WASHINGTON - The Internal Revenue Service's (IRS) Criminal Investigation (CI) division enforced the Bank Secrecy Act's anti-structuring provisions primarily against individuals and businesses whose income was legally obtained, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA). The report also concludes that the rights of some individuals and businesses were compromised in these investigations.
The Bank Secrecy Act (BSA) requires financial institutions to report currency transactions in excess of $10,000. This Federal law also makes it a crime for property owners to structure currency transactions in such a way as to avoid the filing of the report, and subjects structured amounts to civil or criminal forfeiture proceedings. However, the Eighth Amendment to the U.S. Constitution requires that penalties in a civil forfeiture case be proportionate to the conduct and serves to limit what the Government can forfeit depending on the facts of the particular case.
CI pursued structuring cases primarily utilizing the civil forfeiture process as part of task force teams that included Federal, State, and local officials. When complaints were published in 2014 about seizures of property without sufficient evidence of a crime, TIGTA undertook this audit to determine how these seizures and forfeitures were conducted, what procedures the IRS used, and whether those procedures were fair.
TIGTA determined that 91 percent of the 278 investigations in its sample where source of funds could be determined were of businesses and individuals whose funds were obtained legally. While the BSA does not distinguish between legal and illegal sources of funds, IRS procedures dictate that the overall purpose of its civil forfeiture program is to disrupt and dismantle criminal enterprises. Most people impacted by the program did not appear to be criminal enterprises engaged in other alleged illegal activity; rather, they were legal businesses such as jewelry stores, restaurant owners, gas station owners, scrap metal dealers, and others. One of the reasons why legal source cases were pursued was that the Department of Justice had encouraged task forces to engage in "quick hits," where property was more quickly seized and more quickly resolved through negotiation, rather than pursuing cases with other criminal activity (such as drug trafficking and money laundering), which are more time-consuming.
TIGTA determined that, in most cases, CI generally relied on the pattern of currency transactions to support the seizure rather than initially seeking information from the property owners. When property owners were interviewed after the seizure, agents did not always identify themselves properly, did not explain the purpose of the interviews, did not advise property owners of any rights they might have, and told property owners they had committed a crime at the conclusion of the interviews. Under IRS procedures, the provision of certain rights, such as the right to remain silent, are provided to individuals in Title 26 tax cases, even when individuals are not in custody; however, these rights are not provided in Title 31 cases, such as BSA violations.
TIGTA also found that, in 54 cases, property owners gave reasonable explanations for why currency transactions did not exceed $10,000, and, in most cases, TIGTA found no evidence that these explanations were investigated.
TIGTA also determined that, in some cases, the Government appeared to bargain non-prosecution to resolve the civil forfeiture case, though it is not clear whether the potential criminal matters were leveraged solely to resolve the civil matter, which would have been improper. TIGTA also determined that outcomes in cases with substantially similar fact patterns were not consistent. TIGTA's audit was also significantly delayed due to CI's over-designation of case materials as "grand jury information," which is generally not subject to disclosure.
CI changed its policy in October of 2014 so that, going forward, it would only pursue illegal source income in structuring cases unless there are "exceptional circumstances" and made additional process changes to improve the program. In a sample of cases covering periods after the policy change, TIGTA found some inconsistencies with the new policy. In 2016, after two congressional hearings on this program, CI also began a process of notifying approximately 1,800 property owners who had funds forfeited in this program and inviting them to send in petitions for return of their funds.
"Criminal Investigation has now made important improvements to this program; however, the IRS should ensure that protections are in place so that people have rights and that innocent people do not feel compelled to settle a civil forfeiture matter under the pressure of possible criminal prosecution," said J. Russell George, the Treasury Inspector General for Tax Administration.
TIGTA made recommendations for improvement of the program, and CI agreed with five recommendations, disagreed with three recommendations, and partially agreed with one recommendation. In responding to the recommendations, CI officials said that they have established controls to monitor case selection and are in the process of evaluating petitions from property owners impacted by the program after CI issued over 1,800 letters to persons impacted by the forfeiture program since 2009 in which they were invited to submit or resubmit petitions for return of funds. Further, they partially agreed to allow advice of rights in noncustodial situations for administrative cases but not for cases it deems are "grand jury investigations."
IRS CI agreed that all reasonable explanations provided by subjects should be explored and has eliminated the use of Consents to Forfeiture. They declined to provide additional guidance or training regarding the bargaining of nonprosecution to resolve a civil case. They stated that they are committed to making appropriate referrals to the IRS examination function, but will not agree to improve their grand jury information designation process, stating that the Inspector General Empowerment Act of 2016 (which grants Inspectors General access to grand jury information, unless certain denial criteria are met; e.g., active investigations or disclosure would be harmful to the interests of the United States) obviates the need for CI to correct the problem of over-designating information as grand jury information. TIGTA believes that requiring the Attorney General to review voluminous information for the Act's grand jury denial criteria when the information has been incorrectly designated as grand jury information by CI is a needless waste of scarce resources of both the Attorney General and TIGTA.