federal criminal forfeiture - fd.org

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Federal Criminal Forfeiture: An Overview for CJA Practitioners

Richard E. Finneran Partner, Bryan Cave Leighton Paisner

[email protected] (314) 259-2080

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• “Forfeiture” refers to the court’s power to confiscate property as the result of the commission of a crime

What Is Forfeiture?

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• “Forfeiture” and “seizure” are not the same thing –Seizure refers to the government’s

taking possession of property –Forfeiture refers to the

government’s taking ownership of property

What Is Forfeiture?

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• Forfeiture may be accomplished either: –in a criminal case, as part of a

sentence; or –in a separate civil case

What Is Forfeiture?

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1. It can!

2. The purpose of forfeiture is punishment 3. Forfeiture is thought to remove the incentive to commit

economically-motivated crimes

4. Funds forfeited by the government may be used: • To repay victims (called “restoration”) • To fund local law enforcement activities (called

“equitable sharing”) • To fund federal law enforcement activities

Why Does the Government Do Forfeiture?

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• Varies dramatically from statute to statute

• For each substantive criminal offense, the government must identify a particular statute that permits it to forfeit any particular piece of property

• “While most major felonies in the United States Code involve some kind of forfeiture as a penalty, ascertaining the precise authorizing statutes for a particular offense often requires embarking upon a sort of legislative safari” – Richard E. Finneran & Steven K. Luther, Criminal Forfeiture and

the Sixth Amendment: the Role of the Jury at Common Law, 35 Cardozo L. Rev. 1, 48 (2013)

What Is Subject to Forfeiture?

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Let’s Go on Safari…

Defendant is charged under 21 U.S.C. § 331

(distribution of misbranded drugs)

18 U.S.C. § 983 permits civil forfeiture of proceeds

of “specified unlawful activity”

18 U.S.C. § 1956(c)(7) defines “specified unlawful

activity” to include any offense involving a federal

heathcare offense

“Federal healthcare offense” is defined in 18 U.S.C. § 24 to include

violations of § 331 only if related to a health care

benefit program

18 U.S.C. §24 defines “healthcare benefit program” to include

Medicare

28 U.S.C. § 2461(c) permits the government to pursue criminal forfeiture

in any case where civil forfeiture is authorized

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Three Broad Categories of Forfeitable Property

• Forfeitures generally fall into three basic categories:

Criminally Derived Property

Criminally Involved Property

Substitute Property

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• The proceeds of the crime and anything traceable thereto – Proceeds are defined using a “but for” test

• Includes appreciation or other increases in value – Stocks, real estate, lottery tickets

• Can be restrained pretrial on a showing of probable cause (via restraining order or seizure warrant)

• May be forfeited criminally or civilly

Criminally Derived Property

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• Mainly includes “facilitating property” – Property that makes the crime easier to commit; or – Harder to detect

• In money laundering cases, includes any property “involved in” the offense (see 18 U.S.C. §§981(a)(1)(C), 982(a)) – Includes “clean” funds involved in the laundering activity

• Usually not forfeitable in fraud cases • Can be restrained pretrial on a showing of probable cause

(via restraining order or seizure warrant) • May be forfeited criminally or civilly

Criminally Involved Property

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• By definition, property not connected to the offense

• Forfeited in substitution for other property that is “missing”

• “Missing” property may include property the defendant sold, spent, hid, or moved abroad, or simply property government can’t find (see 21 U.S.C. § 853(p)).

• Cannot be restrained pre-trial – Exception: real property through a notice of lis pendens

Substitute Property

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• May only be forfeited criminally

• Usually takes the form of a “money judgment” imposed against the defendant in the amount of the total gain in the case (usually equal to the loss)

• No offset for repayments to victims -- but defendant gets credit for funds restored to victims through the criminal case

Substitute Property

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The Criminal Forfeiture Process

(Seizure)

(Admin. Forfeiture)

Indictment

Trial/Plea

Preliminary Order of

Forfeiture

Sentencing

Final Order of Forfeiture

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The Criminal Forfeiture Process: Seizure

• Often (but not always), the forfeiture process begins when the government seizes the defendant’s property

• Alternatively, the government may seek a restraining order against the property or, in the case of real property, a notice of lis pendens

• The government will ordinarily seize the property and commence administrative forfeiture against it

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The Criminal Forfeiture Process: Administrative Forfeiture

• Administrative forfeiture is essentially a default action conducted by the law enforcement agency before any judicial process begins

• If no claims are filed after notice to all persons with an interest, then the property is forfeited by default

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The Criminal Forfeiture Process: Administrative Forfeiture

• Practice Tip: Ask the government if any administrative forfeiture proceedings have begun against any property seized from the defendant and, if so, file a claim to preserve your position

• The fact that the government alleges property is subject to forfeiture in an indictment does not mean it is not pursuing administrative forfeiture – The processes proceed in parallel, and a default in the

administrative forfeiture proceeding is fatal to the defendant’s claims

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The Criminal Forfeiture Process: Indictment

• If the government intends to pursue criminal forfeiture against a defendant’s property, it must provide a general notice to that effect in the indictment, called a “Forfeiture Allegation” (unless defendant waives) – Not a “Forfeiture Count” – Not a Count of Any Kind!

• To be effective, the allegation should cite the applicable forfeiture statute under which the property is alleged to be subject to forfeiture

• Practice Tip: Double-check the government’s citations!

• The indictment need not list specific property that is subject to forfeiture, but it may

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The Criminal Forfeiture Process: Indictment

• Practice Tip: Ask the government for a list of the items that it intends to forfeit in the case, even if the indictment includes one (it may not be complete) – If there are items that are likely to diminish in value over the

course of the case, especially automobiles, approach the government to suggest an interlocutory sale (i.e., a pre-plea sale agreed to by all parties, usually conducted by the government)

– Interlocutory sale is likely to maximize the value the government recovers, and it may be viewed by the Court as helpful cooperation

– If there are items that the defendant does not wish to contest, offer to withdraw any administrative claims against those assets and let them by administratively forfeited (only if heading to plea)

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The Criminal Forfeiture Process: Trial

• In the event of a trial, the defendant is entitled under Federal Rule of Criminal Procedure 32.2(b)(5) to have a jury determine forfeitability in bifurcated proceeding

• Practice Tip: Waive the jury! – Unlikely the jury that just convicted the defendant is likely to be

charitable to the defendant on forfeiture issues, especially since it makes it decision on forfeiture by a mere preponderance of the evidence

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The Criminal Forfeiture Process: Guilty Plea

• Guilty plea includes standard language relating to forfeiture – Not appropriate for a case with valuable items of property in

play!

• Practice Tip: Pay close attention to the money judgment amount in Paragraph 8(g) of the USAO-EDMO agreement – Be sure you agree with the calculation and advise your client

about it

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The Criminal Forfeiture Process: Preliminary Order of Forfeiture

• The Preliminary Order of Forfeiture is filed after the guilty plea and before sentencing

• It is the mechanism by which the government wipes out the defendant’s interest and begins the process of providing notice to third parties

• Usually granted by the Court as a matter of course without giving the defendant an opportunity to respond

• Practice Tip: If you intend to contest the preliminary order of forfeiture or want a hearing on it, give a courtesy call to the Court as soon as it is filed

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The Criminal Forfeiture Process: Sentencing

• At sentencing, the Court must orally pronounce the forfeiture, and the forfeiture order must be incorporated in the written judgment

• Failure to do so is usually considered harmless error and may be corrected under Fed. R. Crim. P. 36

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The Criminal Forfeiture Process: Final Order of Forfeiture

• Once third parties have been notified and any claims have been resolved, the government moves for and obtains a final order of forfeiture

• The final order is the instrument that gives the government clear title to the property

• The government then liquidates the property

• In victim cases, the government applies to the Money Laundering and Asset Recovery Section for “restoration” – payment of forfeited funds to pay down the defendant’s restitution order

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The Civil Forfeiture Process: Overview

• The government may also forfeit property through civil forfeiture

• Brought an as an in rem action against the property itself! – United States v. 123 Main Street – United States v. $100,000 in Account No. 45678 – United States v. One Little Red Corvette

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• Otherwise, a civil forfeiture would ordinarily proceed similarly to an ordinary civil case

• A party must file a claim under penalty of perjury to contest a civil forfeiture

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• Government will typically bring a civil forfeiture when: – It seeks to restrain real property in a pre-indictment case – It expects significant claims on behalf of third parties – It is employing a theory that is not available in criminal cases to

forfeit the property (e.g., fungible property under 18 U.S.C. § 984)

• As with administrative forfeiture, civil forfeiture proceeds in parallel to the criminal case, and a default is fatal

• Practice Tip: Approach the prosecutor about jointly agreeing to a stay of the civil case while the criminal case is ongoing

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Strategies: Cooperation

• For most defendants, forfeiture is unlikely to be a contestable issue

• Even if the defendant can establish that a particular item is not subject to forfeiture, doing so would ordinarily walk her into forfeiture of the same item as substitute property

• In most cases, the best strategy is therefore to cooperate with the government in promptly liquidating property so as to maximize its value, which will position the defendant well for sentencing and maximize her recovery in the event of an acquittal

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Strategies: Cooperation

• Work to limit defendant’s forward-looking exposure under a money judgment – (But realize that in cases with restitution the defendant likely will

have to pay restitution anyway)

• Agreeing on early liquidation of property is another way to help minimize that exposure

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Strategies: United States v. Bajakajian

• In United States v. Bajakajian, 524 U.S. 321, 332 (1998), the Supreme Court held the Excessive Fines Clause applies to forfeitures

• In cases of forfeitures of criminally involved property, considering asserting the argument that forfeiture is constitutionally excessive (especially when the value of the property vastly exceeds the defendant’s gain)

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Strategies: Luis v. United States

• In Luis, 136 S. Ct. 1083 (2016), the Supreme Court held that the government cannot constitutionally restrain property pretrial if: – the property is not “tainted” by the crime (i.e., it is at best substitute

property); and – the defendant needs that property to pay for his counsel of choice

• Thus, if you identify assets that the defendant could use to retain counsel of choice and which are arguably are not subject to forfeiture, you may wish to consider raising a Luis issue

• But beware Kaley v. United States, 134 S. Ct. 1090 (2014) (grand jury’s determination of probable cause for restraint is conclusive for purposes of pretrial motions)

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Takeaways

1. Find out early what property the government seeks to pursue for forfeiture

2. Consider any available constitutional challenges to the forfeiture (Luis, Bajakajian)

3. Propose interlocutory sale of any property that may diminish in value during the pendency of litigation

4. Ensure that defendant is well advised of forfeiture consequences in any guilty plea

5. Cooperate with forfeiture to position defendant well in the event of sentencing

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