Suspiciously Small Deposits Trigger Legalized Bank Robbery

The IRS seized $242 million between 2005 and 2012 based on allegations of "structuring."


Institute for Justice

The week before her confirmation hearings, Loretta Lynch, President Obama's choice to succeed Eric Holder as attorney general, quietly dropped a forfeiture case involving $447,000 seized from Bi-County Distributors, a family-owned business that sells candy and cigarettes to convenience stores on Long Island. Although there was no evidence that the money came from illegal activity, the IRS thought the way it was deposited, in amounts below the $10,000 threshold for mandatory bank reports to the Treasury Department, suggested that Bi-County was trying to evade that requirement, which is a federal crime known as "structuring." According to a new report from the Institute for Justice, which represented Bi-County's owners, the IRS seized $242 million based on suspected structuring in more than 2,500 cases from 2005 to 2012. During that period, the number of cases rose fivefold and revenue increased by 166 percent, but the gap between the amount seized and the amount ultimately forfeited also grew, suggesting the IRS has becoming increasingly reckless with the rights of innocent owners like Mitch, Richard, and Jeffrey Hirsch, the brothers who run Bi-County Distributors.

"Using civil forfeiture," I.J. says, "the government is increasingly treating legitimate small-business owners like criminals just because they make frequent cash deposits." More than four-fifths of the IRS cases related to structuring were civil forfeitures, which do not require accusing the owner of a crime, let alone proving that he committed one. At least a third of the seizures "arose out of nothing more than a series of transactions under $10,000, with no other criminal activity, such as fraud, money laundering or smuggling, alleged by the government." Of the $242 million seized during the period covered by the report, almost half, $116 million, was not ultimately forfeited, meaning the government agreed to return it, as in the Bi-County case and several others that I.J. has handled, or tried and failed to prove its case in court. The share of seized money that was eventually forfeited fell from 90 percent in 2005 to 59 percent in 2012, indicating that the IRS became more aggressive, leading to more seizures based on flimsy evidence.

Challenging these seizures can be prohibitively expensive. I.J. found that half of the structuring-related seizures between 2005 and 2012 involved less than $34,000, which means owners often would have found that paying a lawyer cost more than the government took. One I.J. case involved a Michigan grocer who lost about $35,000 to the IRS; another involved an Iowa restaurateur who lost $33,000. After I.J. took on those cases, the government agreed to return the money. But without pro bono help, the owners might have felt compelled to give up.

Fighting forfeitures can leave owners in financial limbo for months or years. In civil forfeiture cases involving structuring, I.J. found, the average time between seizure and forfeiture was more than a year. Bi-County's owners, the Hirsches, struggled to keep their business afloat, relying on credit extended by longtime vendors, for 32 months. During that time, they did not get a single hearing before a judge. Instead Lynch's office offered to return some of the money, ranging from $171,000 to $396,000, if they surrendered the rest.

I.J. concludes that the best way to avoid injustices like these, short of abolishing civil forfeiture, is to guarantee prompt probable-cause hearings, increase the burden of proof on the government, and allow forfeiture only in cases where deposits were deliberately structured to conceal the proceeds of illegal activity. All three reforms are included in a bill introduced last week by Sen. Rand Paul (R-Ky.) and Rep. Tim Walberg (R-Mich.).