In 2017, the Department of Justice (“DOJ”) reported more than $8.2 billion held in its forfeited-assets fund, [1] which is a $600 million increase from the $7.6 billion in the fund in 2016. [2] The cases brought by the government in 2017 show the government’s intent to continue aggressive use of civil asset forfeiture. For example, in June 2017, the DOJ filed an in rem civil complaint seeking the seizure and forfeiture of approximately $540 million in assets that allegedly were fraudulently diverted from 1Malaysia Development Berhad (“1MDB”) — a development company owned by the Malaysian government — and purportedly laundered throughout the United States. [3] In the 1MDB case alone, in rem arrest warrants, asset seizures, and settlements (worth millions) already have been obtained by the DOJ, affecting both companies and individuals tied to these assets — with many more to come. [4]
Civil asset forfeiture can raise a number of issues for a company, such as potential exposure for aiding and abetting a crime (including money laundering or obstruction of justice), possible conflicts of interest (particularly when an internal investigation into an investor or executive needs to occur), waiver of the attorney-client privilege (especially when communicating with suspected individuals or the government), or spoliation of evidence (notably more likely where action is not promptly taken by independent counsel to preserve, collect, and analyze relevant data).
A company does not have to be involved in money laundering for civil asset forfeiture to apply; any asset tainted by criminal activity may be subject to forfeiture. A company’s assets may become tainted in a number of ways, including receipt of tainted money from a customer, receipt of a physical item from a vendor who purchased it with tainted funds, or even misconduct within the company itself. Additionally, a company does not need to be directly involved in the underlying “tainting” crime to be subject to legal ramifications. For example, innocent acceptance of a tainted investment in a company that is then used to buy real estate and pay executive bonuses may drag that company, its investors, its executives, and the government to potential in rem forfeiture proceedings to determine the true owner of the land and money at issue. Another common example exists where a company is merely holding an asset on behalf of another entity, such as a bank holding tainted funds for a depositor or a museum that learns a collection it is exhibiting on loan contains stolen property.
This article discusses the civil asset forfeiture laws and the corresponding defenses that may help a company assess its potential exposure to forfeiture issues.
Civil Asset Forfeiture and Adoptive Forfeiture
Civil asset forfeiture is one of the government’s most powerful law-enforcement tools. The government may use the forfeiture process to seize assets used in or derived from the commission of crime without convicting their owner(s) of a crime. [5] At its core, civil asset forfeiture is a tool to curtail criminal activity by seizing the assets that enabled or came from those criminal actors. It authorizes officials to seize tainted assets, such as real estate, cash, monetary instruments, and the like. [6]
Civil asset forfeiture is not limited to the federal government; every state has some form of civil asset forfeiture — and now may use federal procedures, too. In July 2017, two years after the Obama administration halted its use, [7] the Trump administration reauthorized the use of “adoptive forfeiture” with a more aggressive policy. [8] Adoptive forfeiture authorizes state and local officials to seek a civil asset forfeiture under federal civil asset forfeiture law, regardless of their own state’s limitations on civil asset forfeiture.
Federal Civil Asset Forfeiture Law
In a federal criminal trial, the government has the burden of proving, beyond a reasonable doubt, that the accused committed a federal crime. [9] Yet, in a civil asset forfeiture proceeding, the government only has the burden to prove that it is more likely than not that an individual’s assets were used to facilitate a federal crime or were the proceeds of a federal crime — a substantially easier standard of proof to meet. [10] It also does not matter if the company was involved in the commission of the crime; rather, forfeiture may apply to a company that only learns (or deliberately avoids learning) about the tainted source of its assets after the fact. [11]
Adoptive Forfeiture
Normally, state and local officials engaged in civil asset forfeitures would have to abide by the procedures and a standard of proof set by their respective jurisdictions. If a state law required a criminal conviction before a civil asset forfeiture could proceed, a state or local official could not execute the forfeiture absent a conviction. The reauthorized adoptive forfeiture law makes it possible for state and local officials to perform that very same civil asset forfeiture under the federal standard of preponderance of the evidence, regardless of whether a conviction had been obtained. For instance, in the states of California, Nebraska, and New York, it is far easier to obtain a forfeiture under federal law than under state law because of the state requirement that a criminal conviction be obtained before a final forfeiture order may occur. Because adoptive forfeiture makes it easier for state and local officials in these states to seize tainted assets, companies located in these states likely will see an increase in civil asset forfeiture proceedings. Adoptive forfeiture, however, is not without guidelines.
The U.S. Attorney General set a number of safeguards for individuals or organizations potentially subject to an adoptive forfeiture. [12] First, all adoptive forfeitures must be supported by probable cause to seize the assets. Next, all law-enforcement agencies — whether federal, state, or local — must receive specialized training in the area of civil asset forfeiture. Lastly, recognizing the need for additional safeguards for smaller forfeitures that may have a dramatic impact on an indigent owner, unless previously authorized by the U.S. Attorney’s Office, all adoptive forfeitures equal to or less than $10,000 occur:
(1) pursuant to a state warrant, (2) incident to arrest for an offense relevant to the forfeiture, (3) at the same time as a seizure of contraband relevant to the forfeiture, or (4) where the owner or person from whom the property is seized makes admissions regarding the criminally derived nature of the property. [13]
The Attorney General announced no such additional safeguards for adoptive forfeitures surpassing the $10,000 threshold, indicating that larger or wealthier entities may be subject to a forfeiture process with few procedural protections. [14]
Since 2015, when adoptive forfeiture was last authorized, many states have reformed their laws, shifted the burden to the state, and raised the standard of proof that state and local officials must meet to use the state forfeiture process. In these states, state and local officials may now seek to bypass the high standards of proof in their state laws and increase the use of adoptive forfeiture.
State Civil Asset Forfeiture Law
States Most Protective of Ownership Interests Require a Conviction and Limit the Use of Adoptive Forfeiture
States vary with regard to their civil asset forfeiture standards. States that are most protective of ownership interests often require that government officials seeking civil asset forfeiture meet a higher standard of proof. In most cases, state and local officials in those states, such as California, [15] Nebraska, [16] New Mexico, [17] and New York, [18] have to obtain a conviction before performing their civil asset forfeiture.
In addition, some of the most protective states also placed limitations on how state and local officials may make use of adoptive forfeitures, either restricting the practice altogether — e.g., New Mexico [19] — or establishing monetary thresholds under which an adoptive forfeiture may not occur — e.g., $40,000 in California [20] and $25,000 in Nebraska. [21] Notably, both the federal and state focus on avoiding...
