United States. Congress. House. Committee on the J.

Civil Asset Forfeiture Reform Act : hearing before the Committee on the Judiciary, House of Representatives, One Hundred Fourth Congress, second session, on H.R. 1916 ... July 22, 1996 online

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Subsection (b) makes parallel changes to 21 U.S.C. § 881(b).
Most important, the amendment repeals § 881(b) (4) which was
construed to authorize warrantless seizures based on probable
cause alone. See United States v. Lasanta . 978 F.2d 1300 (2d
Cir. 1992) . The amendment makes clear that seizures must be made
pursuant to a warrant unless an exception to the warrant
requirement of the Fourth Amendment applies.

Section 132 Civil Investigative Demands

This provision passed both the Senate and the House in the
102d Congress in slightly different form. See § 943 of S.543;
§ 31 of H.R.26 (relating to title 18 and 21 civil forfeitures) .
It gives the Attorney General the means, by way of a civil
investigative demand, to acquire evidence in contemplation of a
civil forfeiture action. Such authority is necessary because in
the context of a civil law enforcement action there is no proce-
dure analogous to the issuance of a grand jury subpoena that
allows the government to gather evidence before the filing of a
complaint .

As Congress has recognized in several other contexts, civil
proceedings can be an effective adjunct to law enforcement only
if the statutory tools needed to gather evidence are enacted.
Thus, civil investigative authority was made a part of the civil
enforcement provisions of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") (12 U.S.C.
1833a), the civil provisions of RICO, 18 U.S.C. §1968,' relating
to suits brought by the government, and the Anti-Trust Civil



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Process Act, 15 U.S.C. §§ 1311-1314.° The language of the pres-
ent proposal is derived from section 951 of FIRREA.

The proposed new section differs from earlier enactments,
and from the version passed by both houses of Congress in the
102d Congress, in one important respect. To address the concerns
of Members of Congress who, in the past, have expressed opposi-
tion to any new investigative authority that could be delegated
to a law enforcement agency, the authority to issue a civil
investigative demand is explicitly limited to attorneys for the
government such as Trial Attorneys in the Department of Justice
or Assistant U.S. Attorneys. Also, subsection (d) of the pro-
posed statute has been revised to make clear that civil investi-
gative demands relating to the forfeiture of a given piece of
property may not be used once a civil complaint has been filed
against that property, but that such demands may be issued
regarding the forfeiture of other property not named in the
complaint. This language ensures that investigative demands are
not used to circumvent the discovery rules in the Federal Rules
of Civil Procedure.

Other new provisions include an amendment to 18 U.S.C.
§ 1505 in subsection (c) to add a criminal penalty for obstruc-
tion of a civil investigative demand, an amendment to the Right
to Financial Privacy Act in subsection (d) to extend the same
non-disclosure rules applicable to grand jury subpoenas served on
financial institutions to civil investigative demands, and an
amendment in subsection (e) to the Fair Credit Reporting Act to
authorize disclosure of credit reports -ptnrsuant to civil investi-
gative demands in the same manner as disclosure is authorized in
response to grand jury subpoenas.

Section 133 Access to Records in Bank Secrecy Jurisdictions

This section deals with financial records located in foreign
jurisdictions that may be material to a claim filed in either a
civil or criminal forfeiture case.

It is frequently the case that in order for the government
to respond to a claim, it must have access to financial records
abroad. For example, in a drug proceeds case where a claimant
asserts that the forfeited funds were derived from a legitimate
business abroad, the government might need access to foreign bank
records to demonstrate in rebuttal that the funds actually came .



^ See S. Rep. No. 91-617, 91st Cong., 1st Sess. 161 (1969).
For a list of other statutes that authorize the gathering of
evidence by means of an administrative subpoena, see H. Rep. No.
94-1343, 94th Cong., 2nd Sess. 22 n.2 reprinted in 1970 U.S. CODE
& ADMIN. NEWS 2 617.

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from an account controlled by international drug traffickers or
money launderers.

Numerous mutual legal assistance treaties (MLAT's) and other
international agreements now in existence provide a mechanism for
the government to obtain such records through requests made to a
foreign government. In other cases, the government is able to
request the records only through letters rogatory.

This proposal deals with the situation that commonly arises
where a foreign government declines to make the requested finan-
cial records available because of the application of secrecy
laws. In such cases, where the claimant is the person protected
by the secrecy laws, he or she has it within his or her power to
waive the protection of the foreign law to allow the records to
be made available to the United States, or to obtain the records
him- or herself and turn them over to the government. It would
be unreasonable to allow a claimant to file a claim to property
in federal court and yet hide behind foreign secrecy laws to
prevent the United States from obtaining documents that may be
material to the claim. Therefore, proposed subsection 986(d)
provides that the refusal of a claimant to waive secrecy in this
situation may result in the dismissal of the claim with prejudice
as to the property to which the financial records pertain.

Section 134 Access to Other Records

This amendment allows disclosure of tax returns and return
information to federal law enforcement-»#€-icials for use in
investigations leading to civil forfeiture proceedings in the
same circumstances, and pursuant to the same limitations, as
currently apply to the use of such information in criminal
investigations. Current law, 26 U.S.C. § 6103 (i) (4), permits the
use of returns and return information in civil forfeiture pro-
ceedings, but only in criminal cases does it authorize the
disclosure of such information to law enforcement officials at
the investigative stage. The amendment thus revises the relevant
statute to treat civil forfeiture investigations and criminal
investigations the same.

Section 135 Currency Forfeitures

This section creates a rebuttable presumption in civil
forfeiture cases brought under the drug forfeiture statute, 21
U.S.C. § 881, applicable to large quantities of currency. The
presumption would apply in either of two instances: 1) where the
currency is found in close proximity to a measurable quantity of
a controlled substance; or 2) where there is more than $10,000
dollars being transported in one of the places commonly used by
drug couriers - i.e. interstate highways, airports and off-shore
waters - and the person possessing the currency either disclaims

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ownership or gives a demonstrably false explanation for the
source of the currency.

Because a measurable quantity of a controlled substance must
be involved, a positive "dog sniff" would not be sufficient to
trigger the first presumption. Detection of a measurable
quantity with an ion-scan machine, however, would suffice.

The second presumption is intended to overrule recent
decisions holding that the government failed to establish
probable cause for forfeiture even where a large quantity of
currency was transported in a manner inconsistent with legitimate
possession, and the government could show, through admissible
evidence, that the explanation given for the currency was
patently false. See United States v. $30.060 . 39 F.3d 1039 (9th
Cir. 1994) .

An example of a situation where the second presumption would
apply is United States v. $200.226.00 in United States Currency .
1995 WL 357904 (1st Cir. Jun. 13, 1995), where government agents
stopped a woman at an airport carrying $200,226 in cash wrapped
in towels in her luggage, and she stated that the money
represented a gift from her wealthy Italian boyfriend, whose
address, telephone number and occupation were unknown to her, and
was delivered to her in a brown paper bag by a stranger. See

also United States v. $39,873.00 . F.3d (8th Cir. Apr. 9,

1996) (dog sniff, packaging of currency, and proximity to drug
paraphernalia provided sufficient probable cause for seizure of
currency during highway stop) . — —

The presumption is intended to place a burden on the
claimant to produce credible evidence tending to rebut the
inference that currency seized under the specified circumstances
is drug money. If the claimant fails to produce such evidence,
the inferences drawn from the circumstances will be sufficient to
support a judgment for the government. Thus, in no case will a
motion for judgment of acquittal be granted dismissing the
government's complaint if the government has presented sufficient
evidence to establish the presumption in its case in chief.
However, the provision makes clear that notwithstanding the
imposition of a burden of production on the claimant, the burden
of proof remains at all times on the government .

Title II - CRIMINAL FORFEITURE

Section 201 Standard of Proof for Criminal Forfeiture

Criminal forfeiture is a part of the sentence imposed in a

criminal case. Libretti v. United States . U.S. , 1995 WL

648120 (Nov. 7, 1995) . Accordingly, the standard of proof for
criminal forfeiture is the same as it is for all other aspects of
sentencing: preponderance of the evidence. See United States v.

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Smith . 966 F.2d 1045, 1050-53 {6th Cir. 1992); United States v.
Bieri . 21 F.3d 819 (8th Cir. 1994); United States v. Myers . 21
F.3d 826 (8th Cir. 1994); United States v. Ben-Hur . 20 F.3d 313
{7th Cir. 1994); United States v. Herrero . 893 F.2d 1512, 1541-42
(7th Cir.), cert, denied , 110 S. Ct . 2623 (1990); United States
V. Hernandez-Escarseqa . 886 F.2d 1560, 1576-77 (9th Cir. 1989),
cert, denied . 110 S. Ct . 3237 (1990); United States v. Sandini .
816 F.2d 869, 975-75 {3d Cir. 1987); but see United States v.
Elqersma . 971 F.2d 690 (llth Cir. 1992) (applying the
preponderance standard to the forfeiture of proceeds and reserv-
ing judgment with respect to other property) .

Before the Supreme Court clarified this point in Libretti ,
however, some lower courts considered the standard of proof issue
an open question, see United States v. Saccoccia . 823 F. Supp.
994 (D.R.I. 1993), and one appellate court held, based on
legislative history, that the reasonable doubt standard applied
to forfeitures in RICO cases. See United States v. Pelullo . 14
F.3d 881 (3rd Cir. 1994).

The amendment removes any remaining ambiguity by codifying
the preponderance standard for all criminal forfeitures as
Libretti requires.

Section 202 Non-Abatement of Criminal Forfeiture When
Defendant Dies Pending Appeal

This amendment (which passed the Senate in 1990 as §1905 of
§ S.1970) would overturn the questiona ble decision of the Ninth
Circuit in United States v. Oberlin, 718 F.2d 894 (1983), which
held that a criminal forfeiture proceeding abated upon the post-
verdict suicide of the defendant. Compare United States v.
Dudley . 739 F.2d 175 (4th Cir. 1984) (order of restitution does
not abate with defendant's death) . See also United States v.
Miscellaneous Jewelry , 667 F. Supp. 232, 245 (D. Md. 1987). The
Solicitor General's Office in the Oberlin case, supra , and in a
later Ninth Circuit case ( United States v. Mitchell ) , while
deeming the issue not to warrant Supreme Court review, has
written memoranda criticizing the court's rationale for abatement
in the criminal forfeiture context.

Section 203 Repatriation of Property Placed Beyond the
Jurisdiction of the Court

In all criminal forfeitures under RICO, the Controlled
Substances Act, and 18 U.S.C. § 982, the sentencing court is
authorized to order the forfeiture of "substitute assets" when
the defendant has placed the property otherwise subject to
forfeiture "beyond the jurisdiction of the court." Most common-
ly, this provision is applied when a defendant has transferred
drug proceeds or other criminally derived property to a foreign
country.

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In many cases, however, the defendant has no other assets in
the United States of a value commensurate with the forfeitable
property overseas. In such cases, ordering the forfeiture of
substitute assets is a hollow sanction.

Other countries, such as the United Kingdom, address this
problem by authorizing the court to order the defendant to
repatriate the property that he has sent abroad. Because the
sentencing court has in personam, jurisdiction over the defendant,
it can use this authority to reach assets that are otherwise
beyond the jurisdiction of the court, as long as the defendant
retains control of the property.

This section amends the substitute assets provisions of RICO
and the drug forfeiture statute (which are also incorporated by
reference into Section 982) to authorize the sentencing court to
issue a repatriation order. That order may be issued post-trial
as part of the criminal sentence and judgment, or pre-trial
pursuant to the court's authority under 18 U.S.C. § 1963(d) and
21 U.S.C. § 853(e) to restrain property, including substitute
assets, so that they will be available for forfeiture. See
United States v. Sellers . 848 F. Supp. 73 (E.D. La. 1994) (pre-
trial repatriation order) . Failure to comply with such an order
would be punishable as a contempt of court, or it could result in
a sentencing enhancement, such as a longer prison term, under the
U.S. Sentencing Guidelines, or both. The government has the
authority to grant use immunity to a defendant for the act of
repatriating property to the United States pre-trial or while an
appeal was pending if such act would te nd L u implicate the
defendant in a criminal act in violation of the Fifth Amendment.
Id. (no 5th Amendment violation if government does not use
evidence of the repatriation in its case in chief) .

Subsection (b) directs the U.S. Sentencing Commission to
promulgate a guideline defining the appropriate sentencing
enhancement in these circumstances.

Section 204 Motion and Discovery Procedures for Ancillary
Proceedings

This section codifies certain procedures governing the
litigation of post-trial petitions filed by third parties in
criminal forfeiture cases. When the ancillary hearing provisions
were added to 18 U.S.C. § 1963 and 21 U.S.C. § 853 in 1984,
Congress apparently assumed that the proceedings under the new
provisions would involve simple questions of ownership that
could, in the ordinary case, be resolved in 30 days. See 18
U.S.C. § 1963(1) (4). Presumably for that reason, the statute
contains no procedures governing motions practice or discovery
such as would be available in an ordinary civil case.



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Experience has shown, however, that ancillary hearings can
involve issues of enormous complexity that require years to
resolve. See United States v. BCCI Holdings (Luxembourg) S.A. .
833 F. Supp. 9 (D.D.C. 1993) (ancillary proceeding involving over
100 claimants and $451 million) ; United States v. Porcelli . CR-
85-00756 (CPS) , 1992 U.S. Dist . LEXIS 17928 (E.D.N.Y Nov. 5,
1992) (litigation over third party claim continuing 6 years after
RICO conviction) . In such cases, procedures akin to those
available under the Federal Rules of Civil Procedure should be
available to the court and the parties to aid in the efficient
resolution of the claims.

Because an ancillary hearing is part of a criminal case, it
would not be appropriate to make the civil Rules applicable in
all respects. The amendment, however, describes several funda-
mental areas in which procedures analogous to those in the civil
Rules may be followed. These include the filing of a motion to
dismiss a claim, the conduct of discovery, the disposition of a
claim on a motion for summary judgment, and the taking of an
appeal from final disposition of a claim. Where applicable, the
amendment follows the prevailing case law on the issue. See ,
e.g. . United States v. Lavin . 942 F.2d 177 (3rd Cir. 1991)
(ancillary proceeding treated as civil case for purposes of
applying Rules of Appellate Procedure) ; United States v. BCCI
(Holdings) Luxembourg S .A. , 1993 WL 760232 (D.D.C. 1993)
(applying court's inherent powers to permit third party to obtain
discovery from defendant in accordance with civil rules) . The
provision governing appeals in cases where there are multiple
claims is derived from Fed. R. Civ. P. 54 (lT)^"

The last provision of subsection (a) provides that a dis-
trict court is not divested of jurisdiction over an ancillary
proceeding even if the defendant appeals his or her conviction.
This allows the court to proceed with the resolution of third
party claims even as the appeal is considered by the appellate
court. Otherwise, third parties would have to await the conclu-
sion of the appellate process even to begin to have their claims
heard.

Subsection (b) , however, provides a method to allow a
defendant, who has filed an appeal from his conviction and the
order of forfeiture, to intervene in the ancillary proceeding for
the limited purpose of contesting a third party petitioner's
assertion of a legal right, title or interest in the forfeited
property. This provision resolves a problem that could otherwise
arise if the court were to adjudicate a petitioner's claim and
find in favor of the petitioner while an appeal is pending, only
to have the defendant prevail on the appeal and seek to reclaim
the forfeited property. Under the amendment, if the defendant
does not contest the third party's alleged interest by intei~ven-
ing in the ancillary proceeding, he will be considered to have
waived any claim to the property even if prevails on appeal. On

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the other hand, if the defendant does intervene, the court may
determine, with finality, either that the third party does have
an interest in the property superior to the defendant's (and the
government's), or that the defendant has the superior interest
which is forfeitable to the government if the conviction is
affirmed, and which is returnable to the defendant if the convic-
tion is reversed.

This amendment does not alter the general rule, set forth in
Sections 1963(1) (2) and 853 (n) (2), that a defendant has no
standing to file a claim of his own. Nor does it alter the rule
that the only issue involved in the ancillary hearing is the
third party's ownership interest. All issues relating to the
forfeitability of the property were resolved at trial; they are
of no interest to the third party and may not be re-litigated by
an intervening defendant.

Subsection (c) clarifies an ambiguity in the present law.
It is well-established that in a criminal forfeiture case, the
court, in lieu of ordering the forfeiture of specific assets, can
enter a personal money judgment against the defendant for an
amount of money equal to the amount otherwise subject to
forfeiture. United States v. Ginsburg . 773 F.2d 798, 801 (7th
Cir. 1985) (en banc), cert, denied . 475 U.S. 1011 (1986); United
States V. Conner . 752 F.2d 566, 576 (11th Cir.), cert, denied .
474 U.S. 821 (1985); United States v. Solcolow . 1995 WL 113079

(E.D. Pa. 1995), aff'd F.3d , 1996 WL 183816 (3rd Cir.

Apr. 18, 1996). In such cases, obviously, no interests of any
third parties' can be implicated. ThereTore; there is no need for
any ancillary hearing. The amendment makes this clear.

Section 205 Pre-Trial Restraint of Substitute Assets

This amendment is necessary to resolve a split in the
circuits regarding the proper interpretation of the pre-trial
restraining order provisions of the criminal forfeiture statutes.
Under 18 U.S.C. § 1963(d)(1) and 21 U.S.C. § 853(e)(1), a court
may enter a pre-trial restraining order to preserve the avail-
ability of forfeitable property pending trial. Until recently,
the courts were unanimous in their view that the restraining
order provisions applied both to property directly traceable to
the offense and to property forfeitable as substitute assets.
See Assets of Tom J. Billman . 915 F.2d 916 (4th Cir. 1990);
United States v. Regan . 858 F.2d 115 (2d Cir. 1988); United
States v. O'Brien . 836 F. Supp. 438 (S.D. Ohio 1993) ; United
States V. Swanlc Corp. . 797 F. Supp. 497 (E.D. Va. 1992) . The
Third, Fifth and Ninth Circuits have now held, however, that
because Congress did not specifically reference the substitute
assets provisions in the restraining order statutes, pre-trial
restraint of substitute assets is not permitted. United States
v. Flovd . 992 F.2d 498 (5th Cir. 1993); In Re Assets of Martin . 1



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F.3d 1351 (3rd Cir. 1993); United States v. Ripinsky . 20 F.3d 359
{9th Cir. 1994) .

At least one of the recent cases was based on an erroneous
reading of the legislative history. Martin relies on a footnote
in a 1982 Senate Report that states that the restraining order
provision in Section 1963 would not apply to substitute assets.
Slip op. at 17, citing S. Rep. 97-520, 97th Cong., 2d Sess.
(1982) at 10 n.l8. The appellate court was apparently unaware
that before the restraining order provision was finally enacted
in 1984, the footnote in question was dropped from the Senate
Report, thus negating any suggestion that Congress did not intend
for the new statute to apply to substitute assets. See S. Rep.
98-225, 98th Cong., 1st Sess. (1983) at 201-05.

The amendment cures this problem of statutory interpretation
by including specific cross-references to 18 U.S.C. § 1963 (m) and
21 U.S.C. § 853 (p) at the appropriate places.

Section 206 Defenses Applicable to Ancillary Proceedings in
Criminal Cases

This provision conforms the statutes governing the rights of
third parties who assert interests in property subject to forfei-
ture in a criminal case to the uniform innocent owner defense
applicable to civil forfeitures. The intent is to malce it
possible to adjudicate fully the interests of all third parties
in property subject to criminal forfeiture so that it is no
longer necessary to file a parallel civri- forfeiture action to
resolve such matters.

Most civil forfeiture statutes require a party asserting an
interest in the property to prove that he or she was at all times
an "innocent owner" of the property. See , e.g., 21 U.S.C.
§881 (a) (4) (requiring proof by third party claimant that he or
she was without knowledge of, did not consent to, and was not
wilfully blind to the illegal acts giving rise to the forfei-
ture) . Presently, the criminal forfeiture statutes contain
essentially the same provision for third parties asserting an
interest in the property acquired after the commission of the
offense. See 21 U.S.C. §853 (n) (6) (B) ; 18 U.S.C. §1963 (1) (6) (B)
(requiring proof by third party claimant that he was a bona fide
purchaser for value without reason to know that the property was
subject to forfeiture) .

The criminal statutes, however, contain no innocent owner
requirement for persons claiming to have bean the owners of the
property at the time the offense giving rise to forfeiture was
committed. This allows a claimant to recover the property even
if he was aware of or consented to the illegal acts committed by
the defendant. This loophole exists because under current law, a
criminal forfeiture proceeding is limited to adjudicating the

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interests of the defendant; interests of third parties have to be
litigated in parallel civil proceedings. The amendment closes
this loophole by requiring would-be claimants to the subject
property in a criminal forfeiture case to meet the same standards
that they would be required to meet if the forfeiture were
prosecuted as a civil in rem action.

Making the civil definition of "innocent owner" applicable
to criminal cases also resolves a conflict in the circuits
regarding the type of legal interest that Congress intended to
allow a third party to assert in a forfeiture proceeding under 21
U.S.C. § 853 (n) (6) or 18 U.S.C. § 1963 (1) (6) . The issue is
whether only persons with an ownership interest in the specific
property subject to forfeiture - such as a mortgage lender with
an interest in forfeitable real property - are covered by the
statute, or whether the procedure is open to any person with a
general unsecured claim against the property or estate of the
criminal defendant. To date, four circuits have denied standing
to general creditors while one has granted it. Compare United
States V. BCCI Holdings (Luxembourg) S.A. , 46 F.3d 1185 (D.C.



Online LibraryUnited States. Congress. House. Committee on the JCivil Asset Forfeiture Reform Act : hearing before the Committee on the Judiciary, House of Representatives, One Hundred Fourth Congress, second session, on H.R. 1916 ... July 22, 1996 → online text (page 9 of 37)