What Is Structuring Deposits and Is It Illegal?

Defining Deposit Structuring

Structuring deposits refers to the practice of breaking down a single large cash transaction into multiple smaller transactions to avoid triggering financial reporting requirements. This typically involves making deposits, withdrawals, or other transfers in amounts just below a specific threshold that would otherwise require a financial institution to file a report with the government. The defining characteristic of structuring is the explicit intent to evade these reporting obligations.

For example, if an individual has $18,000 in cash, they might deposit $9,000 on one day and another $9,000 a few days later, or even deposit $9,000 into two different bank accounts. These actions are considered structuring if the purpose is to circumvent the reporting threshold. This practice can extend beyond simple deposits to include withdrawals or other transfers of funds.

While the term “smurfing” is sometimes used interchangeably with structuring, smurfing specifically refers to structuring that involves using multiple individuals (“smurfs”) to make deposits into various accounts, often with illegally obtained funds. Structuring, however, focuses on the intentional splitting of transactions by an individual to evade reporting, regardless of whether the funds are legitimate or illicit.

Understanding Cash Transaction Reporting

Financial institutions in the United States are mandated to report certain cash transactions to the government. This requirement primarily involves Currency Transaction Reports (CTRs), which financial institutions must file for any cash transaction exceeding $10,000 within a single business day. This threshold applies to both U.S. and foreign currencies.

The purpose of these CTRs is to provide government agencies with a paper trail for large sums of cash, which can be indicators of illicit activities. This reporting helps in identifying and investigating potential financial crimes such as money laundering, terrorist financing, and tax evasion. The Bank Secrecy Act (BSA) is the foundational law that establishes these reporting requirements, aiming to prevent the use of the U.S. financial system for illegal purposes.

Financial institutions are required to aggregate multiple cash transactions made by or on behalf of a single person during the same business day. For instance, if a person makes several cash deposits totaling more than $10,000 in a single day at the same bank, even if each individual deposit is below the threshold, a CTR must still be filed. This aggregation rule prevents individuals from circumventing the reporting requirement by dividing a large sum.

The Purpose of Structuring Deposits

Individuals engage in structuring primarily to avoid the scrutiny associated with large cash transactions and the mandatory filing of Currency Transaction Reports (CTRs). The motivation often stems from a desire to conceal the source of funds, hide financial activities from government oversight, or evade tax obligations.

For example, someone might structure deposits to avoid drawing attention to large cash holdings that could be linked to undeclared income or other illicit activities. The focus is not on the legality of the money itself, but on the deliberate effort to evade the reporting mechanism.

It is important to understand that the act of structuring is defined by the intention to circumvent the reporting system, regardless of whether the underlying funds were obtained legally or illegally. This intent to evade is what makes structuring a distinct financial offense.

Legal Implications of Structuring

Structuring financial transactions with the intent to evade reporting requirements is a federal crime in the United States. This is stipulated under Title 31 U.S. Code 5324. The law states that no person shall, for the purpose of evading reporting requirements, structure or attempt to structure any transaction with one or more domestic financial institutions.

Even if the funds involved were obtained legally, the act of intentionally circumventing the reporting requirements makes the structuring itself illegal. This means that a person depositing legitimate earnings in a structured manner to avoid a report is still committing a federal offense.

Penalties for structuring can be severe, including substantial fines and imprisonment. A conviction can lead to a maximum of five years in federal prison, and in some cases, the forfeiture of assets linked to the crime. Financial institutions that suspect structuring are required to file a Suspicious Activity Report (SAR) with the Financial Crimes Enforcement Network (FinCEN), which can lead to further investigation.