Depositing a Little Common Sense into the Law

by Kathleen Hunker:

Did you know that small business owners can be prosecuted for making repeated cash deposits of under $10,000? Randy and Karen Sowers, owners of a successful Maryland creamery, learned that accounting detail the hard way when the federal government seized $62,936 from their company’s bank account and charged them with violating the Bank Secrecy Act. The Sowers did not intend to violate the law. The couple simply found themselves caught in a net of federal prosecution because their everyday business practices and ignorance of obscure banking laws ran afoul of a federal statute.

California Prisons RealignmentUnfortunately, their story has become all too common. With the eruption of federal regulations, it has become all but impossible for business owners to keep track of potential violations, causing many to inadvertently breach public policy. Unless Congress wants a market where entrepreneurs risk imprisonment and fines to start a business, then it needs to inject a little common sense into the law by simplifying regulations and eliminating strict liability.

The Sowers’ troubles began after they made nearly three-dozen deposits into their company’s bank account, each totaling just under $10,000. Although any fan of nighttime criminal dramas can tell you that a $10,000 cash deposit triggers a federal reporting requirement, few recognize that an attempt to avoid the additional paperwork by breaking the sum into smaller transactions—what the government calls “structuring”—is illegal. Moreover, Congress eliminated ‘willfulness’ as an element of the crime, making a pattern of suspicious transactions sufficient for prosecution. The fact that the Sowers primarily run a cash business at local farmers’ markets and make a steady stream of income did not save them from settling the case and forfeiting half of what was seized.

Now, the ban on “structuring,” unlike many federal regulations, actually has an obvious and necessary role in thwarting crime. The reporting requirement helps federal investigators flush out money laundering, tax evasion, and terrorist financing. If a pattern of repeated smaller deposits were not also banned, the law would be too easily skirted.

But, as with many well-intended regulations, the ban picks up innocent conduct that happens to coincidentally mimic signs of criminal behavior, as it did with the Sowers. You might then assume that in the absence of some other criminal activity the government would be happy to limit itself to an investigation and decline to prosecute “structuring” as a standalone offense. You would be wrong. Federal prosecutors have seized hundreds of thousands of dollars from otherwise lawful businesses because they just happen to generate the wrong amount of money. The transactions alone were enough to seize private assets and, in the Sowers’ case, force business owners to forfeit a portion of their legally earned income.

The government justifies these seizures with the old maxim “ignorance of the law is no excuse.” The government is absurd. With over 300,000 federal regulations, another 4,000 criminal statutes, not to mention state laws and creative interpretations, the law no longer criminalizes blameworthy conduct alone. The government has made it impossible for ordinary citizens to discern the law through common sense.

Instead, the public is forced to rely on a prosecutor’ good judgment—something that seems to be sorely lacking if the Sowers’ experience is anything to go by. The public cannot rely on bureaucrats to respond appropriately when the innocent are inadvertently ensnared by federal regulations.

Nor should they have to. Our Constitution established a system of laws, not men with discretion. Individuals have a right both to their property and to the security of conducting ordinary business without the fear of a judge’s gavel. Thus, Congress needs to impress principled limits to the law’s reach either by repealing some of the excess regulation or, in the case of purposeful laws like “structuring,” introducing some mental requirement so that the unwary are not as likely to find themselves in handcuffs as the guilty.

Randy and Karen Sowers did not deserve to have their hard earned income seized by government bureaucrats. Congress needs to take action lest we become a society where entrepreneurs will fear the law the same way they will fear doing business.

 

Kathleen Hunker is a graduate of Columbia University School of Law. She also has an LL.M. in Public Law and Human Rights from the University College London.

29 Comments

  1. I don’t know what you pay the person who came up with the title of this article, but it isn’t enough. Genius.

    “Ignorance of the law is no excuse” is really only a good defense of law enforcement if the person is doing something harmful to begin with. Suppose a person was making money off of a youtube channel that was exclusively insulting “candid camera” types of videos but did not get permission of the people he was filming. (For instance, feeding birds laxatives at the beach and then filming people getting pooped on or the “invisible rope” prank being played on cars.) The person might say they thought it was legal because these things happened in public, but that is no excuse because they reasonably knew what they were doing was damaging to other people.

    Although cash businesses CAN be damaging because of the reasons mentioned, the fact that they are dealing with cash is not, in and of itself, bad for anyone. (I’d argue the result of this being people using illegal banks or stockpiling cash would be significantly more damaging from an economic perspective). The problem, I think, is a bad philosophy about law and criminal justice. That is, the criminal justice system doesn’t exist to punish people because it can, it exists to eliminate or mitigate threats to society either as a whole or individually. If something is short term profitable to a person, but long term costly to the society (for instance, parking in a fire zone), we fine them to make it short term costly and discourage the behavior. If someone is violent and poses a danger to people, we put them in prison and/or mandate treatment to minimize the danger they pose to others (the problem with prisons being a different discussion).

  2. The obvious solution is to refuse to do business with banks.

  3. I think the way our government chooses to enforce our laws is hilarious. The Sowers were operating a cash business, not all that uncommon, and reporting the income, I am assuming from the article, and depositing their earnings.

    However, laws meant to govern terrorist operations, are now being used against lawful companies. So what will happen? Lawful companies will now start to operate like terrorist organizations.

    The Sowers, like man other do, could not report their income and not pay any tax. Who would know? No one since it is a cash business. Additionally, why deposit your money in banks now? Instead, you can keep the cash yourself and continue to make cash transactions, which funny enough usually come at. A discounted price since others don’t report those transactions. Essentially, these laws used against lawful business encourage them to operate like a hawala. It is at this point we must ask ourselves, is this what we wanted.

  4. Urban Nightmare says:

    You guys are forgetting the obvious thing. The government doesn’t want you to use cash. Cash is hard to trace. Please use your Visa/MC/Amex/Debit card for your transactions.

  5. Pingback: Things That Would Never Happen With Bitcoin: Federal government seized $62,936 from a Maryland couple because they ran a cash business at a local farmer’s market. [x-post /politics] | Bitcoin Buzz – Bitcoin Forum Talk

  6. This is so sad. They probably couldn’t afford the legal fees to fight this properly.

  7. This would have been less likely to happen had the parties involved been using Bitcoin for transactions. The Sowers would have have had their funds confiscated, nor would they have had to deposit them at all, except perhaps in order to pay by check parties that do not yet accept Bitcoin themselves.

    • I seriously hope bitcoins become more common, yes criminals will use it, there is no way to stop that , but if the government had the common sense to stop the need for bitcoin systems they would not have the problem of not being able to track illegally attained funds.

      This is what happens when the laws are abused to steal from hard working people.
      The same as spying on citizens or attacking people sharing data online. Eventually a system will be developed that is completely anonymous and that can be used illegally. If they changed the laws to prevent innocent citizens from being sued or charged with some obscure law they would not have the situation where people doing really criminal things were protected by the same anonymity

      I think it was the FBI that said going after people and monitoring their ip addresses and charging people with silly crimes would encourage stronger anonomizing systems to be created and would make their jobs harder if not impossible to do. Nobody listened to them and now they are in a situation where they are losing the ability to track peoples activity when they have real cause to..

      • Well said Andy.

        Yes, criminals will use Bitcoin. But a little money laundering is nothing compared to what the bankers have done – for example, the $16 trillion they gave to themselves collectively in the 2008 bailout according to the GAO report. The money laundering gets done regardless of any government or Fed rules anyway – just like the war on drugs (or war on anything else) never accomplishes its stated purpose.

        Go Bitcoin and other alternative currencies!

        The bankers have taken over the world through their secret knowledge of how things work using poverty, debt, hate and fear as the driving force. Now we are taking it back with our collective knowledge, ingenuity, courage and togetherness. There are way more of us than there are of them.

  8. The right thing to do for a legitimate business is simply to fill out the over $10k deposit paperwork and make a single large deposit. Large deposits aren’t illegal, they just want to know the money didn’t come from illegal sources. The forms aren’t that onerous, and it beats paying a $100k penalty.

    These people were intentionally trying to evade the cash reporting requirements, and that is what they were penalized for, not for running a cash business.

    • And what if, like my business, we only do deposits on Friday, and average between 7k and 8500 per week? should we skip every other deposit to be over 10k? should we file the paperwork anyway, just in case?

      I’m not against a reporting limit, and i’m not even against banning structuring deposits…

      But they should have to at least show i was trying to dodge the deposit limit, not simply doing my weekly business.

      • Then you’d be fine. This business was making more than $10k per week during the summer and deliberately holding some of the cash back to deposit during slower months in order to avoid the reporting requirements.

        The Sowers actually admitted this. Which is why they were forced to accept a settlement: They were in the wrong.

        • Tax avoidance is not illegal, so why should paperwork avoidance be? This is what is wrong with this part of the law. It should not be a crime to withhold depositing money to avoid time consuming (and therefore costly) paperwork.

          • Don’t tell the cops, but I avoid going down a certain street because it has too many four-way stop signs.

  9. Unfortunately, once liberties are ceded it is very difficult to get them back because the State is a monopoly of violence supposedly selling equity, justice and protection services but due to monopoly status it is increasingly charging a higher price and delivery a lower quality good. Consequently, what the Sowers, and anyone else in a similar situation, needs to do is claim their liberties by using peaceful legal tools like asymmetric cryptography. Freedom and privacy are becoming increasingly luxury goods.

    For example, with PRISM the 4th Amendment is made a mockery. But if one implements PGP and other asymmetric cryptography tools then they can claim their privacy through laws of mathematics and thermodynamics instead of relying on the malleable laws of men.

    So likewise the Sowers should begin using Bitcoin which is a tool that employs asymmetric cryptography to create a completely virtual commodity that empowers people to transfer any amount of value over distance using the Internet. Thus, there can be complete disintermediation from either physical cash or banks. So a large portion of everyone’s financial privacy can be reclaimed and ‘bitcoins’ are completely safe from being arbitrarily seized or confiscated like bank accounts.

    With the asymmetric cryptographic tools available it leaves curious onlookers in befuddlement why people like the Sowers continue to take the abuses when they could easily and cheaply protect themselves. If they really did not want all of their phone calls, emails and digital communications spied on or if they really did not want to be in such a vulnerable position, like the Sowers, with their finances then one would think they would do something about it. Perhaps they have Stockholm Syndrome with the State?

  10. Fact check: The Sowers admitted that they made more than $10,000 each week and then knowingly deposited less than $10,000 in order to avoid the reporting requirements. They then knowingly filed false tax reports.

    That’s not ignorance of the law. That’s knowing the law and deliberately breaking it.

  11. Justin,

    It appears that you are defaming the Sowers by recklessly asserting that they violated structuring laws and knowingly filed false tax returns. Perhaps you can provide a source for your alleged facts.

    The Fredrick News Post article, linked to in this article, contains a summary of facts and says, “A settlement agreement dated May 25 also filed Tuesday clears the Sowerses of civil and criminal matters in the structuring offense. In the settlement, they did not admit wrongdoing … The Internal Revenue Service has not yet completed a review of their tax returns and the couple could face other civil or criminal charges.”

    Consequently, the facts appear to be that the Sowers have neither been convicted nor admitted to any violation of law and the IRS has not reviewed the tax returns or asserted there are any abnormalities or tax fraud. Additionally, referring to your earlier comment about them being ‘forced to accept a settlement’ would imply there was duress and any such settlement would be void due to lack of capacity.

    In conclusion, it appears that you are twisting and torturing the facts in an attempt to defame the Sowers, intentionally harm their reputation with a reckless disregard for the true facts and provide the appearance of legitimacy for the Treasury officials who are clearly acting in inherently immoral ways with peaceful and law abiding innocent citizens operating a normal business in a legitimate and good way.

  12. Pingback: Depositing a Little Common Sense into the Law | The Freedom Watch

  13. It is the duty of every citizen to know and obey the law. If you don’t have the required legal knowledge yourself to know the contents of each and every law that might apply to your situation you should get legal counsil to advise you so you don’t inadvertently break any law. That is why the legal profession exists.

    So there’s really no excuse.

    • Rick Stewart says:

      Know and obey all 300,000 Federal regulations?

      I do not think this is possible.

      Nor do I think a necessity of routinely hiring legal counsel ‘just in case’ is a net benefit to society.

      Nor do I think routine legal counsel knows all 300,000 Federal regulations.

      Nor do I think stripping those 300,000 regulations down to about 500 essential ones would hurt the country.

  14. Pingback: Things That Would Never Happen With Bitcoin: Federal government seized $62,936 from a Maryland couple because they ran a cash business at a local farmer’s market. [x-post /politics] | NewsBitcoin.com

  15. The Sowers should have questioned the presumption that federal structuring rules apply in Maryland. The Constitution gives Congress the power to exercise exclusive legislation over the District of Columbia and all places purchased such as Guam, Puerto Rico and the US Virgin Islands. This does not include Maryland (or any other of the 50 States).

    This is why Colorado and Washington can legalize marijuana but it’s still a federal crime within the United States. This is why Missouri was able to nullify federal gun regulations within its borders. This is why South Carolina is working to nullify Obamacare in its State. The Constitution does not allow for the federal government to apply its rules within a State.

    Yes, the Sowers could have got the case dismissed simply by challenging jurisdiction and venue. But this would only work if the judge would be willing to rule according to law.

    If anyone can find where the Constitution gives Congress the power to regulate banking within a State, please leave a comment.

  16. The “prosecutors” involved should have to pay back the Sowers, triple, out of their own salaries.

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