There is a prevailing myth amongst many people that if you transfer money in amounts of less than $10,000 from outside of the U.S. into the United States that there will be no problems with the transfer, even in the event, that the transfer was the result of some prohibited activity or if the funds are originating from an embargoed country. Perhaps it is due to close connections with the Iranian-Americans and Iran sanctions that we have found this belief to be most prevalent in the Iranian-American community. When advising individuals seeking to transfer funds from Iran to the United States, we are often met with the counter argument that it is ok if the amount being transferred is less than $10,000. This argument is based upon the fact that many people believe since its less than $10,000 it does not have to be reported and therefore cannot evidence any wrongdoing.
In the case of Iran sanctions this is neither true, nor is it particularly relevant, if the funds are derived from some sort of prohibited activity (i.e., sale of a home in Iran). Moreover, even in cases where the transactions are permitted, transferring funds in amounts less than $10,000 has been found to be evidence of “Smurfing.” Smurfing is the act of intentionally transferring funds in sums of less than $10,000 to avoid the $10,000 reporting requirements. The federal government has the authority to criminally prosecute individuals who “Smurf” or structure their transactions in this manner. See 18 USC 5324. Penalties for this type of conduct range from 5 years in prison, to fines, or both. However, enhanced penalties, including up to 10 years of imprisonment, can be assessed in aggravated cases like ones establishing a pattern of illegal activity or involve the violation of other federal laws. For example, if Smurfing is done in connection with transferring funds in violation of economic sanctions (i.e., Iran sanctions) then enhanced penalties may apply.
Of particular interest is part (c)(3) of this statute which prohibits individuals from structuring their monetary transactions to or from international locations. The statute states that “no person shall, for the purpose of evading the reporting requirements of section 5316, structure or assist in structuring, or attempt to structure or assist in structuring, any importation or exportation of monetary instruments.” The unfortunate reality of this law is that it targets U.S. persons who have family or friends overseas who may support or depend on one another financially. This is particularly true in the Iranian-American community, where family living in Iran are frequently sending money as gifts, as inheritance money, and as other non-commercial remittances.
Traditionally, federal laws regarding currency transaction reporting (CTR) targeted financial institutions such as banks, currency exchanges, credit unions, and other institutions that deal with large sums of currency. The definition of “financial institution” has always been broader than “depository instititution” and also includes pawnbrokers, travel agencies, and auto dealerships among others. These institutions would have to file a report whenever a currency transaction of over $10,000 took place. The laws never required individual customers to file the actual report, only the financial institution the individual was transacting with had to file a CTR. The obvious reaction by people who wanted to avoid having their transactions reported to the government was to structure their transactions so that no single transaction would be over $10,000. This practice was commonly referred to as “Smurfing.” And since the reporting laws only targeted financial institutions, many individuals were able to escape liability. A few unlucky people were prosecuted under 18 USC 371 for conspiring to defraud the United States before any anti-structuring statutes existed, but that was not enough for Congress. Accordingly, in 1986, Congress decided to specifically target individuals who utilized the $10,000 loophole by passing 18 USC 5324.
Somewhat disturbingly, Chapter 53 of the U.S. code also empowers the Department of the Treasury to pay a reward to individuals who provide information which leads to a recovery of a criminal fine, civil penalty, or forfeiture for violations of these reporting and anti-structuring laws. The reward can be as high as 25% of the net amount of the fine, penalty, or forfeiture collected. In essence, a law that already targets U.S. persons who have family or friends overseas who may depend on or support one another is exacerbated by the fact that their neighbors now have an incentive to disclose the conduct to the government.
What all of this adds up to is an increased burden on the Iranian-American community. Although, these laws are not targeted at Iranian-Americans per se, the simple fact is that Iranian-Americans are more susceptible to criminal prosecution for a number of reasons.
First, there is the aforementioned prevailing myth amongst the community that transfers from Iran in amounts less than $10,000 are legal. Despite the fact that this myth has frequently been debunked by experts in this field, there are still many people who hold this belief. Indeed, there have been cases where subjects and targets of federal criminal investigations have openly admitted to the FBI that they were receiving funds in amounts between $9,000 and $10,000 so they didn’t have to report it, because they believed that if they had to report it the transaction would be illegal.
Second, Iranian-Americans as a newer immigrant population still maintain many connections with Iran and often times have family in Iran. These connections frequently lead to transfers of funds for a variety of reasons. For example, gifts of money are often transferred from Iran to the United States, as is money for schooling. When coupled with the aforementioned myth, there begins to develop a concern that Smurfing will be engaged in.
Third, the U.S. has imposed an extremely broad sanctions program against Iran. As such, most transactions with Iran are prohibited. Therefore, many of the transactions where smurfing may be engaged in will lead to enhanced penalties. This should also be considered alongside of the fact that Iran sanctions are also the most heavily enforced of any U.S. sanctions program. In sum, not only are Iranian-Americans more susceptible to engaging in Smurfing; they may also be more likely to receive enhanced penalties for such activities.
This all leads to the conclusion that the Iranian-American community needs to be very cautious when sending or receiving funds between Iran and the United States. Even if OFAC and the sanctions are not an issue, the manner in which the transactions are often structured could lead to federal criminal penalties.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or firstname.lastname@example.org. This post was co-authored by Kaveh Miremadi, an Associate Attorney at Ferrari Legal, P.C.