Congress justified these laws as necessary to combat money laundering by organized crime and illegal drug operations. In their broad scope, however, they apply equally to law-abiding citizens conducting perfectly legitimate activities. The following guidelines are provided to keep you from inadvertently violating these laws.
Cash Transaction Reporting (CTR). All cash transactions of ten thousand dollars or more must be reported to the Treasury Department. The obligation for meeting this requirement falls on the merchant or bank. You are not required to do anything yourself. If you make a purchase or withdrawal from a financial institution (bank, credit union or thrift) THEY are required to report it to the government. If the bank or merchant fails to file the form, they are in violation - not you. Please note that this law applies to CASH transactions only. If you write a check for ten thousand dollars, no report is required.
What happens to these reports? In all likelihood, they go inside some anonymous room in Washington and some faceless bureaucrat puts the information into a computerized database. Most of the data will probably never be used but that's not the point. The fact is the information is there, it involves you and your private financial affairs and could conceivably be used against you (on purpose or in error) by some overzealous or unscrupulous government official.
(Note: There is also an information gathering requirement involving the purchase of cash equivalent instruments such as cashier's checks, money orders etc. For every such transaction [cash or otherwise] of three thousand dollars or greater, banking institutions must keep a record of the purchaser's identity including name, address, social security number, etc.)
Structuring. Now, I'm sure your fertile little mind cooked up a clever way to avoid this CTR requirement. Surely all you need to do is make several small withdrawals instead of one big one. For example, you might withdraw five thousand dollars this week and another five thousand next week.
OOPS! You have just violated the law - not the bank but you.
What you have done is to "Structure" these two related transactions so as to avoid the Cash Transaction Reporting laws and to do so is illegal. Does it matter that you didn't intend to break the law or that you didn't even know such a law existed? No. Most federal courts have interpreted the banking laws as "strict liability statutes" meaning that neither intent nor knowledge is necessary to break the law. Speeding laws fit into this same category. You speed, you pay.
The chilling part of the structuring laws is that it is the bank that makes the decision on whether or not to report you to the federal authorities and it is purely a judgment call on their part. One bank might report you for making ten thousand dollars of cash withdrawals over a six-week period. Another might turn you in for doing the same over a six-month period.
Suspicious Activity Report (SAR). Banks are obligated by the law to report any cash related transactions that even appear suspicious in nature. In any amount. If you take a thousand dollars out of the bank and someone there doesn't like your hairdo or your earring, they can report the transaction to the Treasury Department. This does not mean you have violated the law, it just means a report has gone to the government about your cash transaction.
So what should you do? If you plan to build up significant cash in any amount, I suggest a personal visit to a bank official. Take along a letter from your lawyer plus a copy of the August 20, 1998 USA Today article that says the Federal Reserve is increasing the nation's cash reserve to accommodate those who are concerned about Y2K. The letter should explain that you are concerned about Y2K and that you wish to take advantage of the increased supply of cash. Indicate that you understand there are some forms that need to be filled out and that you wish to be fully compliant with the banking laws. Then fill out the forms. Ask for the letter and the article and copies of the forms to be placed in your file. Then forget about it. You have satisfied the law and justified your large cash withdrawal by pre-solving any administrative problems.
The above are three areas of existing banking regulations. Another, even more far- reaching and (some would say) intrusive regulation is on the way. According to the FDIC, as found on their web site, a regulation is scheduled to take effect early next year that would operate as indicated below.
"As proposed, the regulation would require each nonmember bank to develop a program designed to determine the identity of its customers; determine its customers' source of funds; determine the normal and expected transactions of its customers; monitor account activity for transactions that are inconsistent with those normal and expected transactions; and report any transactions of its customers that are determined to be suspicious, in accordance with the FDIC's existing suspicious activity reporting regulation. By requiring insured nonmember banks to determine the identity of their customers, as well as to obtain knowledge regarding the legitimate activities of their customers, the proposed regulation will reduce the likelihood that insured nonmember banks will become unwitting participants in illicit activities conducted or attempted by their customers."
This regulation could cause grief for individuals pulling funds out of the banking system in preparation for Y2K. Suppose, for example that the bank builds a profile of a customer indicating a regular amount of deposits and withdrawals per month. If that customer suddenly changes that profile, (by withdrawing cash in whatever amount, for example) the bank may report that customer to the FBI for investigation. The size of the withdrawal is immaterial; it is the irregularity that sets off the alarm.
According to the FDIC, the proposed regulation is authorized by current law stemming from the statutory authority granted the FDIC under section 8(s)(1) of the Federal Deposit Insurance Act (12 U.S.C. 18189s)(1), as amended by section 259(a)(2) of the Crime Control Act of 1990 (Pub. L.101-647).
This regulation is not yet in effect; indeed a period of public comment is currently in process. If you are so inclined, comments from the public may be sent to Robert E. Feldman, Executive Secretary, Attn: Comments/OES, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429 or faxed to (202) 898-3838. The deadline for comments is December 27.
This week's tip is, if you intend to increase your cash position in preparation for Y2K, be sure you understand and avoid running afoul of the current and proposed banking regulations. If you are unhappy with the proposed regulation outlined above, inform the FDIC. I would also suggest letting your Congressman know how you feel about the matter as well.
Browse the Y2K Tip of the Week Archives for previous editions of this column, and see many more practical Y2K Tips such as these in my book, A Survival Guide for the Year 2000 Problem, a sample of which can be previewed at www.SurviveY2K.com.
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