White Collar Alert

Yesterday, the Department of Justice charged former House Speaker Dennis Hastert in an indictment stemming from his alleged agreement to pay an unknown individual $3.5 million “to compensate for and conceal his prior misconduct” against that unknown person. According to the indictment, Mr. Hastert, a former high school teacher and wrestling coach before entering politics, first withdrew cash in amounts of $50,000, but then, following questioning by bank representatives, structured his withdraws – reducing his payments to under $10,000 each – to evade the banks’ reporting requirements. And he did so at least 106 times. So far, Mr. Hastert has paid $1.7 million to this person, who claims to have known the former Speaker for most of his or her life. When questioned by the FBI about his conduct, Mr. Hastert allegedly lied about it. When the FBI asked him if he had taken out large sums of cash on several occasions, “because he did not feel safe with the banking system, as he previously indicated,” he replied, “Yeah . . . I kept the cash. That’s what I’m doing.” For this, he was charged with two counts: making false statements to the FBI and structuring.

The first lesson, of course, is “don’t lie to the FBI.” Ever. It’s not a good idea. Ask Martha Stewart.

But back to structuring. In 1970, Congress passed the Bank Secrecy Act, an anti-money laundering statute that, among other things, requires banks to file Currency Transaction Reports for any deposit or withdrawal of more than $10,000. It is a crime for a person “for the purpose of evading the reporting requirements” to cause a bank to fail to file a report required under the Bank Secrecy Act. 31 U.S.C. § 5324(a). Indeed, the reporting requirements led ultimately to the downfall (but not prosecution) of the infamous Client 9, who, in addition to being a client of a high-priced prostitution ring, also served as the Governor of the State of New York.

The law’s purpose is designed to track down illegal activity. The rationale goes that those who structure their deposits or withdrawals so as to avoid the $10,000 reporting trigger are more likely to be those whose transactions are connected to illegal activity. But that’s certainly not always the case. Maybe, rather than trying to hide currency that is the result of illegal conduct, the goal was to hide the funds from an ex-spouse? Yet the government will have to prove that the former Speaker knew he was trying to avoid the $10,000 reporting trigger. See United States v. MacPherson, 424 F.3d 183, 189 (2d Cir. 2005) (conviction for structuring currency transactions requires that defendant have done so with knowledge that the financial institutions involved were legally obligated to report currency transactions in excess of $10,000).

I suspect that we will eventually find out what “misconduct” Speaker Hastert was trying to hide (if the government’s indictment is to be believed). But the prosecution itself highlights the very real consequences of trying to evade bank reporting requirements . . . and lying about it.