New York-Based Hair Product Companies That Violated Bank Secrecy Act Agree To Pay $15 Million, Make Compliance Reforms In Settlement With New Jersey U.S. Attorney
Companies Failed to Report Millions In Cash From Customers
NEWARK, N.J. – Shake-N-Go Fashion Inc., and Model Model Hair Fashion Inc. – wholesale hair product companies based in Port Washington, N.Y. – entered into an agreement today to resolve claims brought by the New Jersey U.S. Attorney’s Office that they enabled the structuring of cash transactions to avoid reporting requirements in violation of the Bank Secrecy Act (BSA), announced U.S. Attorney Paul J. Fishman.
After an investigation conducted by the U.S. Attorney’s Office and U.S. Immigration and Customs Enforcement, Homeland Security Investigations (HSI), the companies – referred to together in court documents as “SNG” – have agreed to forfeit $15 million and to enact a number of compliance reforms as part of the settlement. The settlement agreement and forfeiture complaint were filed today in Newark federal court.
“It doesn’t matter what your business is; you are required to follow the financial reporting requirements of the United States,” said U.S. Attorney Fishman. “Shake-N-Go learned that the hard way, forfeiting millions and enacting stringent compliance reforms as a result of the government’s investigation. Criminals structure cash transactions to hide all manner of illegal activity, and businesses must be vigilant to be sure they are not providing the haven for doing so.”
According to documents filed in this case:
SNG willfully engaged in business practices that permitted customers to conduct cash transactions with SNG of more than $10,000 while avoiding the filing of mandatory forms documenting those transactions with the United States Department of the Treasury.
The BSA requires financial institutions involved in cash transactions in amounts greater than $10,000 to file Currency Transaction Reports (CTRs) for each transaction. Similarly, businesses that receive more than $10,000 in cash in one or related transactions are required to file an IRS 8300 form. Many individuals involved in illegal activities, such as tax evasion and money laundering, are aware of these reporting requirements and take active steps to cause financial institutions and businesses to fail to file the necessary forms. These active steps are usually referred to as “structuring,” which is a violation of the BSA.
Although SNG never knowingly received illicit funds, SNG permitted and enabled its customers and employees to structure millions of dollars in cash transactions into SNG’s bank accounts without the filing of CTRs, broke up customer invoices totaling more than $10,000 and willfully failed to file a single 8300 form prior to the government’s investigation.
In 2012, SNG had over $300 million in gross sales receipts. Of that amount, approximately $80 million was made in the form of cash deposits.
Beginning in 2007, SNG instituted a policy that permitted its customers to purchase hair products by depositing cash directly into SNG’s bank accounts. This policy enabled SNG’s customers to regularly structure cash deposits into SNG’s accounts. SNG’s employees also structured funds into SNG’s accounts after collecting the funds from customers. SNG employees were instructed not to issue an invoice or receipt that exceeded $10,000, even when a customer ordered more than $10,000 in hair products at one time.
In addition to the forfeiture, SNG has agreed to implement a number of remedial measures:
SNG has appointed and will continue to engage a general counsel to oversee and consult on all legal and compliance issues. SNG will also retain a qualified independent consulting firm, as approved by the United States, to oversee the implementation of a BSA compliance program and SNG’s continued compliance with that program and the terms of SNG’s agreement with the United States.
For a two-year period from the date of the filing of the Complaint, SNG will: provide quarterly reports to the United States, to be authored by the independent consulting firm, describing the state of SNG’s compliance program; appoint a qualified individual, approved by the United States, to serve as a senior level executive to oversee all day-to-day compliance issues – removing that responsibility from the Chief Financial Officer; and establish and enforce written policies on how to receive and process cash payments and how to otherwise comply with the BSA, including the timely filing of any and all 8300 forms.
SNG will also implement mandatory employee training on BSA compliance; will not permit its customers to deposit cash directly into accounts controlled by SNG; and will agree to cooperate with any and all future investigations by the United States and/or other state and local authorities.
The $15 million forfeiture amount includes $2,502,218 previously seized by the United States from SNG on June 25, 2013, and an additional $9,497,782 that SNG has surrendered pursuant to the agreement. As part of that nearly $9.5 million, individual shareholders of SNG have contributed $6 million as claw-backs of profit distributions. Recognizing the extensive costs associated with the remedial measures, the United States has agreed to provide a $3 million credit to SNG. However, in the event that SNG knowingly fails to comply with the agreement, SNG has agreed to surrender that $3 million to the United States.
U.S. Attorney Fishman credited special agents from HSI’s El Dorado Task Force, under the direction of Special Agent in Charge James T Hayes Jr., New York Field Office.
The government is represented by Assistant U.S. Attorneys Evan S. Weitz of the U.S. Attorney’s Office Asset Forfeiture and Money Laundering Unit and Aaron Mendelsohn of the office’s Economic Crimes Unit in Newark.