What is a structured transaction?
A structured transaction is a series of transactions broken down from a larger sum to avoid reporting requirements under the Bank Secrecy Act (BSA), which requires financial institutions to report all transactions of $10,000 or more. Due to its use, transaction restructuring (or overlay) is a red flag for possible money laundering.
Key points to remember
- A structured transaction is a larger transaction that has been broken into smaller pieces to avoid the Bank Secrecy Act, which requires reporting of all transactions over $10,000.
- Structured transactions are sometimes used for illegal activities, such as tax evasion, money laundering, terrorist activities, and drug trafficking.
- The USA Patriot Act gave law enforcement broader powers to combat terrorist money laundering, by putting in place reporting requirements for any currency deposits, withdrawals or exchanges over $10,000.
Currency Transaction Report (CTR) Guide
How a Structured Transaction Works
In order to avoid reporting requirements under the Bank Secrecy Act, individuals and businesses began in the 1980s to conduct and structure transactions, which were below the $10,000 reporting threshold. Some individuals and businesses have used structured transactions if they did not want the government to know about their financial activities and/or how they generated income. For example, in the cases of money laundering and tax evasion, regulators have correlated these cases with structured transactions.
Money laundering is the concealment of the movement of large sums of money, which criminals often generate through illegal activities, such as drug trafficking or terrorist activities. The money laundering process makes these “dirty” activities look clean. Specific steps involved in money laundering include placement, layering, and embedding. Placement refers to the act of introducing “dirty money” into the financial system; layering is the act of concealing the source of those funds through complex transactions and accounting tricks, and embedding refers to the act of reacquiring that money through supposedly legitimate means.
The United States Patriot Act gave law enforcement broader powers to investigate, charge, and bring terrorists to justice. The law originated after the terrorist attacks of September 11, 2001. Federal agencies use court orders to obtain business and banking records. Main Title III of the law requires many financial institutions to record global transactions involving countries where money laundering is a known problem. These institutions have put in place methodologies to identify and track the beneficiaries of these accounts, as well as the persons authorized to channel funds via passing accounts.
While the number of transactions exceeding $10,000 in the 1970s was relatively small, the number of transactions exceeding that amount is much larger today. In the 2019 fiscal yearover 20 million currency transaction reports (CTR) have been filed.Despite greater capacity with the Patriot Act, the amount of data can be difficult for law enforcement agencies and regulators to process and investigate in a timely manner.
Regulators ensure that all taxpayers and taxable entities report their taxable income correctly and legally. To ensure compliance, the Bank Secrecy Act requires financial institutions to record and report information about their customers’ transactions if those transactions involve a large sum of money. The CTR is the specific report required by regulators. Financial institutions must deposit them after deposits, withdrawals or currency exchange exceed $10,000.
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