by Rio Miner, Head of Intelligence, Refine Intelligence
Small businesses have been increasingly finding that their banks are closing their accounts unexpectedly and with little to no explanation. All of a sudden, everyday transactions halt leaving owners stranded and confused. This banking practice, known as “exiting” or “de-risking,” isn’t just about penalizing those who have mishandled their accounts but rather part of a broader effort to combat fraud, terrorism, money laundering, and other serious crimes. This sweeping approach, however, often ensnares innocent small businesses, leaving owners wondering why the bank they have used for many years has gone against them.
One of the reasons is due to the act of avoiding cash transactions over $10,000 to evade the attention of the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury. Sometimes, however, what may appear to be cash structuring is just part of the natural operations of the business. For example, a bar may deposit $7,000 one day and then $4,000 the next to avoid keeping cash on the premises. There are also sometimes insurance limits on cash in the register over $10K so stores in bad neighborhoods may make deposits a couple of times per day to ensure it is secure.
According to law, consumers and business owners must file a form called a Currency Transaction Report (CTR) for transactions above $10K. The problem is that most people don’t realize it’s a crime to structure cash deposits in such a way to avoid breaking the $10K barrier. This article busts three myths that business owners hold about avoiding this $10K limit, explain the reality behind the scenes, and what they should do to avoid law enforcement scrutiny and ensure their business runs more smoothly.
Myth #1: By breaking up my transaction to being under $10,000 each, I can avoid being hassled by the bank.
Reality: This activity will attract the attention of the banks as they can see the activity of multiple deposits over a short period of time and/or at different bank branches. Whether out of ignorance or legitimate concern for privacy, people avoid making these kinds of transactions. Ironically, these customers avoid the scrutiny of a one-time CTR but in doing so, trigger a process that could lead to a Suspicious Activity Report (SARs) that is sent to a FinCEN database. After 90 days from when the SAR is issued, the bank must look again and file additional reports if suspicious activity has continued. If it has, it can lead to consequences including account closures. Business owners who want to avoid scrutiny have instead provided probable cause for a full search of their accounts.
Myth #2: I should never file anything to the IRS outside of tax day. I want to keep my assets and cash flow private.
Reality: Filling out a CTR for transactions over $10,000 will save you time and frustration. Banks are challenged to determine if customers are unknowingly making deposits that could appear as structuring or if the customer is purposely trying to evade bank reporting. These reports are supposed to provide intelligence for law enforcement to combat illicit uses of the financial system. In reality, the bank is burdened by excessive reporting, law enforcement spends extra time sorting through noise, and customers are needlessly inconvenienced by account closures. It’s understandable to want to keep affairs private but reporting these transactions in the long term will be to business owners’ advantage.
Myth #3: If the bank reaches out to me about transactions and I don’t respond, they’ll likely just forget about the issue.
Fact: Often banks reach out to customers when they see what appears to be cash structuring to understand the real story but don’t always receive responses. Regulators examine bank compliance constantly and wield immense power to levy fines and escalate enforcement against the bank if suspicious accounts are not closed for repeat bad-actor customers. Financial institutions have robust compliance processes to detect activity designed to evade the $10,000 threshold. Sometimes the process continues repeatedly, which can take months or even years of reporting for what could simply be a person with excessive privacy concerns and misconceptions.
It is incumbent on financial institutions, such as banks, to find frictionless ways to educate and better understand their small business customers. At the same time, small business owners should cooperate if asked for information to file a CTR when it comes up over the natural course of financial transactions. If cash deposits naturally fall near the limit but rarely exceed it, make sure to answer any questions from the teller and help them understand your business. If there are legitimate reasons to make frequent deposits that go over – or just under – the limit, explaining these could also help preempt questions from the compliance department. A friendly relationship will help bankers understand your business and its cash flow patterns. Remember, any financial institution worth working with wants to retain your business and prefers not to exit good relationships.
Dispelling myths about cash structuring and embracing the legal requirements for large transactions can safeguard businesses from unnecessary scrutiny and the potential for unexplained bank account closures. It’s crucial to recognize that compliance is not just a bureaucratic hurdle but a fundamental aspect of operating within the legal and financial framework. By adhering to these guidelines, small business owners can ensure their financial dealings are both compliant and conducive to long-term success.
With 15 years of experience fighting financial crimes, Rio Miner, Head of Intelligence at Refine Intelligence is deeply involved in every aspect of Refine from AML best practices to product concepts, marketing, and corporate strategy. Previously, Rio was Head of Financial Crimes Training and Compliance at Wells Fargo. He served as a US Army Officer of Infantry and Intelligence, ending up as Assistant Professor of Military Science at UCLA. He currently lectures at National Defense University.
