Wednesday, February 11, 2015

Civil Forfeiture and Structuring

Large cash transactions or even carrying large amounts of cash, can get you into trouble.   Civil forfeiture laws allow the State to seize cash, cars, and even houses, if they are involved in illegal activities.

A lot of ink has been spilled in the press lately about civil forfeiture and "structuring" cases.  People decry these cases as unfair to innocent people who are caught in the wrong circumstances.  And yes, in some circumstances, the laws have been abused.   And since many law enforcement agencies are allowed to keep the cash or items forfeited, there is an incentive to go after these funds.

To understand why we have civil forfeiture, you have to understand how crime works.  If someone makes a million dollars running drugs, and then they get arrested, they now have a million dollars to hire a defense attorney.   And maybe you think running drugs is OK.   Well, what about the guy who killed your wife because you refused to pay the Mafia?   Should he be allowed to use the ill-gotten gains of his trade to live - and to stay out of jail?

In a local case recently, a man was pulled over for failure to signal.  He had about a quarter-million dollars sewn into a backpack, and when they asked to search the car, he stupidly said, "Yes" and when they found the money, he claimed it wasn't his, so the police confiscated it.

Now, if I was to advise him, I would have said not to consent to the search of the car.   And if the money was found, I would have advised him to say it was his, and used for his cell phone business (he claimed he was in the business of buying disposable cell phones and selling them in Latin America).  And if asked why it was sewn in the backpack lining, I would have advised him to say he was worried about it getting stolen.

But I wasn't there and criminals are often stupid - or at least the ones who get caught are.

The reality is, however, that I-95 is a major drug-running corridor, and people drive down from New York and New England to Miami, loaded with cash, and pick up drugs and drive back up.   And the local police are quite aware of this and enjoy pulling over out-of-state cars that fit a certain profile, as they know they will find drugs in these cars - or cash.

And if you know anything about Georgia, this has always been the case since the old days.  Before I-95, local Sheriffs would pull over folks on route 17, and shake them down for something.  Someone even wrote a book about this.  When Mark's parents drove from New York to Florida every year, in their '55 Cadillac, they expected to be pulled over at least once, in Georgia.  So it never ceases to amaze me that people speed through Georgia.  The speed traps are so well known that they appear on my GPS as landmarks (and an audible warning is given).   The one in St. Mary's near exit 7 is a permanent fixture.  You have been warned.

Now, it may seem "unfair" that someone can just take your big pile of cash.   But then again, why is it you have a big pile of cash in the first place?   If the fellow in the example above was really in business buying and selling cell phones, then he should have been able to have a bank account, a credit card (even a pre-paid one) or even a money order.   Carrying a quarter-million dollars in cash around for no reason is just, well, dumb.

You can bet that if someone has a pile of cash laying around, that they are involved in some illegal activity - if nothing else, tax evasion.   When we lived in Alexandria, there was a rash of "home invasions" where Asian gangs would invade the home of some family and take $50,000 in cash from the family safe.   Why did these people have $50,000 in cash (or more) laying around?   They ran small grocery or convenience stores and if the customer did  not ask for a receipt, they put the cash in a cigar box, rather than the cash register, and thus avoided reporting it as taxable income.   In other words, they were committing tax evasion.     Tax evasion leads to home invasion.   Kind of hard to feel sorry for that sort of person, particularly when tax season is here and I'm paying my fair share.

Bear in mind that most criminal transactions involve cash.   There is nothing wrong with carrying or paying cash for things, provided you obtained the cash legitimately and report large cash deposits or puchases

Some are calling for the elimination of the $100 bill, as most in circulation are used for illegal activities.  It is the currency of choice for drug lords and arms dealers worldwide.   Most are in circulation outside of the United States.  Large amounts of cash are always suspect.

Why is this?  Well, no one in their right mind keeps $100,000 in cash laying around the house, unless they have good reason to do so - for example, not alerting the government to ill-gotten gains.   Legitimate reasons?  Very damn few - if any.

Not only that, but money laying around in cash is not earning interest or paying dividends.   It is safer and smarter to put money into investments or in the bank.   But of course, if that money was illegally obtained, well, you can't take it to the bank.

To prevent people from spending illegally gotten gains, most large cash transactions (over $10,000) have to be reported to the government.  If you go to the bank and deposit $10,000, they have to fill out a form and send it in (which can be done electronically).   If they buy a car for $10,000 cash, the dealer has to fill out a form.

Now, this sounds onerous and all, but in your daily life you probably run into similar reporting requirements - the dreaded 1099-misc.   As a self-employed person, I receive a number of these and also have to send them out.  The idea is simple - if you pay anyone more than $600, the government wants to know about it.   My credit card merchant account provider has to report the amount I receive in credit card sales.   Yea, it is a PITA, but it is the law - and the law is designed to prevent people from cheating on their taxes.

Greece doesn't have such laws.   Look where that got them.  Their country is in trouble because no one pays taxes - because they have no enforcement mechanisms as we do.

But getting back to structuring, it becomes immediately clear that there are numerous ways around this $10,000 reporting requirement.   For example, say you are a drug dealer and you want to buy a Cadillac Escalade - because you have no taste.  But such a vehicle, even used, would run $50,000.   You have suitcases of $100 bills at your apartment.  What to do?

The used car dealer wants to sell you the car, and is willing to help.   You buy an older Hyundai from him for $9,999.99 and drive it a week.   No reporting is required.   You trade that in, plus another $9,999.99 in cash for a Toyota.   You drive that a week.  No reporting is required.   You trade that in, plus another $9,999.99 for a used BMW.    And so on.  Each time the dealer makes money because he is padding the prices of these clunkers.   But at the end of five or six such transactions, you have the Escalade, and no reporting is required!


Wrong.  You see, such a series of transactions is deemed to be "structuring" to avoid the reporting requirement, and that in and of itself, is illegal.   And some legitimate businesses have been caught in the wringer when they try to structure transactions to avoid the $10,000 reporting requirement.

The act of avoiding the law, is in and of itself, illegal.   And really, shouldn't it be?   The guy selling your children crack cocaine is skirting the law, and the "legitimate" used car dealer is helping him spend his ill-gotten gains.

Again, if you have a legitimate cash transaction it is not illegal, but it just needs to be reported.   When we sold our vacation home, we made a deposit of $450,000 in cashier's checks, personal checks, and cash (from the sale of furniture, cars, and boats), and that kind of freaked out the teller.   Yes, they had to fill out a reporting form, because the cash exceeded $10,000.   I didn't mind waiting - it was nearly a half-million dollars!   And I didn't mind reporting it because it was a legitimate transaction and I wasn't doing anything illegal.

There was a case recently in the papers where a widow had to forfeit about $30,000 because she was "structuring" - making deposits of just under $10,000 each.   The problem was, her husband was making a series of such transactions beforehand and had been caught at it, and the government asked him to stop structuring and he agreed to do so - in writing.   The husband told his wife he had $180,000 in cash in a briefcase "from his job as a publishing executive, gambling winnings and investment income."

Despite the agreement not to "structure" deposits, she kept at it, after his death.   The question is, to most rational people, how do you end up with a briefcase of $180,000 legitimately?   They pay publishing executives in cash these days?   Investments pay dividends in cash?    You really can win that much at the casino?   Really?

By the way, you can see there is a "get out of jail free" card in this mix, which might explain why casinos are so popular still.   You can declare income as "gambling winnings" and pay taxes on it, and the IRS won't come after you for unpaid taxes (as they did Al Capone).   Other agencies might, but not the IRS.

I find it hard to feel "sorry" for someone who has that kind of cash laying around.   Either they are monumentally stupid, or they are doing something illegal.  And the risk of that cash being stolen is just too great (and now everyone in Iowa knows she has that kind of cash at her house, and she is alone!  Brilliant!).   Not only that, but money in briefcases isn't earning interest.   There usually is a reason people hoard cash like that and it usually is an illegal reason.  Hard to feel sorry for people breaking the law.

And our friend on I-95?   He walked away from a quarter-million in cash, simply because he was too scared to say it was his.  The rightful owner could still claim it, of course, but chances are, the rightful owner did not come by the money legitimately, so he will not come forward and claim it.   And the poor sap who was pulled over?  He's likely floating face-down in a canal somewhere in South Florida.   The drug trade is a dead-end, particularly for lower-level mules.

But things other than cash can be seized.  Houses and cars can (and are) routinely seized.   If a drug dealer buys a fancy car with the proceeds of drug dealing, should he be allowed to keep that, once he is arrested?   Most people would say no.  But again, there is an incentive on the part of the police to be aggressive about this, as they often reap the rewards of such seizures, and the system can be abused.

Of course, one sure-fire way not to have your car seized is to not deal drugs and not carry drugs around in your car.   This seems like a ridiculously simple concept, but it eludes a lot of people, to whom not doing drugs or not dealing drugs are simply not realistic options.   I know that when I was a young drug-head, I felt the same way.

Houses can be seized if drug activity is detected on the premises.  However, in many cases, the house is given back, if the owners take steps to put an end to drug activity.   Thus, it sounds dramatic, at first, when a family's house is seized because their son is dealing heroin out of the basement.   But when you read "the rest of the story" you learn that the house was given back to the parents, after they agreed to toss their drug-dealing son out of the house.

As I noted in an earlier posting, drug-dealing actually is not very profitable, and many drug dealers live with their parents.  Having a bounce-back son living the basement can be dangerous to you, as a parent, as your house is at risk if he is dealing drugs.   And if he is living in your basement, he is at least using them, if not dealing.  And even if they don't seize your house, you could be in for a world of woe if he is caught.

But think about this issue from the point-of-view of the neighbors.  They are trying to raise a family in a nice neighborhood, and you are, in effect, running a drug operation out of your basement.  Cars are coming and going at all hours of the night, and all sorts of unsavory characters are showing up in the neighborhood, who, needing heroin money, will break into parked cars and maybe even adjacent houses.

And we're not talking pot, here.  We're talking heroin, which is a highly addictive drug, kills people (like Phillip Seymour Hoffman) with regularity, and whose manufacture and sale profits outfits like the Taliban and Al Qaeda.

No, I don't have sympathy for that family.   The government did the right thing - by forcing them to toss their drug-dealing kid out of the house.   Allowing him to live with them is not only destroying the neighborhood, it is enabling his addict behavior.   Sometimes tough love is what is needed.
Is civil forfeiture a raging injustice?   Perhaps.  The people railing against the "injustice" of it all, however, tend to be people doing illegal things.   The easiest way to avoid these sorts of problems is to not get involved in illegal activities.   Not only are they a "hassle" in terms of getting caught and going to jail - and having your assets forfeited - but in most cases, they really are not very profitable ventures, except for a few people at the very top of a criminal enterprise.