Forfeiture

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Gavel on sounding block

Ballard Spahr LLP Legal Team Obtains Key Court Victory

It is with great pleasure that I introduce the following post by our colleague and fellow blogger Joanna Kunz.  She was part of a team of Ballard Spahr lawyers who, working pro bono, recently obtained a landmark victory for their client — and for property owners throughout Pennsylvania — when the Pennsylvania State Supreme Court unanimously affirmed a lower court decision defining the parameters of civil forfeiture and arming Pennsylvanians involved in such cases with robust constitutional and statutory protections.  The team also included Jessica Anthony, who argued the case before the Supreme Court, and Jason Leckerman. — Peter D. Hardy

Elizabeth Young is a 72-year-old grandmother whose home and car the government sought to forfeit based on several relatively minor drug sales her adult son conducted out of the house and car. Young fought the forfeiture and lost at the trial level. However, last week the Pennsylvania Supreme Court affirmed the Commonwealth Court’s en banc reversal of that decision. Its 73-page opinion ends years of uncertainty in the law regarding the constitutional limits on civil forfeiture where the property owner often is not charged with any crime.
Continue Reading  Pennsylvania Supreme Court Strengthens Protections For Property Owners In Landmark Civil Forfeiture Decision

Proposed Settlement Comes After Court Issues Rulings on Extraterritorial Application of U.S. Criminal Law, Evidence of Intent to Conceal and Tracing of Money Laundering Proceeds

On the eve of trial this past Friday, the government announced an agreement to settle, subject to court approval, a major civil forfeiture action in the Southern District of New York.  In the case, United States v. Prevezon Holdings, Ltd. et al., the government alleged an elaborate scheme involving money laundering and other offenses committed in Russia, Cyprus, and Manhattan. The case gained some notoriety in the press due to lurid allegations of the suspicious death while in pretrial detention in Moscow of a Russian lawyer who had uncovered the tax refund fraud scheme, and the alleged defenestration earlier this year of a lawyer working for the decedent’s family. Although the civil forfeiture complaint filed in 2013 sought to forfeit at least $230 million worth of assets, the parties settled for approximately $5.9 million. In the wake of this settlement, both the defense and the government now appear to be claiming victory.

The buildings located on the Red Square: Kremlin wall (at left) and Saint Basil's Cathedral (at right), Moscow, Russia. UNESCO World Heritage Site

This post will analyze an opinion issued by the court in this case last week, prior to the settlement, denying summary judgment to the defense.  The legal rulings contained therein are perhaps not as suitable for a Hollywood-style thriller as some of the content of the government’s press releases and pleadings, but nonetheless represent important issues in the field of money laundering and forfeiture.  Primarily, we analyze an increasingly common and key question: when can U.S. law apply to conduct occurring primarily overseas?  This question has broad implications for federal criminal law enforcement in general, including for RICO and tax fraud prosecutions, as well as for potential civil lawsuits brought by shareholders or other plaintiffs.
Continue Reading  Forfeiture Case Based on Alleged Elaborate $230 Million Russian Laundering and Fraud Scheme to Settle

Department_of_Justice_Office_of_the_Inspector_General_seal_svgIn this post, we consider the Department of Justice’s (DOJ) Office of the Inspector General report (OIG Report), released on March 29, 2017, evaluating the DOJ’s oversight of its cash seizure and forfeiture operations.  This post is a companion to yesterday’s piece addressing the Treasury Inspector General for Tax Administration (TIGTA)’s recent report on IRS civil forfeiture for structuring violations.  Read in tandem, the OIG and TIGTA Reports suggest that many forfeitures occur without conclusive information about the details of the potential underlying crime, or even whether an underlying crime was involved at all.  The OIG Report concludes that more robust investigations and data collection on forfeitures would both allow DOJ monitor the effectiveness of its forfeiture efforts and increase public confidence in the forfeiture process.  Improved investigations and data collection also may lead to greater enforcement opportunities by tying forfeitures to ongoing investigations or initiating new enforcement actions based on findings in forfeiture investigations.

This OIG Report is the latest in a series of recent OIG evaluations of DOJ forfeiture initiatives which respond, at least in part, to civil liberties concerns raised by forfeiture reform advocates. (See OIG’s January 2015 report on so-called “cold” consent encounters at mass transit facilities, and its September 2012 investigation of forfeiture enforcement by a local Florida police department).  Both of those investigations concluded that more data analysis was needed to ensure that forfeiture operations were serving legitimate law enforcement interests.

The most recent report continues with the same theme, finding that the DOJ and its investigative components do not collect or use sufficient data to properly oversee seizure operations, or to determine whether those operations relate to or benefit criminal investigations. The OIG report focuses on three main topics:  (1) the lack of data assessing the relationship between seizure and forfeiture activities and investigative outcomes; (2) in the absence of such data, the OIG itself sampled 100 DEA cash seizures that had characteristics OIG believed made them “particularly susceptible to civil liberties concerns”; and (3) the DOJ’s relationship to state and local law enforcement, through both training and equitable sharing arrangements.  This post addresses topics (1) and (2).  As we have previously written, equitable sharing arrangements raise their own issues of balancing individual property rights against law enforcement objectives, which are conceptually distinct from the issues addressed here.
Continue Reading  Civil Forfeiture Under Fire – Part II

Forfeiture actions by Internal Revenue Service Criminal Investigation (IRS CI) based on alleged structuring activity have come under fire, yet again. Specifically, the Treasury Inspector General for Tax Administration (TIGTA) issued on March 30, 2017 a detailed report (Report) which evaluates IRS CI’s use of seizures for property owners suspected of structuring financial transactions. The Report sets forth detailed criticisms of past practices, as well as nine pointed recommendations for future forfeiture actions, which received a mixed response from IRS CI. This report was followed very shortly by the bipartisan re-introduction on April 3, 2017 of the “Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act,” or RESPECT Act, which seeks to limit the ability of the IRS to conduct civil forfeitures based on structuring activity without underlying criminal activity.Suitcase full of money

We previously have discussed the growing resistance to IRS forfeiture actions based on the structuring of “legal source” funds, and the initial introduction of the RESPECT Act. In this two-part blog entry, we discuss in detail immediately below the new TIGTA Report and the mixed reaction to it by IRS CI.

However, it is not just IRS CI that is undergoing criticism. We will follow up tomorrow with a related post on the recent report by the Office of the Inspector General for the Department of Justice (DOJ). The DOJ report provides some similar critiques of the entire landscape of federal forfeiture, and makes additional recommendations on asset seizure and forfeiture in general.

These two Inspector General reports set forth some common criticisms of forfeiture enforcement. They also can be interpreted as suggesting that law enforcement agents could minimize some of the criticisms of civil forfeiture by reducing the total amount of forfeiture cases undertaken, while simultaneously increasing the amount of time and effort spent on investigating the remaining cases which are pursued. This is because the reports suggest that additional investigation – which often seems to be scant – may produce in many cases facts supporting forfeiture that could satisfy even some critics of civil forfeiture.

Continue Reading  Civil Forfeiture Enforcement Under Fire – Part I

One of the many potential consequences of a criminal conviction is that the government may seize assets held by the defendant’s family to satisfy a criminal forfeiture order against the defendant himself. In United States v. Daugerdas, the Southern District of New York held that the wife of a lawyer convicted of a tax shelter fraud scheme lacked standing to raise questions about the underlying forfeiture of $32 million held in accounts which she controlled, and that she also was incapable of showing that any of her legal interests in the funds were superior to the government’s interests in forfeiture, which vested earlier when her husband began his scheme. The Daugerdas opinion illustrates the potential futility of transferring the proceeds of illegal activity to third parties. When it comes to criminal forfeiture, the U.S. is a special creditor.

Broken piggy bank

The order of criminal forfeiture at issue arose out of a well-publicized and significant tax shelter prosecution involving various tax professionals, including lawyers and accountants. Although criminal forfeiture cannot rest upon a substantive criminal tax violation under Title 26 (the Internal Revenue Code, or IRC), the government sometimes maneuvers around that statutory rule by charging what are really violations of the IRC as mail or wire fraud under Title 18. There is a DOJ policy which generally prohibits the use of the mail or wire fraud statutes to turn traditional tax violations into mail fraud, wire fraud or money laundering charges and/or forfeiture counts; this issue represents a complicated topic all by itself. Suffice it to say for the purposes of this discussion that the $32 million forfeiture order in Daugerdas rested on mail fraud convictions. The petitioner’s husband, former tax attorney Paul Daugerdas, was convicted and jailed for running an alleged tax fraud scheme from about 1994 to 2004, which produced at least $180 million in illegal proceeds. Approximately $32 million of these same proceeds – the subject of the contested forfeiture – were deposited between February 2000 and July 2009 into accounts held in the petitioner’s own name, a trust controlled by the petitioner, or a corporation the petitioner owned because her husband had assigned the corporation to her in 2002.
Continue Reading  Friends and Family and Criminal Forfeiture

In part two of our review of the 2016 developments in Anti-Money Laundering (AML), the Bank Secrecy Act, (BSA), the criminal money laundering statutes, forfeiture, and related issues, we discuss four additional key topics:

  • Federal banking regulators’ efforts to ease industry concerns about overly aggressive Anti-Money Laundering (AML)/Bank Secrecy Act (BSA) enforcement and limit the

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The federal courts continued in 2016 to produce a stream of cases pertaining to money laundering. We focus on three below because they involve analysis of basic issues that frequently arise in money laundering litigation.

Justitia, a monument in Frankfurt, Germany

The first case tests the money laundering statute’s reach in prosecution of an alleged international fraud perpetrated primarily outside of the United States—an increasingly common fact pattern as cross-border cases proliferate and the U.S. Department of Justice (DOJ) prosecutes more conduct occurring largely overseas. The other two cases involve defense victories that focus on critical issues of mental state: the question of specific intent under the BSA, and the question, under the money laundering statutes, of knowledge by a third party that a transaction involved proceeds of another person’s crime. The issue of third-party knowledge is often crucial in prosecutions of professionals.
Continue Reading  2016 Year End Review:  Money Laundering Opinions of Note

House and cashThe field of forfeiture saw significant action in 2016. The IRS offered to return forfeited funds used in structuring, but Congress still may clip its ability to forfeit such funds. Meanwhile, DOJ renewed a controversial program that incentivizes local law enforcement to aggressively pursue forfeiture. It filed a major forfeiture action which reminds law firms of their own need to vet the source of funds flowing into firm bank accounts. Finally, the U.S. Supreme Court made it clear that “clean” funds cannot be restrained pretrial when a defendant needs those funds for his criminal defense, even if the government wants to restrain the money in order to pay for forfeiture or restitution if the defendant is convicted.
Continue Reading  2016 Year in Review: Forfeiture