Q: We have questions that arose when we chose to pay cash to buy a car. The purchase price was $35,000. To our major surprise, the dealership had a lot of questions. I felt like I was suspected of wrongdoing. One of the “concerns” I heard about is money laundering. So, first question: Just what is money laundering?
A: Money laundering is a way of trying to “clean” what is actually “dirty” money; that is, money obtained from or through criminal activity, paid or deposited into legitimate channels to disguise its illegal origin or connection. An example is utilizing a restaurant as a front for profits made through alleged food sales, when, in fact, the substantial money is obtained by and being used for illicit purposes. Law enforcement seeks to trace where the money came from, as well as where it is going. In addition, tax authorities have an interest as well. So, buying a vehicle and paying cash arguably could be a step in “disguising” ill-gotten funds. Let’s then turn to your second, related question below.
Q: The dealership went on and on about a $10,000 limit, and a bank act. They tried to “explain” all the questions they asked us, and the report they had to submit. What is that part about?
A: The Federal Bank Secrecy Act requires financial institutions to report daily transactions of any account that involve $10,000 or more. This is applicable whether you are depositing the sum, or withdrawing it. The act was passed by Congress back in 1970, and amended with the Patriot Act of 2002. The amount could be one $10,000 bill, or 10,000 $1 bills. Also, there is “structuring” by which a person may be seeking to circumvent the Bank Secrecy Act (e.g., deposits of $9,900 are made each day for over a week); that too should be reported.
Nonetheless, a $10,000 transaction often goes by without incident. I do not know all what set off the car dealership, but perhaps they have had a situation where cash was paid for a vehicle, they handled it without asking many, if any, questions, or without performing due diligence, and then wound up having issues related thereto.
Bottom line, if you are in a trade or business (like the car dealership), and receive more than $10,000 in cash in a single transaction, or in related transactions, you must file a Form 8300 (this is a form to report cash payments over $10,000 in a trade or business). The form provides valuable information to the Internal Revenue Service, and to the Financial Crimes Enforcement Network in their efforts to combat money laundering.
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Thus, the dealership did have reporting requirements as a result of your anticipated cash payment, which no doubt was a factor in the inquiries you were asked. Further, the dealership is expected to provide a written statement to you by Jan. 31 of the next year following the reportable transaction. There are criminal and civil penalties if the dealership fails to file the Form 8300, let alone provide the written statement to you. So, while your paying cash would seem straight forward enough, it comes with some requirements. This is not to discourage paying cash like you chose to do, but to try to explain the process that then arises.
Ron Sokol has been a practicing attorney for over 35 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.