Jeff’s Cash Structuring
Through an invitation from James Sysco, professor of law and ethics at King’s College, I had the privilege of speaking to students, faculty, and the academic community of Wilkes-Barre, Pennsylvania. Many of those in my audience, I understood, taught business courses, studied toward business careers, or led Pennsylvania businesses. They would expect my presentation to describe what I learned as a consequence of my travails with the criminal justice system.
What kind of pressures, influences, or motivations dragged people from their positions of honor to the depths of infamy, despite all they had invested into their educations, their careers, and their communities? The community leaders and future community leaders in the audience, I expected, would rightfully consider themselves good citizens and the thought of their ever becoming tangled into problems with the criminal justice system would seem surreal, like something out of a Salvador Dali painting, or like growing a third arm. As far as they were concerned, such possibilities simply didn’t apply to them, and I understood.
Similarly, I once mistook my educational credentials and career as validation that I was a member of society in perpetual good standing. What I didn’t appreciate
then was how the daily decisions I made would continue to determine who I was as an individual. Through my experiences I came to accept that we never truly “arrived.” Instead, we were more like works in progress that were continuously tested and susceptible to decisions that could bring dramatic change in a hurry. For example, one year I was a UBS stockbroker on the rise, a big brother who mentored at-risk youths, a good son and citizen. The next year I was a convicted felon, a federal prisoner, a disgrace to my community. The journey through life, I learned, was like crossing a high wire. Bad decisions could drop us from zenith to nadir in an instant, as so many citizens discovered. Continuously working to strengthen our ethical cores—experience convinced me—was the surest way to keep balance. Without that balance our lives could fall apart.
Those in my audience at King’s College, I understood, may or may not have identified with my descriptions of the toxic triangle that led so many, myself included, into fraudulent behavior. Pressure, capacity, and rationalization influenced the gradual ethical slide that led to my conviction for securities fraud, but the professors, students, and business leaders who listened attentively to descriptions of my downfall could not envision themselves becoming involved in a deception that rose to the level of criminal misconduct. That was why I wanted to tell them about what I learned from Jeff. His was a story that illustrated more clearly the importance of practicing honesty in every decision, every day.
Jeff and I were sitting at a booth in the comfortable clubhouse after a round of 18 holes as he told me his story. He was tall, African-American, in remarkably good physical condition for a man in his mid-50s. Jeff served as the chief executive officer of a publicly traded manufacturing company. Among his numerous responsibilities (to shareholders, his board of directors, his employees, his clients, and his community) as the CEO of a publicly traded company, Jeff had obligations to the federal government. As part of legislation known as Sarbanes-Oxley, in 2002 the US Congress added sections 1348, 1349, and 1350 to Title 18 of the US criminal code. Those laws provided stiff penalties of up to 25 years imprisonment for crimes related to securities fraud, including “failure of corporate officers to certify financial reports.”
“I had served as CFO of my company for seven years before our board offered me the CEO position,” Jeff told me, “so I was intimately familiar with all of our accounting procedures. I didn’t have any reservations about certifying the financial reports we filed with the SEC. I knew we kept pristine records—conservative—because I had put the systems and procedures in place myself, and I worked closely with my handed-picked CFO.”
“Then why didn’t you want to cooperate with the FBI?” I asked.
“I did,” Jeff said, “but they didn’t like what I had to say. The FBI wasn’t investigating my company. It was after our auditors. The agents wanted me to provide some type of damaging evidence they could use against our accounting firm. But whatever the accounting firm may have done with other clients didn’t concern me; I didn’t know anything. The accountants audited our records, and I was confident they were clean, that we didn’t have anything to hide. The agents didn’t want to hear that.”
“And so what happened?”
“Harassment. That’s what happened. The agents pestered me beyond my ability to tolerate. I just didn’t have time—didn’t want to take the time to play with them. They were insinuating that they would find something if they kept looking—antitrust violations, employment issues—any threat that would pressure me to provide dirt on our accountants. I lawyered up to minimize the seemingly continuous interruptions. The FBI didn’t like that, but I wasn’t going to continue ignoring the threats. As far as I was concerned, the accountants had done a thorough job. I didn’t do anything wrong, so I instructed our law firm to keep the agents off my back.”
Jeff expressed absolute confidence that he had presided over all professional responsibilities honestly and ethically. He knew his company operated within the law, and because of his leadership he didn’t think the agents could bully him. As CEO, Jeff said that he was an open book, completely transparent, accountable to his board and the company’s shareholders without anything to hide. His personal life, on the other hand, wasn’t quite so flawless. He had been married for 18 years, but when his wife discovered that Jeff was carrying on an adulterous affair, she initiated contentious divorce proceedings. A battle over financial issues was escalating.
“Obviously,” Jeff said in describing how he became the target of a criminal investigation, “I had interests outside of my company. Over the years my wife and I had acquired substantial investments in real estate, equities, and bonds. Those assets were easy to value, not a problem as far as the divorce proceedings were concerned. But I had also made some investments in start-up companies, a few of which were doing quite well. It was an agreement I had with one of those companies that tripped me up, got me into trouble that I didn’t even know existed.”
“What was that?”
“Cash structuring,” Jeff said.
“What’s that,” I asked, “something to do with taxes?”
Jeff shook his head. “Not at all. I paid my taxes, all of them. Cash structuring was an entirely different animal, but one that bit. Because of it I’m going to prison for 15 months.”
Jeff was clearly troubled that indiscretions in his personal life had abruptly ended his professional career and sullied his reputation as an honest man, a man of high integrity. The reality that his actions had risen to the level of criminal behavior stunned him, and he couldn’t believe that he would soon self-surrender to a federal prison.
“I was involved with a young woman” Jeff spoke quietly, his elbow on the varnished wood table, three fingers supporting his head. “I’m not proud of having deceived my wife, but those things could happen when a man fell off track. It wasn’t unusual, not the first or last time a man would feel invigorated by the attention of a beautiful woman. She brought out a second life in me, and I succumbed to the temptation.”
Jeff explained how he supplemented his mistress’s income for the two years of their relationship. One of the start-up companies he had funded provided Jeff with $9,500 a month in compensation. Although a considerable sum, at that stage in Jeff’s career the amount wasn’t significant, and he relied upon it to fund his illicit affair. Rather than depositing the $9,500 check he received each month from the start-up company into the personal account he kept jointly with his wife, Jeff endorsed each check and instructed his bank to hand him cash instead. He referred to it as “play money,” and said he provided it to his mistress as she saw fit.
Pursuant to Title 31 of the U.S. code section 5313 (a), financial institutions must report all currency transactions that involved more than $10,000.
“I didn’t want to trouble with the currency transaction reports,” Jeff said. “Truthfully, I wasn’t so keen on leaving a string of records that my wife could later tie into a noose and hang around my neck. That was why I had the company cut checks that were less than $10,000. My banker told me that as long as the checks didn’t exceed $10,000, the law didn’t require me to file the CTR.”
“Regardless of the CTR, wasn’t the $9,500 taxable income?” I asked.
“Of course, it was taxable, and I reported. I wasn’t keeping secrets from the IRS. But when considering salary and investments, the $9,500 represented less than 10 percent of my total income. That wasn’t going to stand out on the comprehensive tax filings my wife and I filed every year. She signed those forms without concern. If I would have deposited the $9,500 checks into the bank accounts I jointly held with my wife, on the other hand, I would have exposed myself to questions from her that I wouldn’t have wanted to answer. By simply cashing the checks, I thought I was protecting myself—but from my wife, not the IRS.”
“So what happened? Did your wife’s divorce lawyers catch you cashing the checks?”
“Nope. It was the FBI.”
“If you were reporting the money as taxable income, why would the FBI be concerned with what you were doing with your money?”
“It was the same agents who were pressuring me to feed them information that might incriminate our auditors. I didn’t have anything to say. First, I brushed them off, then my lawyers took more aggressive actions to keep the agents from interfering with my time. The FBI doesn’t like being stonewalled. When they couldn’t get to me at the office, they started looking into my personal life.”
Inquiries into Jeff’s personal life led them to Facebook, the popular social networking Web site. They found the page his mistress kept, and since it featured pictures of Jeff, the agents decided to question her. They knocked on her front door and flashed their badges. Their presence alone intimidated her. When the agents asked the woman how she could afford such a lavish residence and expensive car when she wasn’t working, she told them that Jeff provided it. They pressed with the questions and learned that Jeff gave her cash to pay her bills every month.
“It wasn’t that she was saying anything to try and hurt me,” Jeff said. “She was just responding to their questions truthfully. When the agents asked whether she declared the money I gave her as taxable income, she said yes.”
“So what was the problem?”
“The agents dug further once they heard about my giving her $9,500 in cash every month. Wanting to know where I was getting the cash, the agents flashed their badges at my bank. That’s where they learned about my cashing the $9,500 check every month.”
“But I don’t understand the problem,” I shrugged. From what Jeff was describing I hadn’t heard anything that I thought could be construed as a crime. The money belonged to him and he paid taxes on all of his earnings. It seemed as if he should have been able to use his money as he saw fit.
“I didn’t know I had a problem either,” Jeff said. “Then my lawyer called me. He told me that I was going to prison. It turns out that there was a law against my cashing checks without filing a cash transaction report.”
Title 31 of the US code, section 5324, prohibits “structuring [cash] transactions to evade [the] reporting requirement.” That statute provides for a penalty of up to five years imprisonment for those who “structure” transactions, as Jeff did, by cashing checks that were just under the $10,000 reporting requirement.
“Wait a minute,” I was still confused. “I thought you said that the banker specifically told you that as long as the checks were for less than $10,000, the law didn’t require you to file the cash transaction report.”
“That’s exactly what I told my lawyer. But the lawyer said that since bank employees weren’t official representatives of the government, the banker’s assurances were not going to provide a valid defense.”
“What if you had been cashing checks for $5,000? Would that have been a crime?” I was shaking my head, wondering how many citizens were oblivious to the many types of behaviors that could lead to trouble with the criminal justice system.
“My lawyer wasn’t misleading me,” Jeff said. “He showed me the federal statutes. Then he showed me cases that illustrated how courts have interpreted the law if anyone attempted to structure cash transactions with the intention of avoiding the bank’s filing of a currency transaction report, that person was committing a crime. Since the government had copies of all the checks I cashed, and since the pattern clearly showed my intention of avoiding the CTR, I was guilty.”
Upon advice of counsel, Jeff agreed to plead guilty to the felony charge of cash structuring in exchange for leniency at sentencing. His judge imposed a 15-month sentence, and I spoke with Jeff about what he could expect from his prison experience. One drawback from his felony conviction, among many, was that it ended his career as a chief executive officer of a publicly traded corporation.
The magnitude of Jeff’s loss was obvious. As I relayed his story to the leaders and future leaders at King’s College in Pennsylvania, I emphasized the ancillary consequences that accompanied a felony conviction. Although those in my audience may not have felt susceptible to the fraud triangle of pressure, capacity, and rationalization (and thus vulnerable to making the kinds of bad decisions that led to my imprisonment), by sharing Jeff’s chilling story I could provide practical reasons to live honestly at all times.
Jeff had earned his accounting degree and his MBA from Pennsylvania’s prestigious Wharton school. He understood corporate codes well, and he also understood the personal investment necessary to rise through various career challenges that would deliver the coveted position of chief executive officer. As the leader of his company, Jeff oversaw a professional workforce of more than 1,500 people and revenues that exceeded $5 billion. He felt so confident that his business stewardship complied with the highest ethical standards that FBI agents couldn’t shake him. When they came inquiring with what he perceived as subtle pressures, he responded from a position of strength rather than weakness.
Jeff’s weakness, it turned out, came from flaws in his personal life rather than his professional life. Yet they were weaknesses just the same. He would suffer consequences, I knew, that would extend far beyond the length of his confinement. Although he couldn’t comprehend how spending his own lawfully earned income could lead to imprisonment, as we sat in that clubhouse talking about the challenges to come, he understood how dishonesty at any time could derail a lifetime of good works.
In today’s evolving society, I reminded my audience at King’s college, the viral spreading of information through social networking sites like Facebook and Twitter and LinkedIn provided tangible new reasons to appreciate the importance of leading honest and transparent lives. Jeff cashed checks as part of a strategy to betray his wife’s trust—not to break the law. Nevertheless, he doubted whether the FBI would have discovered the crime of his “cash structuring” had it not been for Facebook postings by his mistress. Although Jeff was of an older generation that wasn’t in synch with technology, law enforcement relied upon it to bring his actions to the justice of 15 months imprisonment.
Technology would only continue to advance. Law enforcement was continuously relying upon it to develop their crime-detecting capabilities. Search techniques could provide resources to recognize faces or cull incriminating data from digital files. Advanced cell phones, blogs, and other technology made every citizen an investigative reporter whether that person knew it or not. Individuals may have the abilities to control their actions, but with digital recordings memorializing them all, people had an entirely new set of practical reasons to behave in ways that comported with the highest standards of ethics. Jeff’s was a message of timely importance, and I hoped my audience at Kings’ College grasped all of its implications.
Chapter Ten Questions