One of the most widely prosecuted areas of illegal source financial crimes is the area of narcotics-related financial crimes.
Most drug dealers are unlikely to report their true earnings to the IRS each year. Because of their fear of prosecution for the underlying narcotics trade activity, they will often severely underrepresent their annual income on their tax returns, or simply fail to file a return at all. This creates a problem for the drug dealer: He now has to somehow conceal this income so that the IRS doesn’t get wind of his true earnings and come after him for tax evasion.
Laundering illegal profit is typical of narcotics-related financial crime. In order to make the money appear as though it comes from a legitimate source, a drug dealer might open a seemingly legitimate business, complete with payroll, expenses, and profit and loss.
Once this cover business established, now the dealer pays himself from the hidden proceeds of his criminal activity, but through this legitimate business; illegal income now appears as legal income.
Narcotics and the IRS
Narcotics-related financial crimes are so prevalent that the IRS has a special division that focuses exclusively on money laundering and other tax-related offenses surrounding the narcotics trade.
An important area of narcotics-related prosecution is known as “structuring.” Any time a deposit is made in an amount exceeding $10,000 banks are required to file currency transaction reports. These reports assist the IRS and other government agencies, such as the DE A, in detecting potential narcotics-related financial crime, as well as criminal operations such as terrorism financing and smuggling.
If a defendant makes multiple deposits in denominations under $10,000 in furtherance of a drug trafficking scheme, he can be charged with structuring currency transactions to evade reporting requirements.
This lesser-known statute has supported many convictions for narcotics-related financial crimes in recent years. To read about recent narcotics related tax crimes, click here.