Structured Transaction

A structured transaction is a series of transactions, which individuals or entities may break up from a larger sum, in order to avoid regulatory oversight. Some decide to use a structured transaction to avoid reporting requirements from the Bank Secrecy Act (BSA).

Regulators make sure that all taxpayers and taxable entities report taxable income properly and legally. To ensure compliance, the Bank Secrecy Act requires financial institutions to record and report information on their customers’ transactions if those transactions involve a large amount of money. The currency transaction report (CTR) is the specific report, which regulators require. Financial institutions must file these after deposits, withdrawals, or exchanges of currency exceed $10,000.

In order to avoid the reporting requirements, which the Bank Secrecy Act sets forth, individuals and businesses in the 1980s began making and structuring transactions, which came in below the reporting threshold of $10,000. Some individuals and businesses utilized structured transactions if they did not want the government to know about their financial activities and/or how they generated income. For example, in cases money laundering and tax evasion, regulators correlated these cases with structured transactions.

Money laundering is the act of concealing the movement of large amounts of money, which criminals often generate via illegal activities, such as drug trafficking or terrorist activity. The process of money laundering makes such “dirty” activities look clean. Specific steps involved in money laundering include placement, layering and integration. Placement refers to the act of introducing "dirty money" into the financial system; layering is the act of concealing the source of these funds via complex transactions and bookkeeping tricks; and integration refers to the act of re-acquiring that money in purportedly legitimate means.

The 2001 Patriot Act gave law enforcement agencies broader powers to investigate, indict, and bring terrorists to justice. The Act originated after the 2011 terrorist attacks in New York City. Federal agencies use court orders to obtain business records and bank records. The Act’s main Title III forces many financial institutions to record aggregate transactions involving countries where laundering is a known problem. Such institutions have installed methodologies to identify and track beneficiaries of such accounts, along with individuals authorized to route funds through payable-through accounts.

While the number of transactions exceeding $10,000 in the 1970s were relatively low, the number of transactions exceeding that amount today is much greater. In the 2007-2008 fiscal year, over 16 million CTRs were filed. Despite greater capacity with the Patriot Act, the sheer amount of data can be difficult for law enforcement agencies and regulators to process and investigate in a timely manner.