Investigation Finds IRS Seized Millions Of Dollars From Innocent Individuals And Business Owners

from the IRS-Criminal-Investigations:-A-Cash-Only-Business dept

The IRS's Inspector General has confirmed what many of its victims have known all along: the Criminal Investigations' asset forfeiture program isn't really for "disrupting criminal enterprises." It's for taking money from innocent people.

The Treasury Inspector General for the Tax Administration (TIGTA) took a look at forfeitures tied to the IRS's so-called "structuring" cases. If you deposit more than $10,000 into a bank account, the IRS is notified and you, the depositor, have extra paperwork to fill out. This fulfills IRS reporting requirements and is generally a headache for the depositor and the bank.

If you deposit less than $10,000 in cash, it's perfectly legal. Do it often enough and the IRS starts to believe your cash deposits are the product of criminal activity. Even if you never have enough on hand to clear the $10,000 mark with a single deposit, a string of smaller deposits makes the IRS suspicious IRS's eyeballs turn into dollar signs.

The IRS is allowed to investigate suspected structuring. The problem is, the IRS has very little interest in investigations. It likes taking money from people's bank accounts, but has no stomach for the rest of the legwork. The IRS IG pulled a random selection of structuring cases and discovered a large majority of them had no business being called "cases." In 9 out of 10 "cases," there was no illegal activity discovered. [TIGTA Report PDF]

In 26 (9 percent) of the 278 structuring cases, we were able to establish that the funds came from a Title 18 illegal source or involved any other illegal activity. In the other 252 (91 percent) of the 278 cases, we did not find evidence that the structured funds came from an illegal source or involved any other illegal activity. Businesses that deal with currency transactions (retail, wholesale, service, automobile, restaurant, gas station, etc.) were primarily (210 of the 252 legal source cases) affected by the structuring seizures.

The IRS was able to get away with this for so long because it moved fast. It processed seizures quickly and pressured asset owners into taking settlements, rather than risk turning easy money into trickier criminal prosecutions where actual evidence might be needed.

All told, the IRS took more than $17 million away from US citizens without ever establishing the funds were the result of criminal activity or the asset owners were engaged in structuring. And that's just in the ~300 cases sampled for the TIGTA report.

The report also notes the streamlined stripping of money comes bundled with the streamlined stripping of rights. It's even worse with the IRS than it is with regular law enforcement, where assets are presumed "guilty" and it's up to owners to prove the innocence of property no longer in their possession. While it's understandable the IRS would find advance warning an impediment to its forfeiture efforts, the lack of investigation beforehand means the agency's seizure warrants were likely seriously deficient.

Interviews were conducted only after the seizure warrant was signed by a judge and the property was seized; therefore, judges did not possess information from interviews with the property owner when making their probable cause determination. This could have provided the judge with a possible explanation for the banking transactions to consider before signing the seizure warrant. We are not suggesting that CI should always conduct interviews of subjects prior to obtaining a seizure warrant. In fact, CI indicated that seizures are often conducted before the interview to protect the interest of the Government by ensuring that the assets are not moved. However, when 91 percent of the property owners are not believed to be conducting any illegal activities (other than structuring), conducting the interviews after the seizure leaves judges without relevant information about what subjects knew about CTRs and what their intent was behind their currency transaction patterns...

In IRS seizures, the money is taken first. Any investigation follows after accounts are frozen or drained. Once owners are finally made aware of the situation, the CI division does what it can to ensure the IRS maintains control of the seized assets. The Inspector General found IRS agents aren't apprising citizens of their rights and remedies.

For 106 of 229 cases, the agents did not state the purpose of the interview or we did not find evidence they did. IRM procedures in Title 26 cases require special agents to advise the property owner regarding the purpose of the contact. For 62 cases, the special agents did not identify the purpose of the contact, and for 44 cases, the interview does not document whether the special agent explained the purpose of the interview to the property owner…

For 181 of 229 cases, we identified a problem with the information provided to the property owner about the seizure. In 110 cases, the property owners were not informed until the end of the interview that a seizure took place. In 60 cases, the property owners were not informed that a seizure took place, and in 11 cases we could not determine if the property owner was informed that their funds had been seized.

[...]

In only five of 229 interviews were property owners provided the noncustodial advice of rights prior to the interview.

This extreme indifference towards citizens and their rights and property inevitably leads to this sort of thing:

In the one case we can discuss publicly, the property owner alleged that special agents and local police arrived at the property owner’s place of business and used police search dogs in the search. The entrance and exit to the store were allegedly blocked, and it was alleged that the taxpayer was asked to answer questions. The property owner, who spoke limited English, was told that his account was seized, and he was presented with a Consent to Forfeiture to sign. He alleged that officers spoke in loud tones at him instructing him that he should sign.

Someone put money in the bank the wrong way... and they're met with police dogs, yelling, and borderline coercion. But I guess that's what's needed to get "criminals" to cooperate. Oh wait.

After the Institute for Justice was retained to represent the property owner, all of his funds were returned.

All of this leads to the following: the IRS's investigatory arm isn't in the "criminal disruption" business, but rather the simpler, more profitable forfeiture business.

Outcomes across the CI Asset Seizure and Forfeiture Program did not appear to be consistently determined by the facts of the cases but rather by property owners’ risk tolerance to the high costs of litigation...

If there's any good news to be had, it's that the IRS is (mostly) no longer pursuing alleged structuring cases if the deposited money appears to have come from a legitimate source. That was put into place after a couple of very uncomfortable Congressional hearings back in 2014. TIGTA says, for the most part, the IRS is following the new guideline. However, it still found five cases where the new rule appears to have been ignored and notes the IRS has still granted itself a sizable loophole to exploit.

Under the change in policy, CI will no longer pursue legal source structuring cases unless exceptional circumstances justify the seizure and the seizure is approved by the appropriate CI executive. CI has not yet defined what circumstances rise to the level of “exceptional.”

The other good news is that enough pressure -- applied by citizens and their representatives -- can get the government to severely scale back a program that brought in lots of easy money.

Filed Under: inspector general, irs, seizing, structuring

UK Intellectual Property Office Plays Up Imaginary 'Toxic' Claim In Grabbing Food Pretending To Be From Somewhere Else

from the grab,-go-and-exaggerate dept

When it comes to regulatory enforcement, agencies are often at a loss to try and spin actions as somehow being positive. Often such seizures are seen as petty and overreaching acts focusing on business protectionism or the shutting down threats to tax revenue (permanently in some cases) by regular people, meaning that getting public support for them can be an uphill struggle. Alcohol taxes are so unpopular that it's the origin behind one of the most popular sports in the US – NASCAR. Thus it's tempting to try and upsell things by stretching claims beyond all credulity, as the UK's Intellectual Property Office (IPO) and Department of Business, Innovation & Skills (BIS) departments did recently.

Facebook followers of the IPO were confronted with this story just recently: "Campaign cracks down on toxic fake alcohol" screams the headline, with the comment that thousands of liters were seized in Operation OPSON (a name that looks like it was short for "operation poison"). A serious bust of dangerous goods clearly, and clearly the agencies are doing a great job protecting the country, so share it and back to cat pictures.

Or you could actually read the article itself, and find the story isn't quite as portrayed, and no cyanide-filled bottles cosplaying as spirituous liquors were annihilated by brave officials. For that matter, not only is OPSON not a veiled reference to poison, it's not even a priority. At the head of "notes to editors," Operation OPSON is described quite differently:

"Operation OPSON, jointly run by Interpol and Europol, began in 2011 to tackle the criminal production and sale of counterfeit 'protected food name' products, such as gorgonzola or champagne. It is now an international project that regularly sees the seizure of hundreds of tonnes of fake and substandard food."

That's right, international police agencies are running an operation to seize food not because they are bad, dangerous, or harmful, but because they weren't made in an approved locale. While some are fairly evident and obvious, such as lamb or beef labelled "scotch" or "welsh," others are less-so. A Cornish pasty made in Devon or Derbyshire isn't actually a Cornish pasty, because it wasn't made in Cornwall. Likewise if you were to make Feta cheese, you can't actually call it Feta, unless the sheep/goat milk came from Greece. Even Belgium has wanted in on the act for its chocolate industry.

The food is fake (and presumed sub-standard) not because it's not that food, but because the place that made it wasn't within a certain circle on a map, even if it's absolutely identical and indistinguishable from the same product made inside that circle. This was never more evident than in 2007, when the protections around "Newcastle Brown Ale" were lifted… because the Scottish & Newcastle brewery wanted to move outside the circle.

But what of the toxic alcohol seized by the gallon? Well, like the goods themselves, it's not what it appears. The 2,421.5 liters grabbed by authorities are in their own words mostly "...for fake or fiscal infringing wines and spirits." Not because they were dangerous, but because of tax evasion, or trademark violations. So where's the "toxic" issue in the headline?

The poison comes from a raid in Derbyshire, where:

"There was little of the finished product or the raw materials (Coolex screenwash) in the unit but a large quantity of bottles, tops and boxes."

Never mind, because:

"A small amount of the finished product was identified, and on examination was found to contain high levels of iso-propanol. Isopropyl Alcohol (IPA) causes intense drunkenness, is often used in cleaning chemicals."

The question is, was that actually the finished product, or one that was put aside because it had those high levels? Moreover, it's not exactly the most toxic, as the LD50 (lethal dose) for a rat orally is 5045 mg per kilogram. Compare with, say, ethanol ("good" alcohol), at 3450 mg per kilogram of mouse. Probably why even their expert, Visiting Professor at the University of Reading, Tony Hines had to say:

"...even at low levels, a 'couple of doubles' will cause dizziness, low blood pressure, abdominal pain and nausea."

Not exactly "toxic" though, or all that different from regular booze, let's be fair. In fact, the major difference is that isopropyl alcohol is just more potent than ethanol. So, to drive home the seriousness of this, they close with the following paragraph.

"In 2012, methanol poisoning from fake vodka resulted in the deaths of 50 people in the Czech Republic. In 2014, 2 men were sentenced to life imprisonment for their part in this tragedy, and many others sentenced to 14 to 20 years for their part. Eighty survivors were blinded as a result of consuming the poison."

Not to be flippant about it (the incident has killed 51), but this was an incident that happened 30 months ago 1500 km away. It even used a different chemical (methanol), so its inclusion is completely irrelevant to the issues at hand, and is there solely to try and justify tax and trademark-based raids and seizures as being about safety, and pump up the "shareability" factor by giving them a excuse to hang "toxic" in the headline.

Now, don't get me wrong, tainted and unsafe goods are bad, there's no doubt about that. Yet if you're going to try and play up a safety angle, then you really have to have a safety problem to hang your hat on. The vodka made from screenwash might be disturbing to some, but "toxic fake alcohol" is pushing it, when even if every drop of vodka they seized (171.1 liters) that year were high in isopropyl alcohol, it's only 7% of the total seized. And yet we know they didn't grab anywhere near that amount, because more than 240 bottles of the stuff is hardly "little of the finished product," a description which would seem to me to indicate a dozen liters or less. And since they found only empties, it means it's already gone out, so they've not really "cracked down" on it either.

Overall, the only toxic thing seems to be the press release, and then only for any journalist sloppy enough to regurgitate it without bothering to read it. That's probably why, on Twitter, where pushback, feedback and replies are harder to bury, there's absolutely no mention of "toxic" at all.

That's because when it comes to poisonous, nothing beats hyperbolic government press releases for leaving good will stone dead.

Filed Under: bis, exaggeration, food, geographical indication, ipo, seizing, seizures, toxic, uk