What Is a Structured Transaction?
A structured transaction is a series of transactions broken up from a larger sum in order to avoid reporting requirements under the Bank Secrecy Act (BSA), which requires financial institutions to report all transactions of $10,000 or more. Because of its usage, restructuring transactions (or layering) is a red flag for possible money laundering.
- 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 exceeding $10,000.
- Structured transactions are sometimes used for illegal activities, such as tax evasion, money laundering, terrorist activity, and drug trafficking.
- The USA Patriot Act gave law enforcement agencies broader powers to curb money laundering by terrorists, putting in place reporting requirements for any deposits, withdrawals, or currency exchanges exceeding $10,000.
How a Structured Transaction Works
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 of 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 USA Patriot Act gave law enforcement agencies broader powers to investigate, indict, and bring terrorists to justice. The Act originated after Sept. 11, 2001, terrorist attacks. 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 was relatively low, the number of transactions exceeding that amount today is much greater. In the 2019 fiscal year, more than 20 million currency transaction reports (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.
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 CTR is the specific report which regulators require. Financial institutions must file these after deposits, withdrawals, or exchanges of currency exceed $10,000.