"Banks are required by law to report "suspicious activity" to the Financial Crimes Enforcement Network (FinCEN). The IRS as well as law enforcement officials from the FBI on down have access to those reports.
So what's a suspicious activity? It's somewhat subjective. If a business owner appears to be conducting banking transactions in such a way as to hide income from the IRS, a report is filed. Dodging taxes is illegal and a bank which suspects that it is being used to facilitate any illegal activity must file the report.
If Federal reguators determine that a bank was (or should have been) suspicious and did not file a report they can impose some very stiff penalties. A bank in Alabama received a $10 Million fine earlier this month.
I've had customers come right out and tell my tellers that they were cashing business checks because they didn't want "Uncle Sam" to know about it. One guy told the teller, "if my accountant doesn't see it he doesn't tell Uncle Sam and I don't pay taxes." He then became indignant when the teller refused the transaction. I can only imagine how he would react if he found out that the IRS now knows about his statement. But he didn't leave us any choice - we can't afford a $10 million dollar fine.
We don't want to be the eyes and ears of any law enforcement agency but sometimes customers put us in that position and we have a legal and moral responsibility to do the right thing. "
