On Civil Forfeiture in Criminal Tax Cases (5/1/14)

Writing from his bully pulpit in the Washington Post, Fox News pundit, George Will pillories the IRS for a civil forfeiture action.  See George F. Will, The heavy hand of the IRS seizes innocent Americans’ assets (Washington Post 4/30/14), here.  Of course, Will's key stated premise is that this happened to "innocent Americans."  I cannot speak to their innocence.  I think an unstated premise is that the IRS, the DOJ and the court approving the warrant were not administering the civil forfeiture law as Congress had intended the law, which it wrote, to be administered.  Will's main complaint is about an IRS gone wild, a frequent punching bag for him.  I am surprised that he lets DOJ and the courts off so easily; after all they had to approve the warrant.  I am not sure the article gives a great deal of comfort that it is well researched factually and legally and fairly presented.  Such fulminations are often hastily offered to pillory a target the writer does not like.  Not uncommonly, as with claims about Benghazi, Lois Lerner, and Cliven Bundy, the claims are, let's just say, exaggerated.

Nevertheless, whether or not Will's article is fair reporting or even fair comment, I thought it would be helpful for readers to know a little about civil forfeiture as related to federal tax crimes.  Civil forfeiture is usually not deployed in run of the mine criminal tax cases.  In cases with some material criminal tax component, civil forfeiture will be related to money laundering issues.  And, of course, the IRS has significant investigative responsibilities for money laundering crimes.

Will's article links to a good article, Sarah Stillman, Taken (New Yorker 8/12/13), here.  It is a long read and the anecdotes in the article recounts significant abuse related to state and local government seizures.  Moving past the anecdotes, I include certain excerpts about the civil forfeiture laws and process:

Forfeiture in its modern form began with federal statutes enacted in the nineteen-seventies and aimed not at waitresses and janitors but at organized-crime bosses and drug lords. Law-enforcement officers were empowered to seize money and goods tied to the production of illegal drugs. Later amendments allowed the seizure of anything thought to have been purchased with tainted funds, whether or not it was connected to the commission of a crime. Even then, forfeiture remained an infrequent resort until 1984, when Congress passed the Comprehensive Crime Control Act. It established a special fund that turned over proceeds from forfeitures to the law-enforcement agencies responsible for them. Local police who provided federal assistance were rewarded with a large percentage of the proceeds, through a program called Equitable Sharing. Soon states were crafting their own forfeiture laws. 

Revenue gains were staggering. At the Justice Department, proceeds from forfeiture soared from twenty-seven million dollars in 1985 to five hundred and fifty-six million in 1993. (Last year, the department took in nearly $4.2 billion in forfeitures, a record.) The strategy helped reconcile President Reagan’s call for government action in fighting crime with his call to reduce public spending. In 1989, Attorney General Richard Thornburgh boasted, “It’s now possible for a drug dealer to serve time in a forfeiture-financed prison after being arrested by agents driving a forfeiture-provided automobile while working in a forfeiture-funded sting operation.”

Revenue gains were staggering. At the Justice Department, proceeds from forfeiture soared from twenty-seven million dollars in 1985 to five hundred and fifty-six million in 1993. (Last year, the department took in nearly $4.2 billion in forfeitures, a record.) The strategy helped reconcile President Reagan’s call for government action in fighting crime with his call to reduce public spending. In 1989, Attorney General Richard Thornburgh boasted, “It’s now possible for a drug dealer to serve time in a forfeiture-financed prison after being arrested by agents driving a forfeiture-provided automobile while working in a forfeiture-funded sting operation.” 

There were high-profile success stories. The federal government seized a four-hundred-acre Montana ranch tied to the Colombian drug kingpin Pablo Escobar, and laid claim to the bank accounts of assorted Wall Street con men. But tales of abuse also emerged. In 1992, a California drug task force shot and killed a reclusive millionaire named Donald Scott during a raid of his Malibu ranch; by some accounts, police were searching for marijuana plants (none were found) as a pretext to seize Scott’s two-hundred-acre property. “Unfortunately, I think I can say that our civil-asset-forfeiture laws are being used in terribly unjust ways,” Henry Hyde, the Republican chairman of the House Judiciary Committee, declared in 1997, “and are depriving innocent citizens of their property with nothing that can be called due process.” Three years later, Congress passed the Civil Asset Forfeiture Reform Act (cafra), requiring that federal prosecutors prove “a substantial connection between the property and the offense,” and allowing people who can prove themselves “innocent owners” to keep their property. 

But civil-forfeiture statutes continued to proliferate, and at the state and local level controls have often been lax. Many states, facing fiscal crises, have expanded the reach of their forfeiture statutes, and made it easier for law enforcement to use the revenue however they see fit. In some Texas counties, nearly forty per cent of police budgets comes from forfeiture. (Only one state, North Carolina, bans the practice, requiring a criminal conviction before a person’s property can be seized.) Often, it’s hard for people to fight back. They are too poor; their immigration status is in question; they just can’t sustain the logistical burden of taking on unyielding bureaucracies. 

* * * * 

The rise of civil forfeiture has, in some areas, proved of great value. It allows the government to extract swift penalties from white-collar criminals and offer restitution to victims of fraud; since 2012, the Department of Justice has turned over more than $1.5 billion in forfeited assets to four hundred thousand crime victims, often in cases of corporate criminality. Federal agents have also used forfeiture to go after ruthless migrant smugglers, organized-crime tycoons, and endangered-species poachers, stripping them of their illicit gains. Global Witness, the anti-corruption group, recently cheered the Justice Department’s civil-forfeiture action targeting the son of Equatorial Guinea’s dictator, which sought his Malibu mansion, Gulfstream jet, and some two million dollars’ worth of Michael Jackson memorabilia, including a bejewelled white glove. 

Yet only a small portion of state and local forfeiture cases target powerful entities. “There’s this myth that they’re cracking down on drug cartels and kingpins,” Lee McGrath, of the Institute for Justice, who recently co-wrote a paper on Georgia’s aggressive use of forfeiture, says. “In reality, it’s small amounts, where people aren’t entitled to a public defender, and can’t afford a lawyer, and the only rational response is to walk away from your property, because of the infeasibility of getting your money back.” In 2011, he reports, fifty-eight local, county, and statewide police forces in Georgia brought in $2.76 million in forfeitures; more than half the items taken were worth less than six hundred and fifty dollars. With minimal oversight, police can then spend nearly all those proceeds, often without reporting where the money has gone.

For a more technical analysis of civil forfeiture and its relationship to tax crimes, I offer the following from my Federal Tax Crimes Book (footnotes omitted):

2. Civil forfeiture. 

Contraband, being property illegal to own per se, is forfeitable even without the statute.  The statutes deal principally with property used in the commission of crime or proceeds from the commission of crime and are in rem forfeitures.  In part pertinent to this class, civil forfeiture is available for property involved in a money laundering transaction under §§ 1956 or 1957.  And, in pertinent part, proceeds from the commission of certain crimes, including specifically crimes defined as “specified unlawful activity in § 1956(c)(7)” are forfeitable.  Civil forfeiture is not prescribed in these general provisions for tax offenses.  (Note that the Internal Revenue Code provides certain forfeitures, which I cover below.)  The statute confers title in the United States from the time of commission of the underlying offense. 

Seizures generally require a court seizure warrant obtained in a manner similar to a search warrant, but there are some key exceptions.  Upon satisfaction of this initial requirement, the Attorney General generally makes the seizure, but in part pertinent to this class, the Secretary of the Treasury makes the seizure for crimes investigated by Treasury (including, of course, the IRS).  As usual in such a large bureaucracy, the Secretary of the Treasury has delegated the authority and through redelegations the authority resides in local IRS management.  The property, once seized, is not repleviable.  The Government may bring a judicial proceeding for forfeiture but in most cases may also forfeit administratively, subject to the property owner’s right to invoke judicial remedies by following certain requirements.  Under the IRS administrative forfeiture procedures, the IRS will notify all known claimants to the property that it intends to forfeit the property and will advise those persons that they have either a judicial remedy or an administrative remedy.  The judicial remedy is obtained by filing a claim of ownership.  The Government’s right to make the seizure and forfeit the property are contestable under the new procedures in § 983 discussed below.  The civil forfeiture proceeding may be stayed if discovery in the proceeding might prejudice the Government’s investigation or the taxpayer’s rights. 

The civil forfeiture provisions were substantially revised by the “Civil Asset Forfeiture Reform Act of 2000" (“CAFRA”).  In summary and in part relevant to this course, the following are key features of civil forfeiture under the CAFRA under § 983: 

1. General rules for forfeiture proceedings are provided to permit timely independent judicial review of the Government’s assertion of its right to forfeit.  One of the most prominent reforms is that the putative property owner does not have to post a bond to obtain judicial review of the Government’s right to forfeit. 

2. Indigent property owners may obtain representation if they have indigent representation in a related federal criminal case.  Further, indigent property owners may obtain representation if the Government seeks to forfeit a primary residence. 

3. The Government must prove by a preponderance of the evidence that it is entitled to make the forfeiture.  If the Government’s grounds for forfeiture is that the property facilitated the commission of the offense, the Government must prove that there is a substantial connection between the property and the offense.  This allocation of the burden of proof is a substantial departure from the prior rules which permitted seizure for forfeiture merely upon a showing of probable cause and, after seizure, the claimant for property had the burden of showing by a preponderance of the evidence that forfeiture is either unjustified or inappropriate. 

4. A claimant may petition to determine whether the forfeiture was constitutionally excessive. 

5. Innocent owners of property, including bona fide purchasers, who did not participate in the criminal offense or know of the conduct may avoid forfeiture. 

6. Administrative forfeitures that have not been properly noticed may be set aside. 

7. Expedited release from forfeitures may be granted in cases of hardship.  

8. These forfeiture protections apply generally to forfeitures under any applicable federal law except in specifically enumerated circumstances, one of which is forfeitures under the Internal Revenue Code forfeitures (which I discuss below).  As I note below, since forfeitures under the Internal Revenue Code are not material for general crimes that we consider in this course, this exception is also not material for this course. 

Judicial proceedings related to civil forfeiture are handled under the Federal Rules of Civil Procedure. 

An additional constitutional issue is whether civil in rem forfeiture after conviction of the crime constitutes punishment for purposes of the double jeopardy guarantee.  The Supreme Court has held that it does not. 

Finally, although historically in rem forfeiture was not subject to constitutional Excessive Fines analysis, courts now recognize that it may be if the forfeiture is punitive and thus a fine for conduct.