Posts Tagged ‘forfeiture reform’

Forfeiture Reform and United States v. Bajakajian

By Steven L. Kessler | Article Posted 7/30/98

To paraphrase a major credit card company: Was it the merits, or the miles, that prompted the majority of the Supreme Court to side with the defendant in United States v. Bajakajian?

When I received a call on June 22, 1998 from a reporter asking me to comment on the Supreme Court’s decision in Bajakajian, I asked her who authored the decision. Clarence Thomas, she replied. After a long pause, I said softly: Another in a string of recent questionable decisions.

Actually, she said, the Court affirmed the Ninth Circuit’s decision in favor of the defendant. Unbelieving, I asked her to fax the decision to me. Sure enough, she was right.

There are many aspects of Bajakajian that are remarkable. Most notably, it is the first time ever that the Supreme Court has struck down a fine as unconstitutionally excessive. When placed in the context of the number of cases reviewed by the Court each term, that is truly significant.

Almost as notable as the substance of the decision is that it represents the first time ever that Justice Thomas has joined, let alone authored, a decision with the “liberal” segment of the bench, namely, Justices Stevens, Ginsburg, Breyer and Souter.

That Thomas should be the one to break from the conservative block on a forfeiture issue, however, is less surprising when placed in the context of some of his past decisions. Just five years ago, in United States v. James Daniel Good Real Property, Thomas, concurring, pronounced his “distrust of the Government’s aggressive use of broad civil forfeiture statutes.” “I am disturbed,” he continued, “by the breadth of the new civil forfeiture statutes . . . which subjects to forfeiture all real property that is used, or intended to be used, in the commission, or even the facilitation, of a federal drug offense.” Notably, “ambitious modern [forfeiture] statutes and prosecutorial practices have all but detached themselves from the ancient notion of civil forfeiture”. Hence, “it may be necessary . . . to reevaluate our generally deferential approach to legislative judgments in this area of civil forfeiture.”

In Bajakajian, Thomas made clear his belief that the government’s current forfeiture practices are not blessed by history. Although his opinion traces the history of forfeiture, Thomas noted that it was only in 1970, about the time of the advent of the Racketeer Influenced and Corrupt organizations Act (RICO), that the government began imposing criminal forfeiture of the type at issue here, as opposed to the civil, in rem forfeiture proceedings, which are based on the legal fiction of “guilt” of the subject property. Indeed, it was the “War on Drugs” that escalated the use of forfeiture as an accepted tool of law enforcement.

It seems, therefore, that at least Justice Thomas is tired of the expansive use of forfeiture by the government. Ironically, the statutes once limited to combat organized crime and to liquidate drug lords and money launderers are currently the preferred instruments utilized by the government when it does not have sufficient evidence of criminal activity. In approximately 85 percent of all forfeiture cases, the property owner is never charged with a crime! Instead, the forfeiture of his property is his “punishment”. That is unsettling, and outrageous, especially when the purpose of forfeiture was “to take the profit out of crime.” Forfeiture is now a business for the government, making the government and its agencies full financial partners in the largest “business” in the country.

One of the more alarming aspects of our current forfeiture scheme is that it permits law enforcement agencies to keep the proceeds of their forfeitures. This creates an overwhelming financial incentive for abuse, one that would tempt even the most honest cop. In one county in Arizona, for example, a statute provides that a police officer will receive a salary as long as there are enough funds in the forfeiture account to pay his salary. The local media coined this “collars for dollars.”

On the federal level, forfeiture is fund raising at its best. In 1993, the United States Attorney for the Southern District of New York brought in close to $50 million, $17 million more than the office’s annual budget. The U.S. Attorney in the Eastern District of New York collected more than $31.3 million from forfeiture connected to criminal activity in the year ending September 30, 1994. The office’s operating budget was $26 million. In the fiscal year ending in September 1996, the Southern District of New York collected $410 million, including $352.3 million in criminal fines, assessments and bail bond forfeitures, $17 million through forfeiture of criminals’ assets and nearly $41 million in civil judgments. Who says crime doesn’t pay?

More and more courts are finding fault with the government’s methods. Unfortunately, at least for now, most courts seem unwilling to take that extra step and say so. After all, what’s the harm? As long as there is some suspicion of illicit activity, why quibble about criminal guilt? As the U. S. Attorney’s office argued in a case involving a substantial amount of cash found in a safe deposit box in a bank, “only a criminal would keep such money in a safe deposit box.” Now, that’s a legal argument laden with evidence. Forget tracing the money to a crime, or some modicum of proof connected to illegal activity. Where there’s smoke, there’s money in the forfeiture coffers.

It is noteworthy that most forfeiture proceedings nowadays are civil. They are commenced by summons and complaint in civil term before a judge accustomed to civil proceedings. Yet the plaintiff is a prosecutor, the defendant is either a criminal defendant or the property alleged to be involved in criminal activity, and defense counsel — if there is one — is more often than not a criminal defense attorney, unfamiliar with the intricacies of civil forfeiture litigation. Once the prosecutor presents probable cause, the burden of proof switches to the defendant to prove his innocence or the innocence of the property. How can a civil court not be influenced by all of this? After all, the government would not sue an innocent person. Would it?

After the Supreme Court twisted logic on its head last year in Bennis v. Michigan, House Judiciary Chairman Henry Hyde, a Reagan Republican from Illinois, introduced the Civil Asset Forfeiture Reform Act (H.R. 1835). He and Representative John Conyers, a Carter Democrat from Michigan and the ranking Democrat on the Committee, have joined hands on this one, in an attempt to remedy some of the worst problems affecting federal civil forfeiture laws.

Changes in the proposed bill include:

  • placing the burden of proof on the government to prove that, by clear and convincing evidence, the property is subject to forfeiture
  • providing for the appointment of counsel for property owners who cannot afford lawyers to challenge forfeitures, paid for from the Federal Asset Forfeiture Fund
  • clarifying the “innocent ownership” defense, most specifically to state that an owner who takes “reasonable steps” to prevent others from using the property for criminal activity can get his property back.
  • eliminating the requirement that owners post a bond before being allowed to challenge the action. [What a concept! Your house has been seized, your business has been shut down, all of your money has been seized or frozen, and, before you are permitted to challenge the seizure, you have to post a bond of $5,000 or ten percent of the property’s value, whichever is less.]
  • extending from 10 to 30 days the time for property owners to file a claim for the return of their property
  • requiring the government to institute judicial forfeiture proceedings within 90 days after the filing of a claim
  • permitting property owners to sue the government for negligence in handling or storage of their property, if the property is not ultimately forfeited, and
  • providing federal courts with the ability to grant possession of the contested property to the owner during the pendency of the forfeiture proceeding, if possession by the government during the action would cause the owner to suffer substantial hardship (such as preventing the functioning of a business or leaving an owner homeless).

This bill goes a long way toward correcting the abuses experienced under the current structure. Not surprisingly, the Department of Justice strongly opposed these changes, and introduced its own version of a reform measure. No hearings have been conducted regarding its bill, however, nor has the bill been subjected to public scrutiny or intensive committee review. At 69 pages, it is 54 pages longer than Hyde’s bill. Quite simply, it mocks the reform effort of H.R. 1835. Fortunately, and despite heavy DOJ lobbying, H.R. 1965 was defeated in Congress. Hyde’s bill is pending, and deserves strong support from all who favor a level playing field in the forfeiture arena.

United States v. Bajakajian

With this as a backdrop, the Supreme Court was presented with Bajakajian. Respondent, his wife, and his two daughters were waiting at Los Angeles International Airport to board a flight to Italy. Using dogs trained to detect currency by its smell, customs inspectors discovered some $230,000 in cash in the Bajakajians’ checked baggage. A customs inspector approached Bajakajian and his wife and told them that they were required to report all money in excess of $10,000 in their possession or in their baggage. Respondent said that he had $8,000 and that his wife had another $7,000, but that the family had no additional currency to declare. A search of their carry-on bags, purse, and wallet revealed more cash, which brought the total to $357,144. The currency was seized and respondent was taken into custody.

Bajakajian was indicted for (1) failing to report that he was transporting more than $10,000 outside the United States, and was doing so ‘willfully,’ in violation of §5322(a); and (2) making a false material statement to the Customs officer, and a third count sought the forfeiture of the full $357,144 pursuant to 18 U.S.C. §982(a)(1), which provides:

The court, in imposing sentence on a person convicted of an offense in violation of section . . . 5316, . . . shall order that the person forfeit to the United States any property, real or personal, involved in such offense, or any property traceable to such property.’ 18 U. S. C. §982(a)(1).

Bajakajian pled guilty to the failure to report violation. Count Two was dismissed by the government and the court held a bench trial on the forfeiture charge. Following trial, the court found that the entire $357,144 was subject to forfeiture because it was “involved in” the offense. But the court also found that the funds were not connected to any other crime, Bajakajian was transporting the money to repay a lawful debt, and Bajakajian had failed to report that he was taking the currency out of the United States because of fear stemming from “cultural differences”.

Respondent, who had grown up as a member of the Armenian minority in Syria, had a “distrust for the Government.”

Although §982(a)(1) directs sentencing courts to impose full forfeiture, the court concluded that such forfeiture would be “extraordinarily harsh” and “grossly disproportionate to the offense in question,” and that it would therefore violate the Excessive Fines Clause of the Eighth Amendment. Instead, the court ordered forfeiture of $15,000, in addition to a sentence of three years of probation and a fine of $5,000 — the maximum fine under the Sentencing Guidelines — because the court believed that the maximum Guidelines fine was “too little” and that a $15,000 forfeiture would “make up for what I think a reasonable fine should be.”

The Ninth Circuit affirmed. The court held that, to satisfy the Excessive Fines Clause, a forfeiture must be an “instrumentality” of the crime committed, and the value of the property must be proportional to the culpability of the owner. The court determined that the currency was not an “instrumentality” of the crime of failure to report because ” ‘[t]he crime [in a currency reporting offense] is the withholding of information, . . . not the possession or the transportation of the money.’ ” The majority therefore held that §982(a)(1) could never satisfy the Excessive Fines Clause in cases involving forfeitures of currency and that it was unnecessary to apply the “proportionality” prong of the test. Although the panel concluded that the Excessive Fines Clause did not permit forfeiture of any of the unreported currency, it held that it lacked jurisdiction to set the $15,000 forfeiture aside because respondent had not cross-appealed to challenge that forfeiture. The Supreme Court granted certiorari.

In a stunning and important decision, Justice Thomas, writing for the majority, first deemed criminal forfeiture to be a fine, since it clearly constitu tes punishment for an offense. Forfeiture under §982(a)(1) is imposed at the end of a criminal proceeding, following a conviction, and can be imposed only upon a guilty party, not an innocent owner. Thomas pointed out that the only loss to the government from one’s failure to report is the loss of information, which cannot be remedied by the confiscation of the defendant’s money. Criminal forfeiture is in personam, against the culpable individual, not in rem, against the “guilty” property, which, at least in proceedings under the Double Jeopardy Clause of the Fifth Amendment, has been deemed to be remedial.

The Court took pains, however, to emphasize that a modern statutory forfeiture is a “fine” for Eighth Amendment purposes if it constitutes punishment even in part, regardless of whether the proceeding is styled in rem or in personam. Therefore, civil forfeiture statutes as well as criminal forfeitures must be scrutinized through the lens of the Eighth Amendment.

The Court overruled the Second Circuit in United States v. $145,139.00, holding that the currency in question was not an instrumentality. Adopting the Ninth Circuit’s reasoning, the Court found that the existence of the currency as a “precondition” to the reporting requirement did not make it an “instrumentality” of the offense. Thomas wrote:

The currency is merely the subject of the crime of failure to report. Cash in a suitcase does not facilitate the commission of that crime as, for example, an automobile facilitates the transportation of goods concealed to avoid taxes. See, e.g., J. W. Goldsmith, Jr.-Grant Co. v. United States, supra, at 508. In the latter instance, the property is the actual means by which the criminal act is committed.” See Black’s Law Dictionary 801 (6th ed. 1990) (‘Instrumentality’ is ‘[s]omething by which an end is achieved; a means, medium, agency’).

With the forfeiture deemed punitive, the majority focused on the test for the excessiveness of a punitive forfeiture. The Court held that excessiveness involves “solely a proportionality determination.” “The touchstone of the constitutional inquiry under the Excessive Fines Clause”, Thomas wrote, “is the principle of proportionality: The amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish.” Reasoning that “judgments about the appropriate punishment for an offense belong in the first instance to the legislature” and that “any judicial determination regarding the gravity of a particular criminal offense will be inherently imprecise,” the Court dismissed a “strict proportionality” requirement between the amount of the forfeiture and the gravity of the crime. Instead, the Court held that punitive forfeiture is unconstitutional if it is “grossly disproportional” to the gravity of a defendant’s offense.

Applying the new standard to the facts before it, the Court held Bajakajian’s “crime” was solely a reporting offense. It was permissible to transport the currency out of the country so long as he reported it. Section 982(a)(1) orders currency to be forfeited for a ‘willful’ violation of the reporting requirement.. . . Had his crime gone undetected, the Government would have been deprived only of the information that $357,144 had left the country. … There is no inherent proportionality in such a forfeiture. It is impossible to conclude, for example, that the harm respondent caused is anywhere near 30 times greater than that caused by a hypothetical drug dealer who willfully fails to report taking $12,000 out of the country in order to purchase drugs. … [The] $357,144 forfeiture the Government seeks. . . bears no articulable correlation to any injury suffered by the Government.”

Further, the defendant’s possession of the money was lawful. Bajakajian’s “violation was unrelated to any other illegal activities. The money was the proceeds of legal activity and was to be used to repay a lawful debt. Whatever his other vices, respondent does not fit into the class of persons for whom the statute was principally designed: He is not a money launderer, a drug trafficker, or a tax evader. And under the Sentencing Guidelines, the maximum sentence that could have been imposed on respondent was six months, while the maximum fine was $5,000. Such penalties confirm a minimal level of culpability.”

The dissenters, in an opinion by Justice Kennedy, had little difficulty with the standard set by the majority. Instead, they stressed the seriousness of the defendant’s crime, terming it “smuggling”. Kennedy discussed what he saw as “suspicious circumstances” in the case — including lies told to officials by Bajakajian and his friends, leading to a false-statement charge that was later dropped — stating that they pointed to “some form of crime,” which, according to Kennedy, would satisfy the “gross disproportionality” test and justify the forfeiture of all of the funds.

But Thomas took exception to Bajakajian’s repeated characterization as a “smuggler.” “Respondent owed no customs duties to the Government, and it was perfectly legal for him to possess the $357,144 in cash and to remove it from the United States. His crime was simply failing to report the wholly legal act of transporting his currency.”

The Court also found that “the nature of the nonreporting offense in this case was not altered by respondent’s ‘lies’ or by the ‘suspicious circumstances’ surrounding his transportation of his currency.’ A single willful failure to declare the currency constitutes the crime, the gravity of which is not exacerbated or mitigated by ‘fable[s]’ that respondent told one month, or six months, later. The Government indicted respondent under 18 U.S.C. §1001 for ‘lying,’ but that separate count did not form the basis of the nonreporting offense for which §982(a)(1) orders forfeiture.

Further, the District Court’s finding that respondent’s lies stemmed from a fear of the Government because of ‘cultural differences does not mitigate the gravity of his offense. “We reject the dissent’s contention that this finding was a ‘patronizing excuse’ that ‘demeans millions of law-abiding American immigrants by suggesting they cannot be expected to be as truthful as every other citizen.’ We are confident that the District Court concurred in the dissent’s incontrovertible proposition that ‘[e]ach American, regardless of culture or ethnicity, is equal before the law.’ The District Court did nothing whatsoever to imply that ‘cultural differences’ excuse lying, but rather made this finding in the context of establishing that respondent’s willful failure to report the currency was unrelated to any other crime–a finding highly relevant to the determination of the gravity of respondent’s offense.”

Kennedy also expressed concern that the majority’s decision “portends serious disruption of a vast range of statutory fines.” If Kennedy is referring to other forfeiture statues, which, as discussed earlier, are in great need of repair, the news is good. Serious punishment should be

reserved for serious criminals. That’s what proportionality is all about. Hopefully, the Court will follow that reasoning in future opinions in the forfeiture and criminal areas.

Any concern that Bajakajian will lead to greater use of civil forfeiture in an attempt to circumvent the Eighth Amendment is unsupported by the law. Under Austin and Ursery, “modern” civil forfeitures are still punitive, a concept confirmed by the Court in Bajakajian.

Further, the new decision should have a positive impact on innocent owners or in situations where minor or technical offenses are involved. Where, for example, a defendant uses his home phone for a minor drug or gambling offense, the defendant could argue that the forfeiture of the house would be excessive.

Left open however, is the precise definition of “grossly disproportional”. That will be the subject of extensive litigation in the circuits.

Interestingly, it is unclear whether the law in the Ninth Circuit changes after Bajakajian. After all, the Court affirmed the Ninth Circuit decision without modification. Does that mean that the Ninth Circuit’s reasoning remains valid, or must it adopt the particulars of Bajakajian?

We in New York do not have to deal with that issue. Of importance to us is that the instrumentality test and result of $145,139 is no longer valid. In $145,139, the Second Circuit, by 2-1, held that the unreported money is the instrumentality of the reporting violation and, as such, is fully forfeitable regardless of its origin or legitimacy. In her dissent, Judge Kearse argued that the money could not be deemed an instrumentality of a crime, because the government was only deprived of information about it, required for statistical purposes, not of revenue because of it, as in, say, the failure to report imported items subject to duty or other charges. Indeed, even in tax cases, where the failure to report income is a crime, there is no assertion that the unreported income is an “instrumentality” permitting its forfeiture. Such would subject to forfeiture a person’s entire annual income, a perposterous result.

Fortunately, the Bajakajian majority adopted this common sense approach. That should assist most claimants in circumstances similar to the defendant’s in Bajakajian. It also will give the lower courts greater latitude in deciding not to grant forfeiture of a claimant’s entire property where no criminal charges are filed or where the facts demonstrate innocent ownership or minor involvement in the alleged illicit acts.

Making the punishment fit the crime, i.e., proportionality, is the essence of our concept of justice. Combined with changes pending before Congress, Bajakajian, although not a magic elexir, should assist in reverting our forfeiture laws to what they were meant to be, a means of taking the profit of crime from criminals, or from major players in the drug world, not ordinary, innocent people, and not for the purpose of fund-raising to meet otherwise out-of-control federal, state and local budgets.

Steven L. Kessler is a practicing attorney in New York City specializing in white collar criminal defense and is the author of Civil and Criminal Forfeiture: Federal and State Practice (West Group 1993 and 1998 Supp.) and the forthcoming New York Criminal and Civil Forfeitures (Gould 1998).

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