Photo by Neil Cowburn (CC BY-ND 2.0)

A controversial area of law known as civil asset forfeiture empowers the IRS to confiscate significant sums of money from “run-of-the-mill business owners and wage earners without so much as an allegation” and “without ever filing a criminal complaint,” leaving the owners “to prove they are innocent,” The New York Times reports.

The law’s stated purpose is to catch drug traffickers, racketeers and terrorists by tracking their finances, the paper explains. But enforcement officers have instead “swept up dairy farmers in Maryland, an Army sergeant in Virginia saving for his children’s college education,” and other guiltless Americans of modest incomes.

One victim has strained her credit cards and taken out a second mortgage to keep her restaurant in business.

The Times quotes David Smith, a former federal prosecutor who is now a lawyer in Virginia and an expert on these cases, as saying: “They’re going after people who are really not criminals. … They’re middle-class citizens who have never had any trouble with the law.”

The Times explains:

Their money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited.

Critics say this incentive has led to the creation of a law enforcement dragnet, with more than 100 multiagency task forces combing through bank reports, looking for accounts to seize. Under the Bank Secrecy Act, banks and other financial institutions must report cash deposits greater than $10,000. But since many criminals are aware of that requirement, banks also are supposed to report any suspicious transactions, including deposit patterns below $10,000. Last year, banks filed more than 700,000 suspicious activity reports. Owners who are caught up in structuring cases often cannot afford to fight. The median amount seized by the I.R.S. was $34,000, according to the Institute for Justice analysis, while legal costs can easily mount to $20,000 or more.

The Times says there is nothing illegal about making deposits of fairly large sums of cash that are less than $10,000, unless it is done to evade the government’s reporting requirement. There are often legitimate reasons for such deposits. For example, some insurance policies cover only cash sums that don’t exceed $10,000. Many customers deposit their earnings only when they reach this limit.

Seemingly odd is the rule that banks are forbidden to educate customers about these practices unless the customers ask. If they ask, they are given a federal pamphlet. According to the Times, JoLynn Van Steenwyk, the fraud and security manager for Northwest Bank in Arnolds Park, Iowa, said: “We’re not allowed to tell them anything.”

Financial professionals and bank tellers sometimes advise customers to make small deposits, however, leaving people confused and victimized by a contradiction.

Read more here.

— Posted by Alexander Reed Kelly.

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