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FEDERAL ASSET FORFEITURE: U.S. SEIZURE OF NON-RESIDENT FOREIGN-OWNED ASSETS: CASES

Types of Forfeiture: There are three ways the Government can seek forfeiture of assets: 1) Administrative forfeiture; 2) Criminal Forfeiture; and 3) Civil Forfeiture. Criminal and Civil Forfeiture are judicial proceedings. Administrative Forfeiture has no judicial involvement.

Administrative Forfeiture is an in rem action against the property in which an administrative agency seizes the property. The authority for the seizing agency to start an administrative forfeiture action is found in the Tariff Act of 1930, 19 U.S.C. 1602-1621. Property that can be administratively forfeited is: merchandise the importation of which is prohibited; a conveyance used to import, transport, or store a controlled substance; a monetary instrument; or other property not to exceed $500,000 in value. Real property cannot be the subject of administrative forfeiture regardless of its value.

Criminal Forfeiture is an action brought as part of a criminal prosecution of a defendant. It is an in personam action that requires the government to indict the property used or derived from the alleged criminal activity, along with indicting the defendant. Although there are more than 200 federal forfeiture statutes, relatively few provide for criminal forfeiture. If the jury finds the property forfeitable, the court issues an order of forfeiture. For forfeitures pursuant to the Controlled Substances Act, Racketeer Influenced and Corrupt Organizations Act (RICO), money laundering, and obscenity statutes there is an ancillary hearing for 3rd parties to assert their interest in the property. Once the 3rd party interests are addressed, the court issues a final forfeiture order.

Civil Forfeiture is an in rem action brought in court against the property. This type of forfeiture requires the government to prove by a preponderance of the evidence that the property was derived from or was used to commit a crime. There is no requirement of notice or filing prior to seizing the asset. A civil forfeiture can be brought at any time prior to or after criminal charges are filed, or even if criminal charges are never filed. This is a way for the government to identify the property subject to forfeiture and the grounds for the action, and to give anyone with an interest in that property the opportunity to come into court at one time and contest the forfeiture action.

Once the U.S. Attorney’s office receives a referral from a seizing agency of a seized asset case, that office has 90 days to either file a civil judicial case or include the seized asset in a criminal indictment and name it for criminal forfeiture. 18 USC 983(a)(3)(A). If a civil case is not filed within those 90 days, the U.S. is forever barred from filing a civil forfeiture case. 18 USC 983(a)(3)(B). If the asset is included in an indictment and the defendant is later acquitted or has a conviction reversed on appeal, the property cannot be forfeited. For this reason, many U.S. prosecutors choose to file a timely civil forfeiture action and include the property for criminal forfeiture in an indictment. The law also allows the prosecutor or the claimant to obtain a stay of the civil forfeiture case while a criminal investigation is pending. Thus if the defendant is convicted of an offence which will give rise to the forfeiture, the forfeiture may be obtained more easily in the criminal case, although it will not be final until all appeals are exhausted.

Because civil forfeiture does not depend on a conviction, it may be filed at any time. Often the case will be filed under seal before criminal charges are brought, providing for warrant of arrest in rem to be issued for the assets. The warrant may be served by the law enforcement officers at any time. These warrants are similar to seizure warrants and are issued by the presiding judge in the civil forfeiture case. The law prescribes the procedures which must be followed in a civil forfeiture action, which include: 1) notice to all potential claimants, even if notice was already provided in an administrative process; and 2) full publication notice by either newspaper or internet.

Claimants have 30 days from when they are notified to submit a sworn claim indicating the basis for asserting an interest in the property (even if a claim was already submitted in an administrative case) and must, within 20 days after a claim is filed, file an answer with the court directly responding to the allegations in the prosecutors judicial complaint. If those deadlines are not met, the prosecutor can seek a default judgment of forfeiture, which will generally be granted.

If a timely claim is filed, the case will follow the federal rules of civil procedure in U.S. District Court. Civil discovery in the nature of interrogatories and depositions may take place. Prior to discovery, either side may file for a judgment on the pleadings. Following discovery, either side may file for summary judgment on legal issues supported by uncontested facts. If the case survives these motions, either side may request a trial by jury of 9 persons, of whom a majority must agree on a verdict of forfeiture to the United States. Because the jurisdiction in civil forfeiture is in rem, US law requires a nexus to the crime, either as proceeds or instrumentality, or in the case of money laundering, an involvement in the crime in some manner.

Defenses: A claimant in civil forfeiture case may take one or both of two approaches to defending the forfeiture:
  • One may challenge the government’s ability to sustain its burden to prove the property has a nexus to the crime, and/or
  • One may assert an innocent owner status which would deny forfeiture even if the government proves forfeitability. If the claimant asserts innocent owner status he has the burden to prove that defense by a preponderance of the evidence. A civil forfeiture judgment may be appealed from the U.S. District Court to the U.S. Court of Appeals of that federal circuit. The appeal is first heard by a 3 judge panel and the losing party may seek rehearing by the panel or by the entire en banc panel of the circuit’s appellate judges. If the case involves a novel issue or one which has created a conflict between any of the federal circuits, then one may file a Writ of Certiorari with the U.S. Supreme Court.

Why Forfeiture: The government seeks to forfeit assets because it wants to remove the tools of illegal activity, compensate the victims, take away the profits from such activity, and act as a deterrent effect to society. Forfeiture is often considered a more severe form of punishment in the mind of the accused or convicted individual.

What the Government can Forfeit:

Proceeds of Crimes: The closest to an “all crimes” approach to forfeiture of proceeds in the US is 18 U.S.C. 981(a)(1)(C) which authorizes the forfeiture of the proceeds of over 200 state and federal offences. Most of these are subject to forfeiture because they are specific unlawful activities within the definition of 18 U.S.C. 1956(c)(7). All of the UN convention required crimes are included such as terrorist financing, money laundering, arms smuggling, drug crimes, most varieties of fraud (except tax fraud), corruption, human trafficking, smuggling, counterfeiting, securities violations, violent crimes, and environmental crimes. Others are linked through cross-referencing the RICO law (18 U.S.C. 1961) to state crimes such as gambling, arson, kidnapping, murder, obscenity, and nearly all types of theft.

US courts have regarded “proceeds” as including any property, real or personal, tangible or intangible, which would not have been obtained “but for” the commission of the crime. The civil forfeiture law defines “proceeds” in several ways (1) in cases involving illegal goods, illegal services, unlawful activities, and telemarketing and health care fraud schemes, the term “proceeds” means property of any kind obtained directly or indirectly, as the result of the commission of the offence giving rise to forfeiture, and in any property traceable thereto, and is not limited to the net gain or profit realized from the offence; (2) in cases involving lawful goods or lawful services that are sold or provided in an illegal manner, “proceeds” includes the amount of money acquired through the illegal transactions resulting in the forfeiture, less the direct costs incurred in proving the goods or services; and (3) in cases involving bank or other financial fraud, “proceeds” for forfeiture purposes excludes any amount of fraudulent obligation which was repaid.

“Proceeds” will also include any increase in value which has occurred to property generated from criminal activity. For example, if a house purchased with drug proceeds increased in value 100 percent in ten years, the entire house is subject to forfeiture.

Facilitating Property: Facilitating Property is considered to be any property which makes the criminal activity more likely to occur. This term is the United States’ version of an “instrumentalities” of crime confiscation. Criminal and civil forfeiture of facilitating property has long been permitted in drug cases.

The Civil Asset Forfeiture Reform Act of 2000 (CAFRA) added the requirement that in facilitating property forfeitures, the prosecutor must prove, by a preponderance of the evidence, that the property had a substantial connection to the underlying offence. This test has been held to prohibit forfeiture of an entire residence based upon one telephone call from the property, or a vehicle which is used to transport someone to a meeting to discuss the crime. Such uses would be considered incidental and not substantially connected to the criminal activity.

Property involved in money laundering: U.S. law allows the criminal or civil forfeiture of any property which is involved in a money laundering offence. 18 U.S.C. 981(a)(1)(A) and 982(a)(1). The concept reaches further than facilitating property primarily because it allows the prosecutor to also forfeit untainted property which has been commingled with the criminally related property. For example, if someone uses criminal proceeds to purchase real property in the name of a nominee family member, but half of the purchase price is paid for with legitimate funds, the entire property becomes subject to forfeiture. If tainted funds are used to purchase a business by one partner but other partner’s untainted funds, the entire business becomes subject to forfeiture if the business partner cannot establish that he was a bona fide purchaser for value. The money laundering forfeiture is popular among U.S. Prosecutors.

The primary limitation to its use is the assertion of the 8th amendment defense of “excessive fines and penalties”. The 8th amendment to the U.S. Constitution prohibits the government from imposing an excessive fine or penalty. In Austin v. U.S., 509 U.S. 602, 622 (1993), the U.S. Supreme Court applied the 8th amendment to civil forfeiture cases. Many courts have applied the test of comparing the value of the property sought to be forfeited to the maximum fine which congress authorized for the underlying crime; however, this has not been adopted as a conclusive measure, and for forfeiture purposes courts generally look to the entire circumstances of a case to determine what is grossly disproportional to the crime, and what is not.