By Steven L. Kessler
On April 25, 2000, President Clinton signed into law The Civil Asset Forfeiture Reform Act of 2000 (HR 1658), Pub. L. No. 106-185, 106th Cong. (2000), changing the face of federal civil forfeiture for the first time since the First Continental Congress. The Act is a major step toward reforming the federal forfeiture system and applies to all forfeiture proceedings commenced on or after August 23, 2000.
The Act is not, however, a comprehensive re-evaluation of civil forfeiture. Instead, it addresses specific problems that both the government and the defense bar have repeatedly encountered, attempting to create solutions acceptable to both sides. It is a series of practical fixes of specific problems that have been raised during the past decade. Accordingly, to return forfeiture to its pure and proper form, where the motivation underlying the process is not one of greed and fund-raising, requires revision of the system itself, an agenda left unaddressed by the tweakings to the statutes made by the Reform Act. For the moment, as with any compromise, the Act leaves both sides somewhat dissatisfied. Prosecutors and police organizations, reaping the benefits of the law prior to this Act, adopted the adage “if it ain’t broke, don’t fix it,” while the defense bar often felt it was conceding too much for little in return. In the end, the Act appears to carry through a large part of the reform agenda without limiting law enforcement’s use of forfeiture as an effective tool against crime.
i. Procedures & Deadlines The heart of the Act is Section 2 (18 USC 983), which establishes the general procedures and deadlines that must be followed and provides remedies where the government fails to adhere to these rules. Within this section is the provision that the burden of proof, which is placed on the government, now must be established by a preponderance of the evidence. (2(c)).
The government must show that the property is subject to forfeiture. Merely bringing suit does not, by itself, establish the government’s automatic entitlement to its day in court. This is a substantial change, which applies to all civil forfeiture cases covered by the Act. Excluded from the Reform Act are the civil forfeiture statutes codified in Title 19 and Title 26 (Customs and IRs forfeitures) as well as The Food and Drug Cosmetic Act (21 USC 301), The Trading With The Enemy Act (50 U.S.C. App. 1), and The Neutrality Act of June 15, 1917 (22 USC 401).
Section 2 also includes one of the most important concessions of the Justice Department the abolition of the dreaded cost bond. (2(a)). Previously, a claimant was required to submit a cost bond (usually ten percent of the value of the seized property) as a prerequisite for defending against the forfeiture of his or her property. The abolition of this bond enables claimants to bring suit without having to “pay to play,” thereby opening the court system to those who might not otherwise have access.
While the Reform Act makes it easier for a claimant to have his day in court, 2(h) establishes a civil fine of up to $5,000 that may be imposed in a civil forfeiture proceeding when the court finds the claimant’s assertion of an interest in the property to be frivolous. Additionally, a prisoner who has brought an action or appeal in a federal court on three occasions, and on each time was rejected, is barred from challenging a civil asset forfeiture unless the prisoner shows extraordinary and exceptional circumstances The government is also no longer given the power to delay the commencement of proceedings as long as it likes after seizing someone’s property. Written notice must be sent “as soon as practicable,” but no later than 60 days after the seizure. (2(a)). Note that there are exceptions to this requirement, including a) If the government does not file a civil forfeiture action, but brings a criminal indictment containing an allegation that the property is subject to forfeiture, and sends notice of this indictment within 60 days; b) If the property is seized by a State or local agency, then jurisdiction is transferred to federal authorities, notice must be sent within 90 days; c) If the party who owns the property is not identified, the 60 day time period will not begin to toll until the owner is identified; and d) Upon motion by the government, 60 day extensions may be granted by the Court. But, as a rule, the government cannot simply hold the property until it is ready to proceed. This is an important change and, if the government fails to live up to its obligation, the claimant may very well be able to overturn the forfeiture.
ii. The Innocent Owner Defense To file a claim, a claimant must show that he is an “owner” within the definition of the Act. The Act defines an owner as “a person with an ownership or possessory interest in the specific property sought to be forfeited – including a leasehold, lien, mortgage, recorded security interest, or valid assignment of an ownership interest.” The term “owner” does not apply to a) a person with only a general unsecured interest in the property, b) a bailee, and c) a nominee who exercises no dominion or control over the property. 18 USC 981(d)(6)(A)(B).
A claimant may prove, by a preponderance of the evidence, that he is an innocent owner. Section 2(d) of the Act creates a uniform innocent owner defense. The new definition is narrower than that currently codified in 21 USC 881(a) and 18 USC 981(a)(2). In deciding whether a claimant meets this definition, the court must first determine when the party acquired the interest in the property. If the interest was acquired prior to the activity underlying the forfeiture, an innocent owner would be someone who 1) did not know of the conduct giving rise to the forfeiture, or 2) upon learning of the conduct giving rise to the forfeiture, did all that could reasonably be expected under the circumstances to terminate such use of the property. If the person acquired an interest in the property after the conduct giving rise to the forfeiture, he would have to demonstrate that he 1) was a bona fide purchaser or seller for value, and 2) did not know and was reasonably without cause to believe that the property was subject to forfeiture.
If the owner has given nothing of value in exchange for the property, then his status as “innocent” becomes irrelevant. There are exceptions to the requirement that something of value be given for the property, if 1) the property is the primary residence of the claimant, 2) depriving the claimant of the property would deprive claimant of the means to maintain reasonable shelter in the community for claimant and his/her dependents, 3) the property is not, and is not traceable to the proceeds of any crime, and 4) the claimant acquired his interest through marriage, divorce or legal separation, or claimant was a legal dependent of a person whose death resulted in the transfer of the property to claimant via inheritance or probate.
Further, the court is required to limit the value of any real property to the value necessary to maintain reasonable shelter in the community for the claimant and all of his or her dependents residing therein. Of course, no person may assert an ownership interest in contraband or any substance that is illegal to posses. Finally, if a claimant has only a partial interest in that property, the court may sever that interest, transfer the property to the government, provided that the claimant is compensated in the event a forfeiture order is entered (essentially buying out the claimant’s interest), or allow the innocent owner to retain the property subject to a lien in favor of the government to the extent of the forfeitable interest.
iii. Excessive Fines Along the lines of defenses, Section 2(g) implements the Supreme Court’s decision in United States v. Bajakajian, 524 U.S. 321 (1998), allowing the claimant in the civil forfeiture proceeding to show, as an affirmative defense, by a preponderance of the evidence, that the forfeiture is grossly disproportional to the offense. If the court agrees with the claimant, it will either reduce or eliminate the forfeiture as necessary to avoid a violation of the Excessive Fines Clause of the Eighth Amendment. 18 USC 981(g). The burden of proof, as with any affirmative defense, is on the claimant.
iv. Claimant’s Actions & Rights Section 3 of the Act amends the Federal Tort Claims Act (28 USC 2680(c)), waiving sovereign immunity for claims based on injury to or loss of property while in the possession of the government if the property was seized for the purpose of civil forfeiture, and subsequently not forfeited. This is an important change, as it forces the government to seriously weigh the benefits of forfeiting any piece of property. If the government proceeds, fails, and damages the property in the process, it will be held liable.
The Act also addresses the reverse scenario. Section 12 amends 18 USC 2232 and provides that any person who, before, during or after any search for or seizure of property by an authorized party, knowingly damages, wastes, disposes of, or transfers property or knowingly attempts to stop the government, “for the purpose of preventing,” from seizing or continuing to control the property, shall be fined and be subject to up to five years in prison, or both. The same punishments apply in in rem proceedings and the execution of warrants. This amendment is vague, and will likely require clarification for the courts.
v. Attorneys’ Fees Another major addition to the Act relates to attorneys’ fees. An attorney who accepts a case in which his client substantially prevails is entitled to (1) reasonable attorneys’ fees and other litigation costs reasonably incurred by the claimant, (2) post-judgment interest, and (3) any interest actually paid or imputed to the government. Interest, however, only applies to cases involving currency, negotiable instruments or the proceeds of an interlocutory sale. 28 USC 2465, amended by 4 of the Act.
In addition to those clients who retain counsel, the Act permits the courts to authorize counsel to represent an indigent claimant with standing in a judicial civil forfeiture proceeding if the claimant is already represented by a court-appointed attorney in connection with a related federal criminal case. (2(b)). In addition, the court is directed to insure that an indigent claimant whose primary residence is subject to civil forfeiture is represented by an attorney for the Legal Services Corporation. The Legal Services Corporation is paid by the government, regardless of the outcome of the litigation, at rates equivalent to those paid under the Criminal Justice Act.
These provisions will hopefully reduce the number of uncontested forfeitures, which currently represent approximately 80 percent of all forfeiture cases.
Additionally, if the claimant is convicted of a crime for which the interest of the claimant in the property was subject to forfeiture under a Federal criminal forfeiture law, the government is relieved of its obligation to compensate the claimant. If there are multiple claims to the property, the government will not be liable for costs and attorneys fees if it (1) promptly recognizes the claim, (2) promptly returns to the claimant his interest in the property, if the property can be divided without difficulty and there are no competing claims to that portion of the property, (3) does not cause the claimant to incur additional, reasonable costs or fees, and (4) prevails in obtaining forfeiture with respect to one or more of the other claims. If the Court enters a judgment in part for the claimant and in part for the Government, attorneys’ fees will be reduced accordingly.
There are exceptions for when the government is obliged to pay attorney fees and costs.
If the government agrees to recognize a claimant’s interest in the property without causing the claimant to incur additional reasonable fees and expenses, it will have no obligation to compensate the claimant for costs and fees. This out for the government will undoubtedly be used when it feels it will not prevail.
vi. Warrant and Seizure Requirements Section 5 of the Act addresses the Seizure Warrant Requirement, establishing that seizures made under the section must be made pursuant to a warrant, obtained in the same manner as provided for a search warrant under the Federal Rules of Criminal Procedure. There are, however, a number of exceptions to the warrant requirement. A seizure may be made without a warrant if a complaint for forfeiture has been filed in the federal District Court and the court has issued an arrest warrant, in rem, pursuant to the Supplemental Rules for Certain Admiralty and Maritime Claims. Additionally, if there is probable cause to believe that the property is subject to forfeiture and the seizure is made pursuant to a lawful arrest or search, the warrant requirement is waived. Finally, if the property was lawfully seized by a State or local law enforcement agency and transferred to a federal agency, a warrant need not be issued.
Section 5(b)(3) provides the claimant with flexibility with regard to making a motion for the return of seized property. Despite the government strongly lobbying for a rule requiring the movant to litigate in the district court where the seizure warrant was issued, a motion for the return of seized property may be filed either in the district court in which the warrant was issued or in the district court for the district in which the property was seized.
Section 5(b)(4)(a) authorizes the Attorney General to apply for an ex parte order restraining property subject to forfeiture under 981 or under the Controlled Substances Act.
This authorization applies to the arrest or charging of a person in a foreign country, “for such time as is necessary to receive evidence from the foreign country or elsewhere in support of probable cause for the seizure of the property under this subsection.”
Additionally, Section 7 of the Act implements the Supreme Court’s decision in United States v. James Daniel Good Real Property, 510 U.S. 43 (1993), holding that real property may be seized only by the least restrictive means and, except in exigent circumstances, only after giving
the property owner prior notice and an opportunity for an adversarial hearing. All forfeitures of real property also must proceed as judicial forfeitures.
vii. Claimant Retaining his Property or Securing its Return Under Section 2(f), a claimant may retain possession of his property during the pendency of a forfeiture action or may be entitled to the immediate release of the property if the circumstances demonstrate hardship. Property will remain in or revert to the claimant’s custody if (a) the claimant has a possessory interest in the property, (b) the claimant has sufficient ties to the community to provide assurances that the property will be available at the time of trial, (c) the continued possession of the property by the government would cause substantial hardship to the claimant, (d) the claimant’s hardship outweighs the risk that the property will be destroyed, damaged, lost, concealed or transferred if it is returned to the claimant, (e) the seized property is not contraband, currency or another monetary instrument or electronic funds, unless it is the assets of a legitimate business which has been seized, (f) the seized property is not to be used as evidence of a violation of the law, (g) the seized property is not by reason of design or other characteristics suited for use in illegal activities, and (h) the seized property is not likely to be used to commit additional criminal acts if returned.
If the requisite criteria are satisfied, the claimant may then make a request to the party that has physical possession of the property. If a response is not received within 15 days, the claimant may bring a petition to the District Court in which the government originally filed its complaint.
The court must then rule on the petition within 30 days, unless it has good cause to extend the deadline. A ruling in favor of the claimant will result in the court issuing an order returning the property to the claimant, although the court may also enter any order necessary to ensure that the value of the property is maintained. This includes permitting the inspection, photographing and inventory of the property, fixing a bond in accordance with Rule E(5) of the Supplemental Rules, or requiring the claimant to obtain or maintain insurance on the property.
If a claimant prevails, the property subject to forfeiture will be returned forthwith to the claimant or his agent. The claimant will also be entitled to reasonable attorneys’ fees and other incurred litigation costs. Post-judgment interest will be awarded at the rate applicable to the 30- day Treasury Bill on any money that was held by the court Further, unless the government or its agents can show that there was reasonable cause for the seizure, the person responsible and the prosecutor may be liable to suits or judgments against them. As mentioned above, the Act specifically amends the Federal Torts Claim Act (28 USC 2680(c) to waive sovereign immunity for claims based upon injury or loss of the property in the possession of the government if the property was seized for the purpose of civil forfeiture (as opposed to criminal forfeiture) and not forfeited.
The flip side of the coin is that, if the government prevails on the forfeiture, it may compensate “any victim of the offense giving rise to forfeiture, including, in the case of a money laundering offense, any offense constituting the underlying specified unlawful activity.” 18 USC 981(6).
viii. Staying a Civil Forfeiture Proceeding Section 8, amending 18 USC 981(g), instructs a court when it should stay a civil forfeiture proceeding pursuant to a motion by the government or the claimant. Upon motion of the government, the court shall stay the forfeiture proceeding if it determines that civil discovery would adversely affect the availability of the government to conduct a related criminal investigation, or hinder the prosecution of a related criminal case.
If the motion for a stay is made by the claimant, a stay will be granted if the court determines that (a) the claimant is the subject of a related criminal investigation or case, (b) the claimant has standing to assert a claim in the civil forfeiture proceeding, and (c) the continuation of the forfeiture proceeding will burden the right of the claimant against self-incrimination in the related investigation or case. Regardless of the moving party, should the court decide that a protective order limiting discovery would be sufficient, it may so order without issuing a stay.
ix. Preserving Property for Litigation Section 9 expands the options available to the courts, allowing them to enter restraining orders, require the execution of performance bonds, create receiverships, appoint conservators, or take other actions to secure or preserve the availability of property subject to civil forfeiture. The language used in this section is the same as that used in criminal forfeiture statutes, and while a performance bond bears a striking resemblance to the cost bond, the difference here is that the bond is not dictated by statute. There is no requirement for a bond, and the issuance of one is within the discretion of the court.
x. Government Obligations & Responsibilities Section 11 of the Act amends 19 USC 1621, giving the government two years from the discovery of the alleged offense involving the property, or five years from the time the alleged offense was discovered, whichever is later, to file a civil forfeiture action in court. The two-year clock begins to run once the government is aware of facts that should trigger an investigation leading to discovery of the involvement of the property in the offense. Without this amendment, there would effectively be no statute of limitations.
The claimant has five years from the date of final publication of the notice of seizure to file a motion to set aside an administrative forfeiture that was not properly noticed. (2(e)). This motion will be granted if the government knew, or reasonably should have known, of the moving
party’s interest and failed to take reasonable steps to provide notice, and where the moving party did not know or have reason to know of the seizure within sufficient time to file a timely claim.
Even if the court grants the claimant’s motion, however, there is no guarantee that the forfeited property will be returned. For nonjudicial forfeitures, the government has 60 days from the entry of the order granting the motion to refile a claim, while that time is extended to six months for judicial forfeitures. Unless a law specifies otherwise, all civil forfeitures of real property and interests in real property are judicial forfeitures. A nonjudicial forfeiture would be one initiated by an administrative agency, such as U.S. Customs.
Additionally, criminal prosecutors are now able to share grand jury information with the Assistants handling the civil forfeiture proceedings. (10). Prior to this amendment, a court order, under F.R.C.P. Rule 6(e), was required for such an exchange of information. This amendment to 18 USC 3322(a) dispenses with the requirement.
Finally, Section 13 amends 18 USC 984, allowing the government to rely on a fungible money or monetary instruments theory in any civil forfeiture case, not just money laundering and structuring cases. Additionally, “precious metals” is added to the category of fungible property, while deleting the catch-all phrase “or other fungible property.”
xi. Criminal Forfeiture Contained within the Civil Forfeiture Reform Act is a provision “Encouraging the Use of Criminal Forfeiture as an Alternative to Civil Forfeiture.” Section 16, 28 USC 2461(c), authorizes criminal forfeiture for any offense for which Congress has authorized civil forfeiture.
Thus, the availability of criminal forfeiture is greatly expanded. The Act does not, however, attempt to reform criminal forfeiture. That has been accomplished through changes to the Federal Rules of Criminal Procedure that have been approved by the Supreme Court, which are scheduled to go into effect on December 1, 2000.
Under the new rules, the government will not have to prove to a jury that the assets in question belong to the defendant. Rather, the government will only have to prove its case to a judge in an “ancillary hearing” in which the defendant cannot participate. Third parties may participate in the hearing, but the burden of showing ownership of any or all of the property falls squarely upon the third party. If he cannot show ownership at least in part, the property may be forfeited without the defendant ever being given an opportunity to contest the forfeiture. This provision reeks of unconstitutionality.
Because these changes were made through procedural rules, and not by legislation, no vote was taken by Congress. This creates a bizarre situation. Through the Reform Act, Congress has shown its intent to create a fairer process for civil forfeiture. Yet, the government, now
having the ability to pursue criminal forfeiture in any instance in which it could pursue civil forfeiture, is creating a near impossible burden on defendants in criminal forfeiture cases.
Unwittingly, Congress may have succeeded in sounding the death knell for civil forfeiture. Why would the government pursue a civil forfeiture action, with all its incumbent rules and regulations, when it might just as easily bring a criminal forfeiture action, where the cards are all stacked in its favor? If and when the proposed rules changes go into effect, Congress will once again be called upon to reform the rules.
xii. Proceeds The Act makes it a point to define the term “proceeds.” Section 20 defines proceeds in three situations:
a. In cases involving illegal goods or services, unlawful activities and telemarketing and health care fraud schemes, “proceeds” is defined as property of any kind obtained directly or indirectly, as the result of the commission of the offense giving rise to the forfeiture, and any property traceable thereto, and is not limited to the gain or profit realized from the offense.
b. In cases involving lawful good or services that are sold or provided in an illegal manner, the term “proceeds” means the amount of money acquired through the illegal transactions resulting in the forfeiture, less the direct costs incurred in providing the goods or services. The claimant shall have the burden of proof with respect to the issue of direct costs. The direct costs shall not include any part of the overhead expenses of the entity providing the goods or services, or any part of the income taxes paid by the entity.
c. In cases involving fraud in the process of obtaining a loan or extension of credit, the court shall allow the claimant a deduction from the forfeiture to the extent that the loan was repaid, or the debt was satisfied, without any financial loss to the victim.
These definitions permit civil forfeiture for any offense constituting “specified unlawful activity,” or a conspiracy to commit such offense. As a result of this change, any money laundering predicate offense will now support proceeds forfeiture without the need to charge or prove money laundering activity. The addition of telemarketing and health care fraud schemes to subparagraph (a) places the Act in accordance with its criminal counterpart, in which the government is authorized to forfeit “gross proceeds” of telemarketing and federal health care offenses. 18 USC 982(a)(7)-(8).
xiii. Civil Forfeiture in the International Arena Returning to the Reform Act, Section 15 encourages international cooperation in forfeiture cases by creating a procedure for foreign states to have their forfeiture or confiscation judgments enforced in the United States against assets found here.
Further, regarding the fugitive disentitlement doctrine, the Act states that a judicial officer may disallow a person from using the resources of the American courts in furtherance of a claim if, after notice or knowledge of the fact that a warrant or process has been issued for his apprehension, in order to avoid criminal prosecution, the fugitive (a) purposely leaves the jurisdiction of the United States, (b) declines to enter or re-enter the country to submit to its jurisdiction, or (c) otherwise evades the jurisdiction of the court in which the criminal case is pending against him. The fugitive must also not be confined or held in custody in any other jurisdiction for commission of criminal conduct in that jurisdiction.
In any civil forfeiture case, or in any ancillary proceeding in a criminal forfeiture case governed by section 413(n) of the Controlled Substances Act, where financial records located in a foreign country may be material, notwithstanding secrecy laws, the refusal of the claimant to provide the records in response to a discovery request or to take action necessary otherwise to make the records available shall be grounds for judicial sanctions, up to and including dismissal of the claim with prejudice.
Further, Section 18 amends 8 USC 1324(b) to allow forfeiture of the “gross proceeds” of a violation of 1324(a) (forfeiting conveyances used to facilitate alien smuggling offenses), and to make it easier for the government to prove that an alien involved in the alleged violation “had not received prior official authorization to come to, enter, or reside in the United States or that such alien had come to, entered, or remained in the United States in violation of law.”
xiv. Public Access Finally, the Attorney General is required to submit to Congress, and make available to the public, detailed reports for each prior fiscal year. Such a report should include total deposits, expenses paid, types and amounts of property forfeited, and other relevant information. The report must be made available no later than four months after the end of each fiscal year. Audited financial statements must also be made available to Congress and the public within two months of the end of the fiscal year. In keeping with the times, the Attorney General may satisfy this requirement by posting the reports on an Internet website maintained by the Department of Justice for a period of not less than 2 years, and by notifying the House and Senate Committees on the Judiciary when the reports are available electronically.
Steven L. Kessler practices white collar criminal law in New York in Manhattan. Prior to entering private practice, Mr. Kessler was head of the Asset Forfeiture Unit of the Bronx District Attorney’s Office in New York, where he supervised and litigated all phases of forfeiture and related matters. In that capacity, he served as a member of the Forfeiture Law Advisory Group of the New York State District Attorney’s Association.
Mr. Kessler has written and lectured extensively on topics relating to forfeiture. He is the author of “Civil and Criminal Forfeiture: Federal and State Practice” (West Group 1993 & Supp. 1998), a 3 volume treatise covering the forfeiture and RICO statutes of all 50 states and the District of Columbia and the major federal forfeiture provisions, and is the author of the forthcoming “New York Criminal and Civil Forfeitures” (Gould Publishing 1998). Mr. Kessler is a contributor to the New York Law Journal on issues relating to forfeiture and is the author and Revisions Editor of eight chapters in Weinstein, Korn & Miller’s “New York Civil Practice,” including the chapter “New York Forfeiture”. He is widely quoted and cited in court opinions and media of legal and general circulation nationwide.
A graduate of the Cornell Law School, Mr. Kessler serves as a member of the House of Delegates of the New York State Bar Association and as editor of One on One, the publication of the 5,000-member General Practice Section of which Mr. Kessler is an officer. He is a member of the White Collar Crime Committee and the RICO, Forfeitures and Civil Remedies Committees of the American Bar Association, the Criminal Justice Section of the New York State Bar Association, and the Forfeiture Abuse Task Force of the National Association of Criminal Defense Lawyers, and serves as co-chair the Forfeiture Law subcommittee of the New York State Association of Criminal Defense Lawyers. An Adjunct Professor of Law at New York Law School, Mr. Kessler is listed in Who’s Who in American Law.
Mr. Kessler is a member of the New York and Connecticut Bars and is admitted to practice before the United States Supreme Court.