F.E.A.R. Chronicles newsletter
volume 2 number 2 (July 1994)
DOJ Seeks Expanded Forfeiture Powers Disguised As "Reform,"
by Judy Osburn
When HR 2417 and HR 3347 (Reps. Hyde's and Conyers' forfeiture reform bills) were forwarded to the House Judiciary Committee last October, Attorney General Janet Reno wrote letters requesting House and Senate Judiciary Committee Chairmen to delay hearings on the bills until after the administration submits its own proposals. In an article published by the Justice Department last September a DOJ attorney expressed hope that Reno's request would forestall efforts "to attach any of [Conyers'] forfeiture provisions to the pending anti-crime bill."1
As of press time there is still no offering from the Justice Department, however, the Department will announce their plan for "reform" soon. F.E.A.R. obtained a draft of DOJ's "Forfeiture Act of 1994." Though still unsigned, it is expected there will be no major changes when their offering is officially submitted.
The government's proposal alleviates a few procedural obstacles for property owners, but for the most part it expands government powers to seize assets. "This bill is overwhelmingly a prosecutor's wish list," says David B. Smith, a former DOJ Attorney who headed the asset forfeiture program and now works for forfeiture law reform.
The Justice Department's proposed bill would require the government to prove its case by a preponderance of the evidence in all forfeitures. The government's concession to shift the burden of proof from the defendant to the plaintiff is only a slight improvement over present law, since civil forfeitures are already governed by the preponderance standard of proof (i.e. more-likely-than-not). The only difference would occur in the rare case where neither party's evidence even slightly outweighed that presented by the other party. Then the evidentiary "tie" would no longer go to the government.
The major effect of this provision is that prosecutors would no longer be allowed to use hearsay testimony at trial, an advantage over the claimant the government presently enjoys. However, the DOJ would preserve, and even expand, its ability to rely on hearsay evidence through other provisions that would extend further criminal prosecuting authority to civil forfeiture actions.
Government lawyers would be empowered to issue a civil equivalent of a grand-jury subpoena (without the court supervision that governs criminal indictment procedure), and then introduce secret grand-jury testimony in civil forfeiture proceedings. Such testimony is hearsay and is generally not admissible evidence. The Justice Department would also expand access to IRS tax information to civil forfeiture investigators, and require property owners to waive foreign bank secrecy rights in order to contest a forfeiture.
Another section of the Justice Department's bill would require property owners to meet a "uniform standard" for establishing an innocent owner defense that effectively negates the innocent owner exemptions already contained in the major forfeiture statutes. Under the government plan innocent owners must prove they did "all that reasonably could be expected" to prevent the illegal use of their property, or to avoid acquiring tainted property.
This is the burdensome standard for proving innocence devised by the Supreme Court in 1974 for a forfeiture based upon a statute containing no innocent owner protection whatsoever. There, the high court ordered Pearson Yacht Leasing Company to forfeit a rental yacht on which one marijuana cigarette was found. The justices declined to explain what the company could have doneÄ"reasonably" or otherwiseÄto prevent the illegal use of their vessel, considering the owner had no way of knowing that customers brought a small amount of contraband on board. The company had even taken the precaution of including in the contract a stipulation that the lessee would not use the yacht for illegal activity.
The Justice Department correctly notes that some forfeiture statutes presently contain no innocent owner protections at all, and courts are split as to what constitutes innocent ownership when the law does provide such an exemption. However, under the guise of expanding and standardizing innocent owner protections, the government's bill would codify the harshest interpretation of civil forfeiture's imposition of liability for the covert acts of others upon property owners. "This would severely dilute the protections for innocent owners currently found in the most important civil forfeiture statutes," says Smith.
"The government has made it easier for claimants to get into court and easier to prevail on the merits of their claims," Michael Zeldin, another former head of DOJ's Asset Forfeiture Office, says of the Department's recommendations. "But for that benefit, the government wants certain things for itselfÄexpanding its tools of forfeiture."
The DOJ would extend the time limit owners have to file a claim from 20 to 30 days. It would also place a 90 day limit from the time of seizure for the government to initiate legal action. Presently property owners are left without any legal recourse for months or even years while the government delays filing a judicial complaint for seized property.
On the other hand, civil and criminal forfeiture would be expanded to include the proceeds of every Title l8 violation. These federal crimes encompass a wide range of violations, from serious felonies to misdemeanors such as defacing a coin or impersonating a 4-H Club member. Other offenses include misstatements or concealment of facts on credit applications and various government forms.
The government would also broaden the Immigration and Naturalization Service power to seize conveyances used to transport or harbor illegal aliens to include all property, both real and personal, used or intended to be used to smuggle or harbor aliens, as well as all property which constitutes or is traceable to proceeds of transporting or harboring aliens. Farmers who have no way of recognizing counterfeit "green cards" could loose their ranch for unknowingly hiring an illegal alien.
Forfeiture would also be attached to IRS cash transaction reporting requirements for businesses. Neglecting to file, or a mistake in filling out the reporting forms, could result in loss of one's business. Attorney fees paid with legitimate income would be forfeitable if the attorney refuses to include the name of the client on the IRS reporting formÄattorney-client information that lawyers are required to omit in at least nine states, absent a court order.
DOJ would expand forfeiture of property used, or intended to be used to facilitate a drug crime to include all proceeds traceable to the property used, or intended for use in facilitating a crime. The owner of a car used to transported a small quantity of drugs, even for personal use, who later sold the car and used the money to purchase a new car would forfeit the entire new car. Besides the draconian results this proposal would produce, it is easy to envision forfeiture squads hovering around new car dealerships in hopes of finding (or planting) evidence of drugs in the trade-in vehicles.
The DOJ wish-list would create an "adverse inference" against a property owner who invokes the Fifth Amendment privilege. Protection from self-incrimination was one of the very few constitutional limitations held applicable to civil forfeitures until 1993, when the Supreme Court extended additional Bill of Rights guarantees to property owners. "It's an important point, because the Fifth is frequently invoked in forfeiture cases since there is often a parallel criminal investigation," says Smith.
The Justice Department would also incorporate into civil forfeitures the "rebuttable presumption" that now governs criminal forfeiture proceedings, by which property is presumed to be proceeds of a drug trafficking or money laundering offense if the government establishes by a preponderance of evidence that it was acquired while the owner was engaged in illegal activity (or "reasonably thereafter").
Presently, there must be proof beyond a reasonable doubt that the defendant actually committed the offense before this "rebuttable presumption" comes into effect. The government wants to preserve the presumption of guilt in civil "proceeds" forfeitures by extending the rebuttable presumption used in sentencing convicted criminals to civil forfeitures. Property would be presumed to be proceeds of a criminal activity even if there is no clear proof a crime was ever committed.
The government would eliminate the opportunity for third parties in criminal forfeiture actions to prove they, rather than the convicted defendant, rightfully owned the property at the time it became subject to forfeiture. Currently, owners who have not been charged or indicted with any crime, but whose property is the subject of a criminal forfeiture order, can obtain relief from the court if they prove they had a "right, title or interest" in the property that was "superior to any right, title or interest of the defendant" at the time the crime was committed. (Though they are not allowed to participate in the criminal trial, present their interests to a jury, nor other protections afforded to criminal defendants.) Under the DOJ's proposal third parties could lose their property without ever having a chance to prove to the judge that the property was theirs, and not the defendant's.
The Justice Department's plan would create an automatic personal judgment against third parties in all forfeiture actions for the value of their interest in the property. Anyone who obtains an asset from a defendant (including bankers, car dealers, creditors and purchasers) would be personally liable to the government for the value of any asset they received from the defendant. In effect, the government would have a hidden civil judgment on all transferred property in case it becomes forfeitable at some later date. This would wreak commercial havoc, since a business rarely receives notice that an individual with whom it is conducting commerce will later become a defendant, at which time the business must pay the government the value of the assets for which it already paid.
The government would also allow summary forfeiture of unregistered firearms. DOJ would eliminate "useless but costly forfeiture proceedings," whereby gun owners have an opportunity to prove their confiscated weapon was in fact legally registered or does not fit the technical definition of a gun that must be registered. A valuable collection could be forfeited from a law abiding gun enthusiast or dealer without notice or the owner's chance to be heardÄnot even by the seizing agency.
Though the government seeks to greatly expand its license to steal, the Justice Department makes an important admission regarding the burden of proof in its Section-By-Section Analysis of its proposed bill. DOJ acknowledges that a change from the current placement of the burden of proof "is warranted in light of recognition by the courts that the civil forfeiture actions are punitive in nature."2 This is a strong argument for requiring proof beyond a reasonable doubt that the property owner committed the relevant crime. Yet the government argues for the continuation of imposing punishment on people caught up in civil forfeiture proceedings without clear proof that the owner was ever involved in a crime.
The government attempts to explain the incongruity of using two different standards of proof to inflict punishment by arguing that most criminal forfeiture actions are presently governed by the preponderance-of-evidence standard, "like other sentencing issues."3 Even if this were true, the Justice Department did not attempt to explain why the more-likely-than-not standard of proof used in "sentencing issues" should be used to impose punishment on civil defendants who have never been convicted of a crime. DOJ would maintain civil forfeiture's current Through-the-Looking-Glass standard of imposing a sentence without any criminal conviction.
The DOJ's proposed Forfeiture Act lacks any of the reforms contained in either Reps. Hyde's or Conyers' forfeiture reform bills. Instead, under the guise of reform legislation, the government proposes that Congress enact amendments that would make it even easier to forfeit property from law abiding citizens, and expand forfeitures to include a myriad of crimes and misdemeanors.
1. "Congress Considers Forfeiture 'Reform'ÄWashington and Conyers Bills Appear Aimed at Eliminating Civil Forfeiture," Asset Forfeiture News, September-October 1993, page 17.
2. DOJ section-by-section analysis of the forfeiture act of 1994 at page 16, citing Austin. v. U.S. 113 S. Ct. 2801 (1993).
3. Id. at page 29.
Judy Osburn
Jack Whitaker was confident he would get his client's seized home back from the government. Though the Constitution clearly states that no ex post facto law shall be passed, the Department of Justice was asking the district court in Los Angeles to retroactively apply a civil forfeiture law against the home.
At each hearing in the forfeiture proceeding Judge Tevrizian looked incredulously at the government attorney. Early on, the judge asked the Assistant U.S. Attorney if this seizure was based upon a drug offense. "No," replied the prosecutor. This forfeiture action was based upon the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).1
The defendant home stood accused of having been financed by way of a loan application that contained false information. The judge asked the prosecutor if there had been any default on the loan. "No," the government attorney replied straightforwardly, the applicant had never fallen behind on his payments. The judge remained perplexed.
Under FIRREA, any false information on an application for a loan from a FDIC insured institution can trigger civil forfeiture of all property traceable to the loan. The 1989 statute was originally intended to target the type of fraudulent loans that led to the Savings and Loan crisis. In this case it was being used for an entirely different purpose.
At the time of the forfeiture proceeding, Whitaker's client, Anthony Feher, was serving a state prison sentence for a drug conviction. The government had not claimed Feher's home was subject to forfeiture under any drug law. Instead, the government claimed that in 1986 Feher lied about his employment status on an application for the loan used to finance his home. But at the time, such misrepresentation was not a crime that incurred forfeiture.
Whitaker said, "We were in good shape until, at the last minute in the proceeding, the government filed a large stack of documents describing my client as a drug dealer." Then Judge Tevrizian's attitude changed. He summarily forfeited Feher's home, ruling that FIRREA's civil forfeiture provisions may be applied retroactively.2 Clerks from courtrooms down the hall worriedly asked Whitaker, "Are they going through everyone's bank records?"
Whitaker offered to appeal the outrageous ruling at no charge to his client. However, Feher, frustrated and discouraged by the court's contemptuous decision, chose not to obligate himself to further filing fees and the potential financial liability of another decision against his home.
The hearsay statements submitted by the government during the final hour of the proceeding would have been sufficient grounds to forfeit Feher's home in a typical drug proceeds case, had the government filed such a claim. However, the Department of Justice chose this case to establish a new avenue of forfeiture. While Judge Tevrizian felt justified in ordering forfeiture of a house he believed was proceeds of a drug trafficking career, Skyline Drive set a horrendous precedent that places the majority of American property owners at risk. The government successfully advanced this "unique" case, establishing that "the FIRREA statute does allow for forfeiture solely on violation of 18 U.S.C. $ 1014."3
Any false information, written or oral, given for the purpose of obtaining or extending credit (a violation of 18 USC $ 1014) can trigger civil forfeiture of any property that can be traced to the loan. As in all in rem proceedings, property is presumed guilty, therefore mistakes on complicated loan forms are presumed to be intentional fraud. Owners must prove the innocence of a statement on a loan application they may have made many years earlier. The countdown for the five year statute of limitation begins only after the government discovers a false statement4Äthere is no limit whatsoever to the age of records that agencies may search to make such a discovery.
As in other in rem forfeiture proceedings, property may be forfeited with no more information than it takes to obtain a search warrant. Owners must provide factual evidence to prove their case, while the government need only show probable cause, a much lower standard that makes hearsay and innuendo sufficient grounds for forfeiture. And like the drug forfeiture laws FIRREA is modeled after, paid informants stand to gain up to 25 percent of the forfeited assets, with the major portion of forfeiture proceeds going directly to the seizing agencies.
It is entirely possible for the government to steal a family's inheritance through FIRREA. All the Justice Department need do is show probable cause to believe a deceased applicant knowingly made a false statement in the process of obtaining a loan.5 Without the dead applicant present to explain an apparent misrepresentation, it is highly unlikely the heirs could provide enough factual evidence to even bring their case to trial.
Some courts hold that a drug trafficker's illegal income "taints" any other assets it comes in contact with, like "an infectious disease" or "a drop of ink falling into a glass of water."6 In these districts an entire business can be forfeited if, for instance, a portion of one partner's investment can be traced to the proceeds from a loan application violation.
Since Skyline Drive was published Whitaker has received many calls from political activists who, based upon previous experiences of government harassment, worry this sweeping weapon may be used against members of "dissident" organizations.
A short while after Skyline Drive, an owner who had never been accused of involvement in any illegal activity other than the alleged misrepresentation on a loan application had his entire apartment building seized by way of FIRREA. And in another case, the home belonging to a Hispanic woman who did not speak English was seized. This forfeiture action is based upon a mistake made by the broker who filled out the application for her.
Whitaker states, "It's weird how the federal government punishes individuals for mistakes made by the loan broker. Most loan applications are filled out by the broker, who often has no qualms about fudging a little on the application in order to increase the chances of the loan being approved."
Maybe it's not strange at all. FIRREA has the potential of becoming law enforcement's most lucrative forfeiture device yet. And as the October issue of Asset Forfeiture News, a publication of the Department of Justice Asset Forfeiture Office, points out, civil forfeiture is "an increasingly significant source of resources for enforcement efforts."7
1. Public Law 101-73, Stat. 183, codified as 18 U.S.C. $ 981(a)(1)(c).
2. United States v. 4031/2 Skyline Dr., La Habra Heights, CA, 797 F. Supp. 796 (C.D. Cal. 1992).
3. Plaintiff's Reply Memorandum in support of Its Summary Judgment Motion, page 1 (emphasis added).
4. 19 U.S. C. $1621. See: United States v. 92 Buena Vista Ave., Rumson, N.J., 113 S,.Ct, 1126, 1140 at note 1 (1993), citing United States v. $8,850, 461 U.S. 555, 663, n. 113 (forfeiture statute not specifying procedures to be used held to incorporate statute of limitations in $ 1621). See also: United States v. James Daniel Good Real Property, 114 S.Ct.. 492, 505-506 (1993).
5. See United States v. One 1977 Cherokee Jeep, 639 F.2d 212 (5th cir. 1981) (per curium) (though forfeiture action commenced after the death of the violator, forfeiture of vehicle from widow and children upheld).
6. See United States v. One Single Family Residence, 933 F.2d 976, 981 (11th Cir. 1991) (forfeiture of entire home owned by two brothers based upon one brother's investment of illegal proceeds). But, see United States v. Pole No. 3172, Hopkinton, 852 F.2d 636, 639 (1st Cir. 1988) (court rejected government's "contagious" theory that one tainted mortgage payment infected an entire home that was purchased with clean money); United States v. $448,342.85, 969 F.2d 474, 476 (7th Cir. 1992) (court rejected government's ink drop theory); and United States v. One Rolls Royce, 905 F.2d 89, 90 (5th Cir. 1990).
7. Asset Forfeiture News, Vol. V, No. V, October, 1993, page 4.
Ex Prosecutor Lightly Disciplined Over Forfeiture Fund Theft
by John Paff
On February 18, 1994, former Salem County (New Jersey) Prosecutor Frank J. Hoerst III received a six month suspension of his license to practice law. The disciplinary action came four years after Hoerst agreed to plead guilty to a single charge of stealing $7,500 from the county's asset forfeiture fund. This plea bargain was allowed despite a 1989 state audit revelation that $38,000 had been improperly disbursed from the forfeiture fund.
After admission to New Jersey's diversion program for first time offenders, Hoerst was sentenced to one year of counseling, 100 hours community service, and restitution of the $7,500. His conviction has since been expunged.
The state Supreme Court voted 7-0 for the suspension, rejecting a Disciplinary
Review Board's recommendation that Hoerst receive only a "public reprimand."
New Mexico State Senator Duncan Scott (R-Albuquerque) introduced legislation in January to "overhaul New Mexico's criminal asset forfeiture law."
Scott said the major change will require that forfeited funds or property go to the state general fund rather than allow agencies to keep what they seize. He illustrated current misuse of forfeited funds with an example of a local law enforcement agency that used drug cash to purchase golf club memberships, ostensibly so they could take drug dealers out golfing on sting operations.
"The existing law perverts law enforcement incentives," Scott said. "Police become more interested in chasing Mercedes rather than chasing violent criminals because they get to keep the flashy car. Our Founding Fathers wisely envisioned three separate branches of government, and the existing forfeiture law allows law enforcement agencies to become both the tax collector and legislature for themselves."
California: Spectre of Forfeiture Revived
by Dale Gieringer (Reprinted from California NORML Reports )
Efforts are underway to resurrect Calif-ornia's asset forfeiture law, which sunset last year after the legislature failed to come to an agreement on how to renew it.
Attorney General Dan Lungren has been joined by Governor Wilson and Democratic gubernatorial hopeful Kathleen Brown in calling for the passage of a new law, on the grounds that the state needs the revenue. Forfeiture advocates, led by the state's powerful law enforcement lobby, want a law to let the state take private property involved in drug crimes without the need for a criminal conviction, with the proceeds going to law enforcement.
Opponents, including California NORML and led by F.E.A.R. (Forfeiture Endangers American Rights), are strongly opposed to forfeiture without a conviction, or the funneling of the proceeds directly to police. California NORML is particularly opposed to any provisions allowing forfeiture of homes, vehicles or other personal property involved in marijuana cultivation, possession or sales.
Forfeiture under state law has ground to a halt because of legal dispute over what law, if any, is now in effect. After California's forfeiture law sunset last December 31st, it was supplanted by a prior law that also had a sunset clause. Defense attorneys have accordingly been able to argue that the state has no forfeiture law at all, forcing prosecutors to resort to federal law instead.
The California legislature is considering two forfeiture bills left over from the last session, which are now in a conference committee. The one preferred by forfeiture opponents is AB 114, by Assemblyman John Burton (D-S.F.), a reform bill that would mitigate many of the defects in the previous law, though it still does not require a conviction. The other, SB 1158 by Sen. Ken Maddy (R-Fresno), is Attorney General Lungren's bill to strengthen forfeiture laws..
Forfeiture Opponents are urged to write to the following conference
committee members: Assembly members Bob Epple (D-Long Beach), Paula Boland
(R-Granada Hills), John Burton (D-S.F.); State Senators Ken Maddy (R-Fresno),
Nick Petris (D-Oakland) arid Gary Hart (D-Santa Barbara). Address to: State
Capitol, Sacramento 95814.
by Judy Osburn
In 1992 the government created a new twist in the double-bind that results from simultaneous criminal and civil prosecutions for the same offense. The Department of Justice used a combination of laws and rules governing civil and criminal proceedings to deny innocent shareholders of a corporation the opportunity to defend their interest in more than $2 million of seized assets.
Raul Velasquez was president and part owner of Unimex, Inc., a corporation that bought and sold foreign currency and operated a travel agency. The business served mostly people in the U.S. with families in Mexico. It employed about 30 people, and had three branches where people could buy airplane tickets, exchange Mexican and American money and wire money to their families in Mexico. The corporation kept receipts and records, and was engaged in legitimate business serving thousands of customers.
Velasquez was arrested for money laundering and drug trafficking through an IRS sting operation. Immediately after Velasquez's arrest the government seized all the assets of Unimex. Unimex and Velasquez were both indicted for conspiracy and other money laundering crimes. The indictment also charged that all of Unimex's property was subject to forfeiture under the criminal forfeiture provision for money laundering. At the same time the government filed a parallel civil forfeiture action against Unimex under civil money laundering and drug proceeds provisions.
With all of its assets seized Unimex was unable to retain counsel to defend the criminal charges against the corporation. In an unsuccessful attempt to have $100,000 returned so the corporation could obtain representation, Unimex provided evidence that most of the $2 million dollars in seized assets was clean money. The corporation produced affidavits that, if true, would have proved Unimex was engaged in extensive legitimate activities and was an innocent victim of Velasquez's crimes. The government feebly responded that in the paperwork it had submitted to initiate theseizure, its agent had sworn that Unimex was a front for money laundering. No adversarial hearing to determine the factual issue of whether Unimex was largely or entirely legitimate was granted.
It was not possible to obtain representation for a contingency fee in the criminal case against Unimex because lawyers' professional code of conduct forbids contingent fees in criminal cases. And though a corporation has a Sixth Amendment right to be represented in a criminal case, no attorney could be appointed because federal law provides appointed council for indigent persons, not for corporations. Furthermore, Unimex could not lawfully have a shareholder or executive defend it in court because a corporation may not appear "pro se" in federal court. There was absolutelynothing Unimex could do to defend itself in the criminal proceeding.
Unimex was convicted on all charges in abstentia (without the defendant present) and fined $2 million. The judgment noted the fine was equal to the amount seized and subject to the pending civil forfeiture proceeding. The court suspended the fine "unless and until the seized funds are returned to the defendant. In such event, the $2 million fine is to be paid immediately." In other words, the government's victory in the criminal case in which the defendant was not allowed to participate eliminated any risk of having to return assets to innocent shareholders if it lost the forfeiture case.
The government dismissed the criminal forfeiture count immediately after the jury verdict on the criminal charges, as the Department of Justice had no desire for a jury determination of what portions, if any, of Unimex's assets were subject to forfeiture. Among the affidavits Unimex submitted early in the case was one by its bookkeeper who observed Unimex's day to day operations. He swore he had always observed Unimex to engage lawfully in all its extensive business activities throughout his employment of over a year. The government's own first witness at "trial" was the company's vice-president who explained Unimex's business and testified that he had no idea Unimex was a front for money laundering. But the issue of Unimex's involvement would never be brought before a jury as long as the conviction judgment prevented any possibility of shareholders hiring counsel on a contingency basis to contest the civil forfeiture.
Velasquez's attorney could not represent Unimex at trial, due to the possible conflict of interest resulting from the fact that his client was a part owner of the corporation. However, after his client's appeal failed he went on to appeal Unimex's conviction. The Ninth Circuit reversed the conviction, stating: "The practical effect of a combination of laws and rules was to prohibit Unimex from defending itself."
The Court ruled the corporation's rights to counsel under the Sixth
Amendment and to due process guaranteed by the Fifth Amendment were violated
by taking away all its assets, denying it a hearing to show cause that
an amount it could have used for attorney's fees was nonforfeitable, and
then forcing it to trial without representation.
NACDL Analyzes Proposed DOJ Forfeiture Act of 1994
The National Association of Criminal Defense Lawyers Forfeiture Abuse Task Force prepared a 22 page Section By Section Analysis of the Department of Justice's Proposed Forfeiture Act of 1994. Their assessment contains powerful legal arguments for rejecting the government proposals described in this issue. The following excerpt describes forfeiture expansions hidden in the tail end of DOJ's proposed bill.
To receive the entire report send $5.00 (copying & postage) to:
So-called Minor and Technical Amendments.
We, of course, do not oppose those amendments that are truly minor and technical corrections to various forfeiture statutes. However, under the guise of being minor or technical amendments, DOJ has included some of the most bizarre and draconian provisions in the entire Act.
Extension of 18 U.S.C. Sec. 984 to All Civil Forfeitures.
We do not oppose the clarifying changes to 18 U.S.C. Sec. 984. However, we vigorously oppose the extension of Sec. 984 to all civil forfeitures, which is hardly a "minor and technical correction" to that statute. To the contrary, it would vastly expand the forfeitability of substitute assets in civil in rem cases. Prior to [enactment of] the current version of Sec. 984 . Congress, and even the Department of Justice, believed that the punitive concept of substitute assets could not and should not be extended to civil in rem cases because it ran contrary to the fundamental legal theory upon which in rem forfeitures are based, i.e., that the property itself is "tainted" by its association with criminal activity.
Section 984 made a narrowly limited breach in the aforementioned wall separating criminal and civil forfeiture in order to deal with a discrete law enforcement problem in the money laundering area. Big time launderers move large amounts of cash in and out of bank accounts also containing funds not being laundered, thereby frustrating the government's efforts to seize the laundered funds. In order to combat such methods, it was thought necessary to authorize seizure of substitute cash in the same bank account even if the substitute cash was not otherwise forfeitable. . Having got its nose under the tent, the DOJ now wants to expand Sec. 984 to all civil forfeitures, not just money laundering cases. There is no law enforcement justification for doing so and DOJ provides none, preferring to slip this major change in under the smokescreen of "minor and technical corrections." ..
Expansion of the Term "Proceeds."
Under the guise of a "minor and technical" amendment, DOJ proposes to radically alter the definition of "proceeds" in all civil and criminal forfeiture statutes. Courts have consistently interpreted the term proceeds to mean net profits, not gross revenues. [Citings omitted.] This is the common definition of the term proceeds. Forcing criminals to disgorge their ill-gotten gains is justifiable, and even desirable, as a remedial measure designed to prevent unjust enrichment. However, DOJ now wants to convert all proceeds forfeitures into highly punitive measures by redefining the term "proceeds" to mean "all of the property derived directly or indirectly, from an offense or scheme, not just the profit." Astoundingly, DOJ offers no justification for this significant change in the law, while hiding behind the pretense that this is a minor or technical amendment designed to promote "uniformity" in the law.
The example unabashedly provided by DOJ in its Section-by-Section analysis illustrates the draconian results of the proposed change. All monies received as the result of a loan application containing a single false statement would be forfeitableÄeven if the bank was fully repaid; the bank was never at risk; and there was no intent to defraud the bank! Many decent and law-abiding people make some kind of false statement on a bank loan application in the belief, correct or not, that the statement will make it more likely that they will obtain the loan. DOJ would subject such people to a complete forfeiture of the loan proceeds. Ironically, the forfeiture of the loan proceeds might prevent the borrower from repaying the loan to the bank. If the loan is unsecured, the bank would not have standing to contest the forfeiture and it would be out of luck unless the government chose to grant it relief through the mitigation process.
The following example is illustrative of DOJ's proposal. Assume a bank loan application for a $100,000 loan contains a false statement. The bank grants the loan. The borrower applies the proceeds of the loan to a building project of $1,000,000. The borrower then secures other financing (with no false statements), and pays off the first bank. DOJ then learns of the false statement in the original loan application. Under DOJ's proposed amendment, the borrower would forfeit the entire building project ($1,000,000) plus the $100,000 loan, even though the bank had been fully repaid. Such a result defies logic and reason. DOJ has not offered any explanation, let alone justification for this bizarre proposal.
Next Time, Better Buy Cough Drops
by Richard Heffern
The U.S. Postal Inspection Service conducts occasional sweeps to interdict controlled substances in the mails. With very rare exceptions, these drugs are generally not mailable, even from a drug wholesaler to a pharmacy, or from a mail order pharmacy to a patient. They are not allowed under any circumstances in international mail. In most cases, even legitimate shipments must be sent through private courier services.
Express Mail service has been used to transport drugs, which has led to occasional sweeps by postal inspectors. Suspicious packages are isolated, then passed under the nose of a drug detecting dog. If the dog reacts, a warrant is obtained and the package is opened for examination.
The Inspection Service has been quick to discover the benefits of forfeiture, even for trivial amounts of contraband. One such package originating in Los Angeles contained a single bottle of codeine cough medicine destined for Dallas.
As a Schedule V drug, codeine cough medicine ranks at the lowest level of abuse potential, and has been sold over-the-counter in a few states. But comments by postal inspectors show how forfeiture can cloud one's thought processes faster than a swig of codeine cough syrup.
In response to a question, former Chief Postal Inspector Charles Clauson said the program's focus was "clearly to arrest the senders,'' but didn't know how many senders had been arrested, noting that "more than half'' of those arrested had received drugs.
In an interview with the Los Angeles Times, Postal Inspector Donald Obritsch helped to clarify the situation. "The interesting thing from our standpoint is the forfeiture,'' he said, "being able to seize anything involved in the trafficking . . . If they come down to the post office with a car, then they drive off Ä then we got a vehicle.''
Just say "no'' the next time you have a cough and a well-meaning friend or relative offers to mail you that bottle of leftover cough syrup. Better to buy cough drops, see your doctor Ä or just put up with the damned cough.
President's Drug Law Commission Recommends State Forfeiture "Reforms"
by Judy Osburn
The President's Commission on Model State Drug Laws presented its five-volume report containing 44 model statutes and recommendations addressing asset forfeiture, alcohol and tobacco, drug treatment through the criminal justice system and state insurance plans, "drug-free schools and school children," and "expedited conviction of drug traffickers," among other issues. Attorney General Janet Reno and Dr. Lee P. Brown, Director of the Office of National Drug Control Policy spoke at the December 13, 1993, presentation ceremony.
Congress funded the bipartisan 23 member commission, based in the Executive Office of the President. The Commissioners included: "state legislators, treatment service providers, state attorneys general, district attorneys, prevention specialists, a state judge, attorneys, a housing specialist, and other experts." Their recommendations were distributed to the governors and legislatures of each state and are being disseminated to law enforcement, education, treatment and prevention professionals.
According to the Executive Summary, the model Commission Forfeiture Reform Act (CFRA) would "present a balanced approach: preserving civil forfeiture's effectiveness while eliminating the risk of unfair forfeitures."
Several of the proposals became unconstitutional and/or irrelevant as applied to real estate with the advent of the Supreme Court decision in United States v. James Daniel Good Real Property. (See article beginning on page 5.) Such obsolete proposals would: prohibit eviction from seized homes without a prior hearing "except in emergencies;" allow states to contract with mortgage companies and other interest holders to maintain the property pending trial; and "provide for interim sales of seized property and other mechanisms to expeditiously release legitimate property interests."
The latter provision would be especially terrifying to a family fighting to keep their home or other property that has far more personal value than monetary worth. Ironically, on the same day the Commission ceremoniously presented its proposals the Supreme Court released its decision prohibiting seizure of real estate before an opportunity for trial, thereby effectively nullifying all the above proposals.
The model statute would exclude forfeiture of real estate for personal use amounts of drugs. However, this reform falls far short of conforming to the constitutional prohibition of excessive punishment. Even the dissenting justices in Austin v. United States expressed that they would be reluctant to forfeit a business or home based upon a single illegal drug sale. The Commission's model provision is only a small improvement over present federal law that authorizes forfeiture of real estate used to facilitate a felony drug crime.
According to the Executive Summary, the model act "requires state, owner and interest holder to meet the same burden of proofÄpreponderance of the evidence." Mere probable cause is sufficient grounds to forfeit property under present federal law, but in cases where a property owner is able to bring his case to trial the preponderance of the evidence (i.e., more-likely-than-not) standard of proof governs the proceeding. Presently, the defendant must tip the scale slightly against the government.
Requiring the government to prove its case, even by this low standard, would produce one practical advantage: government would no longer be able to rely on hearsay evidence at trial. However, in light of recent Supreme Court decisions, it is clear that proof by preponderance of the evidence is a constitutionally insufficient standard when the government inflicts punishment for an offense.1
The commission also recommends that states allow forfeiture of "substitute assets," that were neither involved in illegal activity nor obtained through illegal proceeds, if the original forfeitable asset is destroyed, removed from the state or "is otherwise unavailable." Present federal criminal forfeiture laws contain a similar provision.
The "substitute asset" amendment to federal law was rejected by the House Committee because it is "unnecessary" and "dangerously close to constitutional problems under the Eighth Amendment and the constitution's negative reference to 'forfeiture of estate' in Article III, section 3, clause 2."2 Nonetheless, the amendment was introduced again two years later. The House passed it without further discussion and it is now part of federal criminal law.
"Substitute assets" can only be forfeited through criminal (in personam) proceedings. The property itself is accused of crime in a civil (in rem) forfeiture, and "substitute assets" are by definition innocent of wrongdoing. In addition to forfeiting substitute assets, the model state law would also allow states to "obtain a personal forfeiture judgement against a drug dealer which can be satisfies from in-state or out-of-state assets."
No provisions protecting innocent owners' interests are mentioned in the Executive Summary. Not only does the model act permit forfeiture with no clear proof of criminal activity, there appears to be nothing that would establish property owners' right to a trial by jury with assistance of counsel, no requirement of proportionality or criminal conviction, nothing to hold seizing agencies accountable for negligent destruction of property, nor does it address forfeiture's built in financial incentives that pervert law enforcement priorities. The Commission's asset forfeiture recommendations comprise a model for further government banditry.
1. See F.E.A.R. Chronicles, Vol. 2 No. 1, "Supreme Court Rules Forfeiture Is Punishment Limited by the Constitution;" and U.S. v. James Daniel Good Property, at page 5 in this issue.
2. See House Report 98-845, at page 10 (1984).
U.S. District Court Blocks Forfeiture, Crafts Test for Excessive Punishment
by Judy Osburn
A Los Angeles federal judge stopped the forfeiture of a Malibu home in what is believed to be the nation's first case to establish a test for determining whether a forfeiture is excessive in light of the 1993 Supreme court ruling in Austin vs. United States. On Feb. 11, U.S. District Judge Mariana R. Pfaelzer ruled that forfeiture of a home valued at $925,000, with $650,000 in equity, simply because the owner made false loan application statements and failed to stop his son from selling drugs from the home, would be too harsh a punishment.1
The government argued that $15,200 worth of cocaine was found in the house. It also offered testimony given by several informants at a criminal trial that the owner, Gene Craig Wall, sold cocaine from the house. The judge noted that Wall was acquitted of the drug charges; only Wall's son had been convicted of possession of cocaine for sale. She stated:
"It is unrealistic to expect that forfeiture laws will induce parents to evict children from their homes. This does not mean that parents should be shielded from the forfeiture laws; rather, it means that the Court considers the relationship between the parties in evaluating the gravity of the landowner's conduct."
Additionally, Pfaelzer ruled that a property seizure based on false loan application statements under the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) also falls under the constitutional limitations set forth in Austin.
Last year when the Supreme Court finally recognized drug related forfeitures as punishment subject to limitations of the Eighth Amendment, it did not define at what point a forfeiture violates the Constitution. Pfaelzer crafted her own three-part test for determining whether a forfeiture is excessive:
"In this court's view, in determining whether a forfeiture violates the Excessive Fines Clause, three factors should be weighed, with no one factor being dispositive:
(i) the inherent gravity of the offense compared with the harshness of the penalty;
(ii) whether the property was an integral part of the commission of the crime; and
(iii) whether the criminal activity involving the defendant property was extensive in terms of time and/or spatial use."2
Regarding the first test, the judge stated: "Wall's failure to prevent his son's illegal drug activities, if he could have done so, is perhaps grave, but certainly not as grave as direct involvement in the crime itself. . Yet the penalty is as severe and permanent as it would have been if Wall had committed the crime."
As to the second factor, the judge said the house "is nothing more than a place at which drugs were sold." She ruled the house was not integral to the drug sales, nor was there any evidence it was purchased with drug money.
In considering the third analysis Pfaelzer rejected the government's contention that a 1981 marijuana conviction indicated Wall had been involved in illegal drug activity on the property for 10 years. However, she found the government's argument for widespread use of the home more persuasive, as drugs and paraphernalia were seized from five rooms, a shed and vegetable garden.
In balancing all three factors Judge Pfaelzer ruled that evicting a man from his home and taking it from him is excessive punishment.
1. United States v. Real Property Located at 6625 Zumirez Drive, CV-91-4531 (C. D. Cal., 1994).
2. As quoted in the Los Angeles Daily Journal, "Pfaelzer Blocks U.S. Seizure of Malibu House," Vol. 107 No. 48. According Daily Journal staff writer Susan Seager, Pfaelzer:
...rejected most of the 2nd Circuit's three-part test established in United States v. Certain Real Property and Premises Known as 38 Whaler's Cove Drive, 954 F.2d 29 (2nd Cir. 1992).
She also rejected a pre-Austin test established by fellow Los Angels federal judge, U.S. District Judge Dickran Tervrizian in United States v. 403 and a half Skyline Drive, 797 F.Supp. 796 (C.D.Cal. 1992), and an argument by U.S. Supreme court Justice Antonin Scalia in Austin. Scalia argued that the only relevant question is the relationship between the targeted property and the offense, but Pfaelzer said it was "illogical" to ignore the human element, i.e., the person's involvement in the offense.
Using the Freedom of Information Act to Document Forfeiture Law Abuses
by Tom Flook
Does your state have reporting requirements for agencies performing forfeitures? Michigan does, and it's turning out to be a gold mine of information. The Michigan Association for Preservation of Property (MAPP) has used the Freedom of Information Act twice to obtain this data. The information extracted from reports has proven very damning. You will probably see some of it in future newsletters.
If you think a Freedom of Information request is difficult, something to be handled by lawyers, you're wrong. You just have to be specific in what you request. An hour or two on the phone will yield everything you need to make a request. Start with your state police and the state capitol information switch board, or maybe a state representative.
The only things you need to know are: is there a state reporting requirement for agencies performing forfeitures; what is the name of the form agencies complete; what agency receives completed reports; what is the name, address, and phone number of that agency; and who is the director of that agency.
Once you have this information you are ready to make a request. Your letter should be addressed to the director of the agency receiving the reports and read something like, "Under the Freedom of Information Act, I request all copies of [insert the report name for your state] filed with your agency during [insert the time period you're requesting]. Please advise me of any reasonable copy fees to complete this request" Send your letter certified mail, return receipt. This way you know they got the letter and they know you mean business. By the way, it doesn't hurt to carbon copy a cooperative lawyer and a few state reps.
That's it, nothing else is required. They'll tell you a price, you send them a check, they'll send you the reports. It costs MAPP about $80 dollars a year in copy charges. That's cheap for the wealth if information that can be gleaned from the reports. Never again will you speak without facts and data to substantiate your arguments.
If any state coordinator doesn't know how to get started, or wants a little additional advice, I would be delighted to talk with you and help guide you through your first request. Your second request will be all too easy.
FEAR does not yet know which states have reporting requirements. All state chapters need to find this out for their state and report it to FEAR. We need to know what the reporting requirements are and where they are filed, for all states.
A portion of the information contained in the documents Tom obtained under the freedom of information act appeared in "Police Documents Show Property Seizures in Michigan Resemble Curbside Shakedowns" in F.E.A.R. Chronicles, Vol. 2, #1.
M.A.P.P.'s complete 54 page critical analysis of civil forfeitures performed in Michigan in 1993, the 94 Forfeiture ReportÄThe Smoking Gun, is now available. The report is especially valuable to Michigan residents, but forfeiture reformers from other states will find it to be a useful guide to tracking forfeiture squad abuses. Send $10.00 (to cover printing and postage) to:
Federal Forfeiture Reform Update
Though committee hearings on John Conyers' Asset Forfeiture Justice Act (HR 3347) were delayed until after the House debates the crime bill, action is expected to commence after the June health care debates.
HR 3347 has been assigned to three main committees, each of which have assigned the bill to a subcommittee:
1. Committee: Energy & Commerce (E)
Chair: John H. Dingell (D)
Michigan's 16th District (Monroe and Wayne Counties)
Subcommittee: Health & Environment (H)
Chair: Henry A. Waxman (D)
California's 29th District (Los Angeles County)
2. Committee: Judiciary (J)
Chair: Jack Brooks (D)
Texas' 9th District (Chambers, Galveston, Harris Jefferson Counties)
Subcommittee: Crime & Criminal Justice (C)
Chair: Charles E. Schumer (D)
New York's 9th District (Kings and Queens Counties)
3. Committee: Ways & Means (W)
Subcommittee:Trade (T)
Chair: Sam Gibbons (D)
Florida's 11th District (Hillsborough County)
HR 3347 has 23 co-sponsors as of 6/10/94:
Becerra (J) Xavier. D CA
Brown Corrine D FL
Clay William J. D MO
Frank (J) Barney D MA
Jefferson (W) William J. D LA
Johnston Harry A D FL
Lewis John D GA
Meek Carrie P. D FL
Miller George D CA
Mink Patsy T. D HI
Neal Stephen L. D NC
Owens Major R. D NY
Payne Donald M. D NJ
Romero-Barcelo Carlos D PR
Roybal-Allard Lucille D CA
Rush Bobby D IL
Schroeder (J) Patricia D CO
Serrano Jose E. D NY Towns (E,H) Edolphus D NY
Velazquez Nydia M. D NY
Waters Maxine D CA
Watt (J) Melvin D NC
Wynn Albert R. D MD
Henry Hyde's Civil Asset Forfeiture Reform Act of 1993 (H.R. 2417) was referred to the House Committee on Judiciary (J), which in turn referred it to the Subcommittee on Crime and Criminal Justice (C).
H.R. 2417 was also referred to the House Committee on Ways and Means (W), which in turn referred it to the Subcommittee on Trade (T).
HR 2417 co-sponsors as of 6/10/94:
Bachus Spencer R AL
Barlow Tom D KY
Bentley Helen Delich R MD
Berman (J) Howard L. D CA
Bilbray James H. D NV
Boehner John A. R OH
Calvert Ken R CA
Crane (W,T) Philip M. R IL
Crapo Michael D. R ID
Dickey Jay R AR
Doolittle John T. R CA
Dornan Robert K.. R TN Duncan John J. Jr. R TN
Edwards (J,C) Don D CA
Emerson Bill R MO
Ewing Thomas W. R IL
Foglietta Thomas M. D PA
Frank (J) Barney D MA
Furse Elizabeth D OR
Gallegly (J) Elton R CA
Gejdensen Sam D CT
Gillmor Paul E. R OH
Goss Porter J. R FL
Hinchey Maurice D. D NY
Holden Tim D PA
Jacobs (W) Andrew D IN Johnston Harry A. D FL
Kim Jay R CA
King Peter T. R NY
Lipinski William O. D IL
Mineta Norman Y. D CA
Minge David D MN
Mink Patsy T. D HI Moakley John Joseph D MA
Norton Eleanor Holmes D DC
Parker Mike D MS
Petri Thomas E. R WI
Poshard Glenn D IL
Pryce Deborah R OH
Quillen James H. R TN
Ravenel Arthur Jr. R SC
Sangmeister (J,C) George E. D IL
Schaefer Dan R CO
Schiff (J,C) Steven H. R NM
Serrano Jose E. D NY
Swett Dick D NH
Swift Al D WA Taylor Charles H. R NC
Torkildsen Peter G. R MA
Upton Fred R MI Vucanovich Barbara F. R NV
Weldon Curt R PA Williams Pat D MT
Young Don D AK
Lobby your U.S. Representatives Now!
Urge your congressperson to co-sponsor HR 3347, the Asset Forfeiture Justice Act. The delayed action on this urgently needed reform legislation is restarting now. Your letters are needed now, even if you have already contacted your representatives. U.S. Senator James Jefford (Vermont) introduced S 1655, the Senate version of Representative Henry Hyde's forfeiture reform bill (HR 2417), on Nov. 10, 1993. The bill has been referred to the Senate Judiciary committee.
On Saturday, June 4, over 300 demonstrators participated in a tractorcade-demonstration, and property rights rally, in Bakersfield, California, an "All-American" city in the southern end of California's San Joaquin Valley. Five yellow bi-plane crop dusters, followed by three black and white helicopter dusters, flew over the parade of tractors, farm equipment and horses. City, county, state and federal representatives filled the hour long rally with five minute speeches. Each called upon the federal government to restore private property rights in America.
The protesters and politicians were outraged into action by a forfeiture initiated by U.S. Fish and Wildlife enforcement officials. On a Sunday morning last February a squadron of more than two dozen state and federal agents and several helicopters raided a Bakersfield area farm. They seized a $50,000 tractor and disc that farmer Taung Ming-Lin, an immigrant from Taiwan, recently purchased. The United States filed suit for civil forfeiture, alleging the farm implements criminally ran over a species of rat that may appear on the endangered species list.
Mr. Lin (who speaks no English) purchased 720 acres of desert land, planning to grow oriental vegetables. He laid out his farm and checked with county officials, who informed him the land is zoned for agriculture. Go ahead and farm they told him. As nationally syndicated commentator, Tony Snow observed in the Washington Times:
Little did they know that federal agents had their eyes on Mr. Lin, who had no idea that his property was listed as natural habitat for the Tipton kangaroo rat, a member of the endangered species club. The feds keep such information secret and inform property owners of their legal liability only when they try to do something potentially criminal, like plowing a field.
.Five weeks later, the government told a court that Mr. Lin "did knowingly take and aid and abet the taking of an endangered species of wildlife, to wit, Tipton kangaroo rats." Last week, they threw in counts of harming San Joaquin kit foxes and blunt-nosed leopard lizards.
The interesting thing is that the feds still do not know whether the animals they seized in February were Tipton kangaroo rats, which are virtually identical to some nonendangered rodents. The only thing that distinguishes them from the Herman's kangaroo rat, for instance, is that their rear feet are one-hundredth of an inch longerÄand they can be used as an excuse to seize private property.
Event participants eagerly received the 250 F.E.A.R. brochures I distributed. Most had never before considered the constitutional violations authorized by drug related forfeiture laws. (Nor, for that matter, had I previously realized that the "teeth" built into laws designed to protect the environment include the same type of forfeiture laws spawned by the drug war precedents.) All were very interested to learn there is federal reform legislation that would require a criminal conviction before any property may be forfeited. They especially appreciated the provision in HR 3347 that would eliminate the financial incentives that distort and corrupt law enforcement priorities.
Regardless of one's political views regarding government's role in preventing
drug abuse, protecting the environment or any other problem addressed by
lawmakers, we can all agree that laws that defy the guarantees enumerated
in the Bill of Rights must be changed no matter how noble the original
reason for their enactment. And we absolutely must end the "Sheriff
of Nottingham Syndrome," caused by enforcement agencies' financial
reliance on seizures. Agency strategies that produce revenue often conflict
with those that would accomplish the intended goals of the laws they enforce
be it drug interdiction (see page 8) or preserving the environment. After
all, the rats whose body parts were gathered by dozens of federal agents
would have been better served if one or two of those Wildlife officials
had made Mr. Lin aware of the rodents' presence and protected status before
he tilled his land.
New Jersey Reform Bill Reintroduced by John Paff
Assemblyman E. Scott Garrett (R-Newton) has reintroduced his forfeiture reform bill in the New Jersey General Assembly. The bill, A-627, is essentially the same as A-1536 (also sponsored by Garrett) that expired last term. If passed into law, A-627 will:
1. Require a conviction as a necessary prerequisite to forfeiture.
2. Require the state to prove that a property owner was aware of illegal use of his or her property and did nothing to prevent the illegal use. Current law requires the property owner to prove that he or she was not aware of the illegal use.
3. Ensure that the value of forfeited property is not disproportionate to the nature and severity of the crime.
Free copies of the bill can be obtained by writing to the Office of Legislative Services, CN 068, Trenton, NJ 08625.
Ex Prosecutor Lightly Disciplined Over Forfeiture Fund Theft by John Paff
On February 18, 1994, former Salem County (New Jersey) Prosecutor Frank J. Hoerst III received a six month suspension of his license to practice law. The disciplinary action came four years after Hoerst agreed to plead guilty to a single charge of stealing $7,500 from the county's asset forfeiture fund. This plea bargain was allowed despite a 1989 state audit revelation that $38,000 had been improperly disbursed from the forfeiture fund.
After admission to New Jersey's diversion program for first time offenders, Hoerst was sentenced to one year of counseling, 100 hours community service, and restitution of the $7,500. His conviction has since been expunged.
The state Supreme Court voted 7-0 for the suspension, rejecting a Disciplinary Review Board's recommendation that Hoerst receive only a "public reprimand."