The Crime of Withdrawing Your Own Money: Structuring

Even Elliot Spitzer's No Match for the "Bank Secrecy Act"

Talk about comeuppance. New York governor Elliot Spitzer, the poster boy for ethics on Wall Street and elsewhere in the financial markets now finds his political career in ruins. And it's all because of an almost-unknown law: the Bank Secrecy Act.

The so-called "Sheriff of Wall Street" made the mistake of withdrawing large amounts of cash from his bank account and trying to prevent the bank from reporting the withdrawal to the U.S. Treasury. That apparently set alarm bells off in the bank's software used to identify "suspicious transactions" in customer accounts.

The bank turned the information over to the IRS. An investigation began, which included wiretaps of Elliot's phone calls, including a series of conversations setting up liaisons with high-priced call girls.

And a few weeks later, The New York Times revealed that Spitzer had paid a prostitute US$4,300 in cash for her services. Apparently, Spitzer had at least seven liaisons with women from the agency over six months, and paid more than US$15,000.

In cash. And that's what led to the problem. The Bank Secrecy Act requires that banks report the withdrawal of more than US$10,000 to the U.S. Treasury. The form used is called a "Currency Transaction Report" or CTR.

Elliot apparently realized that any cash withdrawal over US$10,000 led to a CTR filing requirements. But, he may not have realized is that any effort to avoid this filing requirement by breaking up a series of related cash transactions into smaller amounts is a federal crime called "structuring."

If Elliot is prosecuted for structuring, he could face a five-year prison sentence and a US$250,000 fine. He could also lose every dime in the account from which he structured the funds, under the law's severe civil forfeiture sanctions. But most likely, he'll receive a fine for the offense, but no prison time.

In most structuring investigations, the problem is knowing what transactions are "related." Are a series of 12 withdrawals of US$900 (which collectively exceed US$10,000) related? Bank Secrecy Act regulations don't address this possibility, or any of an infinite number of other possibilities. But in Elliot's case, it was clear that the withdrawals had a common purpose: to funnel money to a front company for the prostitution agency.

Elliot's sad story should be an object lesson. Laws that prohibit you from withdrawing your lawfully earned money in any way you please from your bank account without notifying the U.S. Treasury may be unfair. But, they are enforced, as Elliot learned to his dismay.

Copyright © 2008 by Mark Nestmann