The Volokh Conspiracy

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Volokh Conspiracy

The too-long arm of the law, cont'd


The heat is slowly turning up on the government's use of civil asset forfeiture procedures to extort money out of innocent individuals without the messy need to actually show that they did anything wrong or wrongful. I blogged about this a couple of weeks ago, and today's New York Times has a front page article detailing another wrinkle in the civil forfeiture scam: seizures of funds deposited in violation of the "anti-structuring" provisions of the federal code.

As you probably know, banks have an obligation to report all cash transactions of more than $10,000 to the federal government. What you may not know is that it is a federal crime to "structure a transaction," including by "breaking down a single sum of currency exceeding $ 10,000 into smaller sums, . . . "for the purpose of evading the [reporting] requirement." The reporting requirement itself is designed to alert the government to possibly suspicious transactions involving proceeds from money laundering, or drugs or gambling or other cash-intensive activities. But the statute makes the evasion itself a crime—even if the money was derived from perfectly lawful activities, and even if the "purpose of evading the reporting requirement" is a perfectly benign one. And to make matters much worse, the IRS doesn't even have to charge you with the crime of "structuring" in order to seize the proceeds of the transaction under civil asset forfeiture laws, and the Times article details growing use of this procedure to take and keep money belonging to innocent individuals who are never even charged with the crime at all.

As it happens, I have a particular interest in and connection to the "structuring" issue. Back in 1993, when I clerked for Justice Ginsburg, the Court decided the case of Ratzlaf v. US (510 US 135 (1994)). Ratzlaf admitted that he structured a cash transaction with knowledge of, and a purpose to avoid, the banks' reporting requirement. [He owed $1000,000 to a Las Vegas casino, and the casino helpfully provided a limousine to take him around to a number of local banks where he could get cashiers' checks for $9,900 without triggering the recording requirement) The anti-structuring statute at the time, however, called for proof that the actor had not merely violated the anti-structuring provision but "willfully violate[d]" it—and the Court (with Justice Ginsburg writing for the majority of five) held that the government had not proved that Ratzlaf acted "willfully." (Law students take note—it's a very interesting decision about how to construe the word "willful" when it appears, as it does not infrequently, in statutory criminal provisions. And an odd lineup, which usually means something interesting was going on in the case: Ginsburg joined by Stevens, Scalia, Souter, and Kennedy in the majority; Blackmun, Rehnquist, O'Connor, and Thomas in dissent). The Court noted that "willfully," when used in federal statutes, usually means that the actor had "specific intent to commit a crime," i. e., "a purpose to disobey the law"—that the defendant knew that he was acting unlawfully but went ahead nonetheless. Adding the modifier "willfully" is the legislature's way of overriding the usual rule that "ignorance of the law is no excuse"; ignorance of the law is an excuse, if the statute requires the government to show that you acted "willfully."

Ratzlaff, the Court held, didn't act "willfully," because even though he knew of the bank's reporting requirement (and was acting to evade it), he didn't know that such evasion was itself a crime, so he could not be said to have acted with a specific purpose to disobey the law. The government argued that that the intent to evade the reporting requirement was alone enought to satisfy any "bad purpose" requirement signalled by use of the word "willfully"; because "structuring is not the kind of activity that an ordinary person would engage in innocently," it was therefore "reasonable to hold a structurer responsible for evading the reporting requirements without the need to prove specific knowledge that such evasion is unlawful."

The Court (wisely, in my view) rejected that argument:

"Undoubtedly there are bad men who attempt to elude official reporting requirements in order to hide from Government inspectors such criminal activity as laundering drug money or tax evasion. But currency structuring is not inevitably nefarious. Consider, for example, the small business operator who knows that reports filed under 31 U.S.C. § 5313(a) are available to the Internal Revenue Service. To reduce the risk of an IRS audit, she brings $ 9,500 in cash to the bank twice each week, in lieu of transporting over $ 10,000 once each week. That person, if the United States is right, has committed a criminal offense, because she structured cash transactions "for the specific purpose of depriving the Government of the information that Section 5313(a) is designed to obtain." Nor is a person who structures a currency transaction invariably motivated by a desire to keep the Government in the dark. But under the Government's construction an individual would commit a felony against the United States by making cash deposits in small doses, fearful that the bank's reports would increase the likelihood of burglary, or in an endeavor to keep a former spouse unaware of his wealth."

[I've often wondered whether Justice Ginsburg's familiarity with perfectly lawful tax-structured transactions—her husband Marty having been one of America's top tax lawyers—helped make her more receptive to the notion that the "evasion of the reporting requirement" alone is not enough to trigger criminal liability; just because a statute says "If you do X, the consequence is Y," avoiding X in order to avoid Y is not, standing alone, a criminal act—if it were, a lot of tax lawyers and their clients would be in jail.]

Unfortunately, Congress, responding to alarms that this holding would make it harder to find and to prosecute money launderers and drug dealers, rather quickly responded by deleting the word "willfully" from the statute, leaving us with the mess we now have.