Federal Forfeiture Law’s Expansionary Trend: Implications for the Targets of White-Collar Crime & Enforcement

The United States has adopted a broad set of forfeiture statutes designed to disgorge illicit proceeds generated through criminal activity. When many of these laws were adopted by Congress in 1984 the idea was to target property that represents the profits from illegal activity. S. Rep. No. 98-225, at 84 (1984), reprinted 1984 U.S.C.C.A.N. 3182, 3267. The level of power provided to the federal government to enforce its forfeiture laws is vast. Along with the complex criminal and civil procedure issues presented, it can be difficult to grasp how to respond when confronted with a forfeiture claim civil or criminal.

It is important to understand that forfeiture is a proceeding against property. This allows the government to seek forfeiture through a criminal, civil, or parallel criminal and civil actions. In a criminal case, forfeiture is a form of punishment directed at the convicted person. See e.g., 18 U.S.C. 982 (a)(1) (mandating the forfeiture of property when certain financial crimes have been committed). However, in a civil forfeiture proceeding, the property is the defendant for allegedly being used to facilitate or be the proceeds of criminal activity. In that situation, the government’s burden is a preponderance of the evidence (i.e., greater weight of the evidence). Furthermore, when the government pursues a criminal action against an individual and civil forfeiture against property, it may at its election try to stay the civil proceeding pending the outcome of the underlying criminal case. See e.g., 18 U.S.C. 981 (g)(1). The practical effect being that the government gets two shots at securing forfeiture of the property. Under a principle known as relation back doctrine, the property is vested in the federal government upon the commission of a criminal act. 21 U.S.C. 853 (c) (2012). Accordingly, the government only needs to show the minimal standard of probable cause to seize property pending the outcome of a criminal and/or civil forfeiture action.

There are enormous risks presented to individuals and organizations confronting a forfeiture action. A notice of a civil forfeiture may be a precursor for a criminal indictment. With the powers available to the federal government, all of a person’s or organization’s assets may be frozen pretrial, a risk that is pronounced in complex white-collar cases where the relevant events often occurred over several years with assets commingled in several forms and sources. To manage through these situations requires an understanding of the legal landscape presented and the steps that one can take to preserve their property.

Recent Legal Trends & Pending Cases: Implications for Securing a Lawyer of Choice

The U.S. Supreme Court’s holding in Kaley v. United States highlights the extent of the government’s forfeiture powers and associated risks for defendants. 134 S. Ct. 1090 (2014). In that case, the Kaley’s were accused of stealing medical devices and equipment from a hospital and reselling them for a profit. As their legal bills started to climb, the Kaley’s took out a home equity line of credit for $500,000. However, those assets and others were frozen on account of a grand jury indictment, even though not all of the assets were traceable to possible criminal conduct. Justice Elena Kagan, writing for a 6-3 majority upheld the government’s authority to seize all of those assets and reasoned that a grand jury’s determination as to probable cause was conclusive.

Unanswered in the Kaley decision was whether assets that are not tainted by alleged criminal activity may also be subject to a pretrial seizure when the proceeds of alleged criminal activity have been diluted. This is the question that is scheduled to be answered by the Court in Luis v. United States where such substitute assets have been seized pursuant to an alleged violation of 18 U.S.C. 1345 for perpetrating a healthcare fraud scheme that resulted in millions of dollars being paid out by the government. At the district court level the government successfully argued there was probable cause to seize the $45 million dollars, which represented nearly the entire amount of money paid to the corporation over time by the federal government. But not all of those assets are available anymore, which led to the seizure of other assets that are not alleged to be tainted by criminal activity. How will the court rule We will see in 2016.

What to do when confronted with a civil forfeiture action?

The circumstance of each case is unique and there is no generic answer. There are some initial steps that one can take in response to a forfeiture action, as well as proactive steps organizations can take to avoid it all together.

  1. Obtain Counsel. The best option is to entrust a knowledgeable attorney to get your property back. In a civil forfeiture claim there is no right to a free attorney, except in two circumstances: (1) when a person’s primary residence is involved and a homeowner cannot afford counsel, or (2) when a forfeiture count is included in a criminal indictment. Also, a civil forfeiture action may be a prelude to a criminal indictment. It might be best to not take any action at all. However, at the same time, the clock starts running for you to assert a claim to recover your property. These are critical moments that need to be managed with care and attention to each individual’s or organization’s situation.
  2. Do NOT Speak to the Government. A statement you make to the government can be used against you in a civil and criminal proceeding. There is nothing informal about a statement to a government agent. If you and/or your lawyer do speak to the government, then it must be well thought out ahead of time to protect your interests and not to implicate yourself in criminal activity.
  3. Compliance and Prevention. The best defense is a strong offense. An organization that adopts robust, independent compliance policies and procedures will be well positioned to detect misfeasance by its employees and directors. It is important that each organization adopt a compliance program tailored for its culture and business operations. While such programs may appear expensive, in the long run a well-designed compliance program can add to an organization’s profitability.
  4. Account and Document your Assets. The scope of the federal government’s power may allow them to seize your assets but not necessarily forfeit them. An initial seizure of assets may be broader than what the government is entitled to take. The burden, though, is on the defendant owner to show his assets are not traceable to criminal activity. To do this requires a careful accounting to show that assets that might be commingled or inadvertently seized with tainted assets are not in fact forfeitable.

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