax, or IRC 7206, Fraud and false statements, (to avoid tax or penalty), a Form 5346, Examination Information Report, must be prepared for each customer involved in the structuring. IRM 4.26.11.11.5, BSA Information Reports, has additional information.

(4) If the Form 8300 examination is not closed and the related customers’ interview indicates the business participated in the structuring:

1. The information from the customers’ interview may be used in the Form 8300 structuring case on the business.

2. Upon completion of the Form 8300 examination, the examiner(s) and manager will confer and determine whether penalties are warranted under IRC 6721, Failure to file correct information returns, for violations of IRC 6050I. When warranted, a Form 2797, Referral Report of Potential Criminal Fraud Cases, must be prepared.