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Since 1986, IRS Criminal Investigation has initiated more than 4,200 criminal cases on money launderers. Over 1,100 of these were initiated in 1990. These cases represent 27 percent of our criminal case inventory and involve about 20 percent of our criminal investigation resources. Approximately 50 cases have been initiated for violations of the section 60501 reporting requirements. Nearly all of these have been since the increased penalties were enacted. Seizures under the money laundering statutes have totaled some $135 million. Almost half of this has been seized during this fiscal year. The rate of increase is at least partly attributable to the increased training and experience of our personnel.
Over the years, Criminal Investigation has been extensively concerned with CTR compliance by regulated financial institutions.
Criminal Investigation personnel have developed and conducted training sessions for bank tellers and officials. Video tape presentations on money laundering and the CTR form filing requirements have been prepared and distributed to the banking community.
Recently we have devoted a substantial amount of time to educate and to obtain the cooperation of bank personnel in identifying and reporting suspicious transactions. transactions may involve the purchase of monetary instruments of less than $10,000, but in the bank employee's opinion there may be structuring involved, or identification may appear to be false. Structuring refers to a technique for converting cash through a series of transactions to avoid reporting requirements. For example, if someone with $18,000 purchases two money orders for $9,000 each, they may be charged with structuring to avoid the CTR reporting requirements. If a bank employee observes a suspicious transaction, they are encouraged to file a Suspicious Transaction Report (STR). This can be indicated by checking a block on the CTR form. Statistics on such reports are maintained by the Detroit Computing Center.
Suspicious transactions may also be reported by a letter or phone call to the local Criminal Investigation office. Western Region has established a pilot program to track reports of suspicious transactions from all sources. These reports have increased from approximately 3,000 in 1986 to over 7,000 so far in 1990.
Converting illegal proceeds into autos, jewels, gold and silver coins, artifacts, and real estate is another trend among those involved in narcotics trafficking. The assets indicate economic stature and prestige to their peers as well as a method of laundering their profits. As an example, two luxury car dealerships have been seized by Criminal Investigation in the past several months for violations of the money laundering statutes and section 60501.
One dealership in Maryland was the subject of an undercover operation in 1989. The investigation began when the dealer offered to sell a Mercedes Benz to an undercover police officer and not file a form 8300. During the operation, the dealer had been told that the cash came from narcotics sales. The investigation showed that over a four month period in 1989, the dealership had structured in excess of $400,000 into its business bank account with no Forms 8300 being filed. The proprietors were indicted for money laundering and 64 luxury vehicles were seized.
A Los Angeles auto dealership was the subject of an IRS investigation. The owners catered to the exotic tastes and large cash business of the Blood and Crip gangs. Vehicles were sold for cash with no forms 8300 being filed or filed with false information. In some instances, the vehicle would be registered in a fictitious name or in the lienholder name of the dealership.
This was done to prevent seizure by the local police if the vehicle was confiscated in a drug deal or by the government in a tax or money laundering investigation. The owners of the dealership were indicted and the business seized which included 47 luxury automobiles valued at over $1 million. The indictments included filing false Forms 8300, failing to file Forms 8300 and personal tax charges.
IRS Criminal Investigation has launched several investigative projects to test Form 8300 compliance around the country. In New Jersey, yacht brokers and real estate title companies were identified as businesses filing few 8300s. did comparison checks on CTRS filed by financial institutions showing large cash deposits by these entities with no corresponding Form 8300 on file. When agents made a field call to a local yacht dealer, they inquired as to a particular $27,000 cash deposit the broker had made to his business account and no Form 8300 had been filed. The broker explained he had received the cash in three increments and produced records showing the sale of a yacht to a Philadelphia pharmacist for $360,000. yacht broker's records showed that almost all the payments received on the sale were $9000 checks that the buyer had purchased at numerous financial institutions. The ensuing investigation, joined by the Drug Enforcement Agency, resulted in the indictment of the pharmacist who had been selling a combination of codeine and methamphetamine on phony prescriptions.
The same project identified an individual who had purchased more than a million dollars worth of real estate. When contacted by agents, the individual claimed to have received the money from a deceased drug kingpin. The story later proved false and the
individual is now under investigation.
Last year, an attorney deposited $80,000 in cash in his bank account. The bank alerted Criminal Investigation of the transaction and complained that the currency had a peculiar odor and appearance. The cash was analyzed by the U.S. Secret Service laboratory here in Washington. Although no narcotics residue was present, it was determined that the notes, all $10s and $20s, had been buried together. The Detroit Computing Center was notified to perform a special search and to alert the San Diego office if the attorney filed a form 8300 within the 15-day period. The attorney did file the form but declared the amount as "over $10,000". He also inscribed "attorney-client" privilege as to the remaining questions on the form. This and other similar situations are under civil litigation and summons enforcement by the Service.
The spouse of an executive under investigation for participation in a savings and loan fraud case is currently under investigation for structuring cash payments and deposits. target was determined through a CTR filing.
Criminal Investigation has embarked on several compliance education campaigns around the country. In Dallas, a match was conducted of CTR and corresponding Form 8300 filings by car dealerships. Letters were generated to specific car dealerships detailing the requirements of 60501 and highlighting discrepancies found in their CTR and 8300 filings. These efforts generated mass delinquent Form 8300 filings by Dallas area car dealers. The incoming forms were then compared with criminal indices and several known narcotics violators were revealed. Criminal investigations are being pursued.
These and other similar efforts around the country are beginning to impart the full responsibility of the laws on those who should be filing Forms 8300. News publications of those prosecuted for violating the requirements, such as the two car dealerships mentioned earlier, are also having a positive
compliance impact. Businesses are starting to file "Suspicious Transaction" Forms 8300. The 1990 version of the Form 8300 includes a prominent block at the top to be checked if the business believes the transaction to be suspicious. The Detroit Computing Center has received 305 forms 8300 filed for amounts under $10,000 in the period January-to-July 1990.
The reality still exists that businesses will gamble and choose to accept a sale rather than refuse cash transactions that insist on anonymity. Even though the penalties were increased from a one to a five-year misdemeanor, many businesses continue to risk the slim chance of criminal prosecution in favor of completing the sale. Since the civil penalty is equal to 10% of the transaction, an automobile dealer gambled on a penalty of $3000 for a $9000 profit made on the car sale.
The Form 8300 compliance level is unsatisfactory. Part of the problem is the general lack of knowledge, or claimed lack of knowledge, on the part of businesses.
Among the steps being pursued to counter this lack of knowledge is the creation of two new documents. Attached is a copy of the new IRS Notice 923, "A Guide to Reporting Cash Transactions for Trades and Business," which has just been released. The other will be Publication 1544, "Reporting Cash Payments of Over $10,000" which will be available in November. These documents will be used in our efforts to educate businesses on Form 8300 filing requirements.
Many district and regional offices have explored various methods of identifying and contacting businesses liable for filing Forms 8300. Some of these projects used personnel from a single function to personally contact likely businesses. other projects, individuals from collection, criminal investigation, and examination participated in the contacts. example, last month the Birmingham District contacted 131 businesses to test their compliance. Sixty percent (79) of them were found to be in violation of the Form 8300 filing requirements. Approximately $2 million in unreported cash transactions was identified and some $18,000 in civil penalties have been proposed. Additionally, the Miami office sent out two-person teams to personally contact some 400 import-export businesses to explain these requirements.
Several offices have sent mailings to selected occupational groups. The Milwaukee District office used certified mail to advise the 2200 new and used car dealers in the state of the section 60501 requirements and provide instructions for filing Forms 8300. The Fresno Service Center mailed notices to all auto and boat dealers filing with that Service Center. The Richmond District sent a three fold brochure through the Virginia State sales tax mailings.
We believe an increased education campaign needs to be conducted nationwide. Professional trade associations such as the National Automobile Dealers Association, numismatic and gemologist groups, and the various State Boards of Realty need to become involved in encouraging their members to be alert to reporting illegal cash dealings.
While compliance with the Form 8300 reporting requirements is poor, our efforts are beginning to bear fruit. This month, a business had a customer agree to buy an item for over $10,000 in cash. When they sought personal information for completion of
the Form 8300, the purchaser expressed opposition to having the transaction reported to IRS and cancelled the transaction. However, the individual then returned with a series of money orders to purchase the item. After the sale, the business prepared a Form 8300 to the best of their ability and explained the events that had transpired. This case has been referred for investigation.
After an oil field driller was contacted by a client and asked if he would consider selling a partial interest in a wildcat oil well for cash, the driller contacted the IRS. The driller wanted to clarify his responsibilities regarding the reporting of a cash transaction in excess of $10,000. A major auto financing corporation recently contacted IRS for clarification of the aggregation rules for reporting automobile installment payments made in cash.
We feel that as the business community becomes more aware of the requirements and more publicity is generated, compliance should improve.
We will be pleased to respond to your questions.