Patrice Duncan said she and her husband never thought much about bank deposits for their family-owned business in Conway until Jan. 24, 2012. That’s the day the Internal Revenue Service seized $94,500 from the company’s account.
“That’s when we started learning all about structuring,” Duncan, 59, told Arkansas Business in a recent interview.
Structuring is the federal crime of making smaller bank deposits in order to sidestep a bank’s requirement to report deposits of $10,000 or more. The U.S. Attorney’s Office can seek a criminal indictment or file a civil forfeiture lawsuit to recover money that agents believed is tied to structuring.
The law was designed to root out drug dealers, money launderers and terrorists. But until a recent New York Times article prompted a policy change, the law was increasingly being use to charge businesses and individuals, like Duncan, with structuring even without allegations of other criminal activity.
“Using the civil forfeiture law, the government’s really treating legitimate small businesses like criminals just because they’re making frequent cash deposits,” said attorney Larry Salzman with the Institute for Justice, a public-interest law firm based in Arlington, Virginia. “There’s not a law against running an honest cash business.”
The Institute for Justice said the number of federal civil forfeiture cases jumped more than 500 percent between 2005 and 2012. Salzman said more than 600 federal forfeiture lawsuits were filed across the country in 2012, the most recent data available.
“When the government seizes your money without any real investigation and then puts it to you to prove that you were doing nothing wrong, that’s just turning the basic idea of innocence until proven guilty on its head,” Salzman said.
Months after the Duncans’ money was seized, Patrice Duncan and her husband, Gary, were charged by a federal grand jury in the Eastern District of Arkansas with 21 counts of aiding and abetting structuring transactions. The indictment alleged that between October 2007 and October 2011, the Duncans structured deposits ranging from $600 to $9,900 to avoid the bank filing requirements.
After almost two years under the indictment, Patrice Duncan pleaded guilty in May to one count of aiding and abetting structuring transactions and was sentenced in August to two years of probation. The rest of the charges were dropped, and the case against her husband was dismissed.
The Duncans forfeited the $94,500, too.
In the Duncans’ case, no other crimes were alleged and there’s no dispute that the money was legitimate business income. And they aren’t the only ones in Arkansas who had their money seized over allegations of structuring without being accused of other crimes.
Earlier this year, Conner Eldridge, the U.S. attorney for the Western District of Arkansas, filed three civil forfeiture complaints to seize money from people who allegedly structured their bank deposits.
“The civil forfeiture tool in and of itself is certainly something that had been rooted in statute in federal law,” Eldridge said. “And so our job is to enforce the law as it’s given to us by Congress.” (See Change in IRS Policy Returns Seized Money.)
In one of the three cases, the owners of the money agreed to surrender $25,400 of the nearly $32,000 that had been seized. The remaining amount was returned to the owners. One civil forfeiture was stayed because of a related criminal case, and Eldridge’s office filed a motion on Nov. 21 to dismiss the third case because of a change in policy by the IRS.
Changing Policy
In response to a story published in The New York Times in October about problems with structuring prosecutions nationwide, Richard Weber, chief of criminal investigations for the IRS, issued a statement that said the IRS would no longer target money from “legal sources” in structuring cases unless there were exceptional circumstances.
“While the act of structuring — whether the funds are from a legal or illegal source — is against the law, IRS CI special agents will use this act as an indicator that further illegal activity may be occurring,” Weber said in the statement.
“This policy update will ensure that CI continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with CI’s mission and key priorities.”
The Institute for Justice’s Salzman said the new policy will be of little help to the people who already had their money taken.
“What’s incredible about those statements is they admit that they have been taking money using the structuring law [from people] who really aren’t committing any crime,” he said.
At least one member of Congress would like to see the law changed. In July, Sen. Rand Paul, R-Ky., introduced legislation that would force the federal government to prove its cases “with clear and convincing evidence” before seized property is forfeited.
“The federal government has made it far too easy for government agencies to take and profit from the property of those who have not been convicted of a crime,” Paul said in a news release. His bill was read twice in July and referred to the House Judiciary Committee, where it remains.
The IRS policy change and the proposed legislation, though, are too late for the Duncans.
“I think it’s sad to see people that are upstanding citizens drug through the criminal justice system — having their reputation tarnished, character questioned, business injured, spending their savings — all because they went to the bank twice instead of once,” said Erin Cassinelli, the Little Rock attorney who represented Patrice Duncan.
‘Started From Nothing’
In 1981, four years after Patrice and Gary Duncan got married, they thought it would be “fun” to own a business. So the couple and Patrice’s father started Duncan Outdoors Inc., selling items such as John Deere tractors and three-wheelers.
“So we kind of started from nothing and built our business up over the years,” she said.
In 1985, they moved into a larger store of approximately 11,600 SF at 398 Dave Ward Drive, where the business remains.
In the early years of the company, there wasn’t a bank branch close to the business. “We didn’t get to go to the bank very often,” she said.
When they did finally make it to the bank, they had more than $10,000 to stuff in the night deposit. But then a bank official would call and said more information was needed because the deposit was more than $10,000.
Gary Duncan didn’t want to have to deal with the paperwork every time he made a $10,000 deposit and asked what he could do, she said. According to Patrice, the teller told Gary Duncan to make deposits more frequently to avoid hitting the $10,000 threshold.
“But that was years ago,” she said.
Cassinelli, Patrice’s attorney, said the Duncans would have complied had someone told them about the structuring laws.
The Duncans had no problems with law enforcement, and Duncan Outdoors grew to 11 employees and sales of between $6 million and $7 million annually.
Undercover Agent
In October 2011, an undercover IRS special agent posed as a customer and bought a $12,000 motorcycle from the Duncans, according to a filing by Assistant U.S. Attorney Cameron McCree.
“Both of the Duncans expressed to the [agent] that the Duncans, as a matter of practice, structured their currency transaction so that they would not have to comply with federal currency reporting requirements,” McCree said in the filing. McCree alleged that after the sale, the Duncans first deposited $9,400 and then $2,000 another day.
Patrice denied any wrongdoing.
“I remember the guy because we thought he was kind of crazy,” she said. “I don’t know what he was trying to lead me into, but he said he didn’t want anybody to know where the money came from.”
She told the customer that the money would be deposited into the bank, which it was. “We were just depositing the cash in a way we thought our bank had told us to do years ago,” she said.
$94,500 Seized
In January 2012, three months after the special agent’s visit, the $94,500 was seized from the Duncans’ account. Then eight more months passed before the 21-count indictment was handed down by the grand jury.
Duncan said she was at first determined to prove her innocence. Their company had enough cash to survive the seizure of nearly $100,000, but the allegations put a dent in sales for a little while.
“We’re just real fortunate that we have a good customer base and employees that we were able to keep our head above water,” she said.
In addition to the cash, government agents seized Duncan Outdoors’ business records. So she could mount a defense, Duncan said, she had to pay the IRS several thousand dollars for copies of her own receipts.
“I could match up bills of sales showing exactly where that money came from,” Duncan said.
Her trial was set for May 12, 2014. About three weeks before the trial date, she received the plea offer.
She said by that time, she had missed a lot of time with her grandchildren and “we were really ready to get this over with.”
‘Change the Law’
First Assistant U.S. Attorney Pat Harris, who handled the case against the Duncans, disagreed with Patrice Duncan’s version of events.
“She didn’t prove [her innocence] to me,” he said.
The Duncans “knew what they were doing” when they deposited the money, he said.
And even though there were no allegations of drug money or money laundering in the Duncan case, structuring itself is illegal. If people don’t like that, Harris said, “Congress ought to change the law.”
Harris said prosecutors agreed to dismiss 20 of the 21 counts against Duncan as a routine part of the plea agreement process.
“We dismiss counts all the time when people plea,” he said. And he said the agreement to drop Gary Duncan from the case was part of the negotiation to get the plea deal.
“Usually when a husband and wife get charged, usually one gets dismissed [and] the other pleads,” Harris said. “That’s pretty normal stuff.”
Lessons Learned
After spending nearly $100,000 on defense costs, plus countless hours spent with her attorney and combing through company records, Patrice Duncan says her banking habits have been turned upside down.
Even if she has $9,000 in cash, she’ll wait until she has at least $10,000 before she makes a trip to the bank.
“So they’ll know I’m not trying to hide anything,” she said.