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[1] Forfeiture Info from BJA, IA
Keywords: Bureau of Justice Assistance, Forfeiture
Date: Thu May 06 20:05:24 MDT 1993
Organization: Apple Computer Inc.
Lines: 1009
ASSET FORFEITURE
Civil Forfeiture: Tracing the Proceeds of Narcotics Trafficing
Prepared by:
Police Executive Research Forum
Michael Goldsmith
November 1988
Addendum Added January 1992
U.S. Department of Justice
Office of Justice Programs
Bureau of Justice Assistance
U.S. Department of Justice
William P. Barr.........................Attorney General
Office of Justice Programs
Jimmy Gurule............................Assistant Attorney General
Bureau of Justice Assistance
Gerald (Jerry) P. Regier................Acting Director
Elliott A. Brown........................Deputy Director
James C. Swain..........................Director, Policy Development
and Management Division
Curtis H. Straub, II....................Director, State and Local
Assistance Division
Pamela Swain............................Director, Discretionary Grant
Programs Division
William F. Powers Director..............Special Programs
Division
Bureau of Justice Assistance
633 Indiana Avenue NW., Washington, DC 20531
(202) 514 6278
The Assistant Attorney General, Office of Justice Programs, coordinates
the activities of the following program Offices and Bureaus: Bureau of
Justice Assistance, Bureau of Justice Statistics, National Institute of
Justice, Office of Juvenile Justice and Delinquency Prevention, and the
Office for Victims of Crime.
U.S. Department of Justice
Office of Justice Programs
Bureau of Justice Assistance
Office of the Director Washington DC 25031
Dear Colleague:
Illicit drug traffic continues to flourish in every part of the country.
The cash received by the traffickers is often converted to assets that
can be used by drug dealers in ways that suit their individual tastes.
Since 1981, federal authorities have increased their attack on these
assets through both criminal and civil forfeiture proceedings with
remarkable success. The recent passage and use of state asset forfeiture
laws offers an excellent means for state and local jurisdictions to
emulate the federal success.
The Bureau of Justice Assistance (BJA), in the Office of Justice
Programs, has funded a nationally focused technical assistance and
training program to help state and local jurisdictions facilitate
broader use of such laws. BJA selected the Police Executive Research
Forum to develop and administer this program because of its history of
involvement in practical problem-oriented research to improve police
operations and the Forum's central role in developing training materials
for use by police agencies and chief executives.
As part of this project, the Forum has contracted with experts in the
area of asset forfeiture and financial investigations to prepare a
series of short manuals dealing with different concerns in the area of
asset forfeiture. We hope these manuals help meet the rapidly unfolding
needs of the law enforcement community as more and more agencies apply
their own forfeiture laws and strive to learn from the successes and
problems of their peers.
I welcome hearing your comments about this program. We have this project
so that most requests for information or assistance can be handled
through the Forum staff in Washington, D.C., by calling 202/466-7820.
Sincerely yours,
Gerald (Jerry) P Regier
Acting Director
Table of Contents
Civil Forfeiture: Tracing the Proceeds of Narcotics Trafficking
The Advantages of Civil Forfeiture
Standard and Procedures
Common Evidentiary Factors
Close Proximity
Means of Support
Concealment Efforts and Commingled Funds
Pre-Trial Statements
Narcotics Records
Evasive Trial Testimony
Net Worth Analysis
Basic Net Worth Analysis
Tax and Forfeiture Proceedings Distinguished
Net Worth Forfeiture Cases
Conclusion
Endnotes
1991 Addendum
Proceeds Broadly Defined
The Government's Burden of Proof
General Evidentiary Principles
Common Factors of Circumstantial Proof
Conclusion
Addendum Endnotes
Civil Forfeiture: Tracing The Proceeds Of Narcotics Trafficking
Asset forfeiture has recently become an important weapon in the fight
against narcotics trafficking. This development was initially spurred by
enactment of the RICO and CCE statutes statute in 1970.(1) Through this
law, Congress sought to provide law enforcement with a way to disgorge
criminal enterprises of their profits.(2) Significantly, by authorizing
forfeiture as a criminal sanction applied directly against the
perpetrator, RICO went well beyond traditional forfeiture statutes that
merely allowed civil proceedings against contraband or property used
during the commission of a crime.(3)
In 1978, further expansion was achieved when Congress authorized civil
forfeiture of any proceeds derived from narcotics trafficking in
violation of federal law. By expanding the type of property subject to
seizure, 21 U.S.C. Section 881(6) gave prosecutors their first effective
civil mechanism for striking at the profits of narcotics trafficking.(4)
State enactment of comparable provisions soon followed.(5) However,
though federal officials have pursued this remedy aggressively,(6) its
potential has not yet been realized by the states. Three factors may
explain this phenomenon. First, federal forfeiture law is more favorable
to prosecutors than most state statutes. Second, federal resources
exceed state levels. Third, there is the perception that forfeiture of
profits is often impractical because, absent a monetary seizure
contemporaneous with a narcotics transaction, the targeted asset must be
traced to narcotics trafficking.(7) Tracing is a complex process
requiring adequate resources and legislative tools, as well as
investigative creativity and diligence.
Despite these limitations, however, tracing an asset to narcotics
trafficking is not an insurmountable task. Federal courts have
identified a number of factors that may be sufficient to achieve the
required linkage. Though federal law is admittedly highly favorable, the
factors themselves transcend federal grounds. They are equally
applicable to state litigation. Moreover, relying upon analyses
comparable to "net worth" proof used in tax litigation, imaginative
investigators may be able to develop new avenues for attacking this
problem. This paper will provide an overview of the legal principles
that must be considered in achieving successful proceeds forfeitures. It
consists of four sections. Section I will review the advantages of civil
forfeiture in a tracing context. Section II will review federal
standards and procedures, and contrast them with selected state
statutes. Section III will set forth common evidentiary factors in
tracing litigation. Finally, Section IV will summarize pertinent
considerations derived from net worth litigation.
The Advantages of Civil Forfeiture
Although tracing is a complex process, prospects for successful
forfeiture are eased considerably by the procedural benefits of civil
process. The most obvious feature is the lower burden of proof
confronting enforcement officials: proof by a preponderance of the
evidence rather than beyond a reasonable doubt.(8) Furthermore, under
federal law and some state legislation, the burden of proof is placed on
the claimant rather than the government.(9) Thus, enforcement officials
need not achieve certainty in their tracing efforts. They need only
satisfy a relaxed standard of proof This is an advantage of enormous
consequence, as many cases turn on the burden of proof. Moreover, even
if criminal prosecution was precluded by operation of the exclusionary
rule, civil forfeiture may still be possible. Although the exclusionary
rule applies to forfeiture proceedings, tainted evidence may still be
sufficient to meet the lower burden of proof.(10) Indeed, civil
forfeiture may be a viable option despite an acquittal on criminal
charges.(11)
The civil context provides other advantages as well. For example,
prosecutors may resort to the discovery process to obtain information
pertinent to tracing.(12) The claimant may be deposed and disclosure of
his records compelled. Perjury and contempt sanctions are potentially
available against untruthful or recalcitrant witnesses. And, while the
Fifth Amendment may still be asserted, a civil claimant risks an adverse
factual finding by doing so.(13) This possibility places the claimant in
a particular bind if criminal charges against him are still pending.
Asserting the Fifth Amendment may result in an adverse factual
determination, while answering questions may have incriminating
consequences in the criminal proceedings.(14) And, regardless of whether
criminal charges are pending, discovery is likely to provide useful
information for impeachment if the claimant testifies at the forfeiture
proceeding. Such testimony will often be necessary because, once the
government's evidentiary burden has been sustained, failure to provide
responsive proof will result in an adverse judgment.(15) Often times,
however, such testimony proves counterproductive because it is presented
in an evasive or inconsistent manner.
A civil claimant is also required to establish his standing to contest
the forfeiture. Frequently, legal title to property will be in someone's
name other than the real party at interest. Most courts will not permit
forfeitures to be contested by such so-called straw men. Thus, before
the prosecution must present its proof, the claimant must establish his
standing. Normally, this requires proof of dominion and control beyond
mere legal title.(16) Federal law and some state statutes require that
this be initially accomplished by filing a verified claim.(17) In
addition, some United States Attorneys offices routinely make standing a
central discovery issue.(18) Thus, civil claimants are by no means
assured automatic access to the courtroom.
For these reasons, the civil claimant is in a very difficult position
relative to his posture in a criminal trial. Indeed, notwithstanding
tracing obstacles confronting the government, many cases are uncontested
by potential claimants or otherwise lost on standing grounds.(19) This
means that, even when tracing obstacles exist, forfeiture proceedings
should be considered since the government may never be put to its proof.
Standards and Procedures
Federal standards and procedures are designed to facilitate the civil
forfeiture of proceeds. 21 U.S.C. Section 881(a)(6) authorizes the
forfeiture of "all moneys, negotiable instruments, securities, or other
things of value furnished or intended to be furnished by any person in
exchange for a controlled substance... [and] all proceeds traceable to
such an exchange..."(20) The term proceeds extends to interest,
dividends, income, or property derived from the original trafficking
profits. This broad scope is a consequence of the relation back theory:
When a statute provides for civil forfeiture, the forfeiture takes place
at the moment the property is used or generated illegally, unless the
statute provides otherwise. At that moment, all rights and legal title
to the property vest in the government and any subsequent transfer is of
no effect. In the eyes of the law, the subsequent judicial proceedings
merely confirm or perfect a forfeiture that has, in theory, already
taken place. This is known [sic] as the "relation back" doctrine and it
is one of the peculiar legal rules that makes civil forfeiture such an
effective weapon against crime. Because the government's right to
proceeds relates back to the time they are generated, it is legally
entitled to all the gain thereafter accruing from the proceeds.
Once the action has been brought, the government's burden is merely to
establish probable cause to forfeit the property at issue.(22) Hearsay
evidence may be used to meet this burden.(23) Moreover, the probable
cause standard does not require any showing by a preponderance of the
evidence. Instead, probable cause is flexibly defined as a "reasonable
ground for belief...[that the property constitutes proceeds of narcotics
trafficking], supported by less than prima facie proof, but more than
mere suspicion."(24) There is no need to trace the proceeds to a
particular narcotics transaction; it is enough if the proceeds can be
linked to narcotics trafficking generally.(25) Once this initial burden
has been satisfied, the burden shifts to the claimant who must establish
his case by a preponderance of the evidence.(26) Should the claimant
fail to present any evidence, the property will be forfeited.(27)
Given this favorable climate, civil forfeitures have flourished
federally. Two recent cases demonstrate this point. In the United States
v. $33,000 United States Currency,(28) probable cause for forfeiture was
satisfied by the following evidence: l) claimant's guilty plea to
conspiracy to distribute marijuana and to evade taxes; 2) the seizure of
$33,000 located in a brown paper bag in claimant's home; 3) the presence
of drugs on the premises; and 4) claimant's lack of legitimate
employment. Although claimant presented evidence that he had received
$21,915.92 from the recent sale of a horse, the court fownd that his
burden of proof had not been met because of his failure to explain his
cash transactions at a time when he had no apparent source of
income.(29)
In United States v. Brock,(30) the government sought forfeiture of
jewelry, valued at $120,000, which was found in a bag in claimant's
attic. Despite the absence of any direct evidence connecting the jewelry
with claimant's narcotics activity, the Court of Appeals concluded
probable cause was present:
The circumstances were sufficient to warrant a conclusion that there was
no other way Brock could have acquired the jewelry than... by proceeds
of the alleged narcotics violation. The jewelry was found secreted in
the same house as the narcotics and paraphernalia for distribution of
narcotics. In addition, a large quantity of cash and a loaded revolver,
further suggestive of ongoing narcotics activity, were seized at the
house. These circumstances fairly lead to an inference that the jewelry
was the proceeds of narcotics activity... Circumstantial evidence and
inferences therefrom are good grounds for a finding of probable cause in
a forfeiture proceeding.
The conclusion to forfeit the property was justified... [especially]
given the evidence that the claimant had no source of legitimate income
for several years preceding the seizure.(31)
From these examples, it is apparent that forfeiture of proceeds is
relatively easy to accomplish under federal law. Though state laws are
usually not as prosecution oriented, they are still adequate. Three
generalizations may be drawn from statutes in selected states.(32)
First, some states have adopted the federal approach to civil
forfeiture. In Arizona, for example, the law requires prosecutors to
establish probable cause for forfeiture; once this standard has been
met, the claimant has the burden of proof.(33) Similar rules may apply
in Florida, though principally because of judicial interpretation rather
than explicit statutory mandate.(34) Moreover, even in jurisdictions not
adopting the federal model, federal cases are still valuable persuasive
authority.
Second, although the federal probable cause standard is especially
attractive to prosecutors, the traditional preponderance of the evidence
burden is not substantially more difficult to meet. Fortunately, state
courts have not raised the civil forfeiture standard to proof beyond a
reasonable doubt.(35) In addition, most state laws place the burden of
proof on the claimant to establish any available statutory
exemptions.(36) Such exemptions, however, rarely raise tracing issues.
Third, many state statutes estab,ish presumptions providing that money
or negotiable instruments found in "close proximity" to contro,led
substances are presumed to be forfeitable.(37) Though rebuttable, this
presumption places the burden of proof on the claimant. Thus, in close
proximity cases, state practice does not deviate significantly from
federal practice. Predictably, most state civil forfeitures of proceeds
have involved close proximity seizures. Though there have been numerous
successes,(38) few reported state decisions have involved complex
tracing efforts.(39) This suggests that state authorities are not
attempting more difficult forfeitures. If this record is to improve,
states must develop legally sufficient techniques for tracing proceeds
in non-proximity situations. Fortunately, common evidentiary factors may
be gleaned from well established federal jurisprudence.
Common Evidentiary Factors
The common perception is that tracing proceeds to narcotics trafficking
necessarily involves a complex paper trail. On occasion, of course, that
is exactly what is required. If so, investigators must be prepared to
subpoena and analyze documents from a wide variety of institutions. In
re Maria Familienstiftung v. United States,(40) for example, narcotics
proceeds used to purchase real estate were traced through various
domestic and foreign banks. This process involved subpoenaing documents
from the banks and obtaining testimony from both bank employees and
couriers used by the narcotics trafficker. In addition, the veil of
various nominee corporations had to be pierced. Ultimately, the
forfeiture was successful.(41) Similarly, in United States v. Banco
Cafetero Panama,(42) extensive bank record analysis was necessary to
track the flow of $3 million in narcotics proceeds through five bank
accounts. Moreover, once traced, proceeds co-mingled with legitimate
funds had to be distinguished.(43) Fortunately, the appellate court
allowed the government the benefit of a favorable accounting procedure
to facilitate this task.(44)
The majority of reported proceeds decisions, however, have not required
complex documents analysis. In large part, this may be explained by the
judiciary's willingness to allow assets to be traced to narcotics
trafficking generally rather than to a particular narcotics
transaction.(45) A review of the cases establishes that tracing usually
involves a few relatively simple factors. Although these factors are
usually present in varying combinations, they are best examined in
isolation. Accordingly, they are set forth separately below:
Close Proximity
Cases in which the targeted proceeds are found in close proximity to
narcotics provide the easiest forfeiture setting. The Brock and $33, 000
United States Currency decisions, supra, illustrate this point.(46)
Means of Support
Most cases involve an obvious discrepancy between the claimant's life-
style and his apparent means of support. This category actually consists
of a number of factors: a) strong evidence of narcotics trafficking; b)
high expenditures, often in cash; and c) little or no legitimate source
of income. Thus, for example, it is quite common for courts to stress
that claimant's cash expenditwes far exceed his available income from
legitimate employment. For example, in United States v. One 1990
Chevrolet Blazer,(47) these factors plus evidence of efforts to conceal
the purchase were sufficient to establish probable cause.(48) In United
States v. Young(49) and United States v. Murillo,(50) evidence of
defendants' narcotics trafficking, combined with tax returns, was
sufficient for forfeiture of substantial assets in a criminal
proceeding. Therefore, discrepant life-style factors are surely
pertinent in any civil forfeiture proceeding. Cash expenditures, in
particular, have proven to be extremely probative.(51) Furthermore, the
claimant is in an obvious bind when he is unable to provide proof of
legitimate employment. Note, however, that there must be evidence of
narcotics trafficking. It obviously is not enough that the claimant was
involved in criminality generally.
Concealment Efforts and Commingled Funds
A few courts have suggested that efforts to conceal ownership may be
pertinent to forfeiture. This makes sense, since any person investing
narcotics proceeds has a strong incentive to conceal their source. For
example, in United States v. A Single Family Residence,(52) a probable
cause factor cited by the Court was the trafficker's acknowledgment of
having formed fictitious corporations to hide assets.(53) Similarly,
concealment efforts were also mentioned by the court in Chevrolet
Blazer, supra.(52) On occasion, concealment is accomplished by
commingling narcotics proceeds with legitimate funds. Under such
circumstances, forfeiture may be on a percentage basis.(55) When bank
accounts are involved, at least one court has applied a different
analysis. Banco Cafetero Panama, supra, permitted the government to
maximize the proceeds subject to forfeiture by giving prosecutors the
option of two accounting procedures: "drugs-in, last out" or "drugs-in,
first-out."(56) The former may be preferred when the government seeks
funds remaining in the account, while the latter may be preferred when
the government seeks to forfeit an asset purchased with funds from the
account.
Pre-Trial Statements
Many forfeiture decisions place heavy reliance on statements made by the
claimant before trial. Generally, these are statements made to
associates or to undercover agents during the investigative stage of the
case. For example, in United States v. A Single Family Residence,(57)
testimony from several co-conspirators established that the trafficker
had told them narcotics proceeds had been used to buy the property.(58)
Similar statement in United States v. Premises Known as 2639
Meetinghouse established that narcotics proceeds had been invested in
several bars.(59) And in United States v. All Funds,(60) the claimant
confided to an undercover agent, posing as a bank officer, that 60 to 70
percent of certain corporate deposits were narcotics proceeds. Such
statements have also been obtained through nonconsensual electronic
surveillance.(61) Finally, even evasive answers to questions concerning
ownership of property have been cited as a factor in meeting the
government's evidentiary burden.(62)
Narcotics Records
Although narcotics records are rarely located, they have provided a
useful way to establish a trafficker's profits. For example, in United
States v. Lewis, entries in a drug ledger were persuasively correlated
with currency deposits and expenditures on various homes.(63) Such
records are also a valuable source of potential impeachment material.
Evasive Trial Testimony
A major factor in many forfeiture trials has been the weak testimony
presented by the claimant. As previously stated, burden of proof
considerations effectively compel claimants to present some proof.(64)
When they do so, however, the result is often detrimental to their
interests. Technically, evasive or inconsistent testimony merely serves
to undercut the defendant's case, but its real impact implicitly
strengthens the government's position. For example, in United States v.
Yukon Delta Houseboat,(65) claimant testified that a loan was the source
of funds used to purchase property. The Court of Appeals, however,
doubted his credibility because his testimony at trial regarding the
details of that purported loan were in some respects inconsistent with
his prior deposition testimony. "Furthermore,... he never listed any...
Ioan... as a liability on [various credit] application."(66) Similarly,
in United States v. One Parcel of Real Property, the Court clearly
regarded claimant's testimony concerning the source of funds for payment
as a pure fable.(67)
Net Worth Analysis
The cases discussed in Section III demonstrate that forfeiture may be
accomplished without resort to complex financial analyses. Even so,
although many of those cases involved substantial proceeds, greater
success may require more sophisticated approaches. The logical next step
is a net worth analysis borrowed from criminal tax litigation. In
essence, this procedure seeks to establish that, an individual's
reported income from legitimate sources is inconsistent with either his
expenditures or his increased net worth during a designated time
period.(68) In criminal tax cases, this contrast establishes nonpayment
of income taxes. In narcotics cases, this procedure, combined with
evidence of narcotics trafficking, may be used to establish that assets
were acquired with trafficking proceeds. To appreciate the impact of
this analysis, three factors should be considered: l) the basics of net
worth analysis; 2) significant differences between tax and forfeiture
cases; and 3) the experience with net worth forfeiture cases.
Basic Net Worth Analysis
The complexities of net worth analysis are beyond the scope of this
paper. In essence, however, the procedure may be summarized as follows:
The Government makes out a prima facie case... if it establishes the
defendant's opening net worth... with reasonable certainty and then
shows increases in his net worth for each year in question which, added
to his nondeductible expenditures and excluding his known nontaxable
receipts for the year, exceed his reported taxable income by a
substantial amount.... The jury may infer that the defendant's excess
net worth increases represent unreported taxable income if the
Government either shows a likely source,... or negates all possible
nontaxable sources.(69)
The Supreme Court has legitimized this practice, provided that three
requirements are met: a) the opening net worth must be established with
reasonable certainty; b) reasonable explanations by the taxpayer
inconsistent with guilt must be negated; and c) the net worth increase
must be attributable to currently taxable income.(70) These requirements
cause substantial burdens for the government. For example, to establish
a defendant's opening net worth, an exhaustive investigation of
documents and witnesses must be undertaken.(71) In particular, the
investigation must be sufficiently thorough to negate the possibility of
a cash hoard defense in which the taxpayer maintains that substantial
cash reserves account for the appearance of increased net worth. This is
said to be the "most frequent challenge to the government's
computations..."(72) Thus, it is not uncommon for investigations to
consume many agents' time over several years.(73) As a result, this
procedure is saved for complex tax cases in which direct proof of guilt
is unavailable.
Tax and Forfeiture Proceedings Distinguished
Tax and forfeiture proceedings are similar in one critical respect. Each
requires the government to identify an asset or source of income.
Frequently, this item has been concealed in some manner. Fundamental
differences, however, make net worth procedure easier to apply in civil
forfeitures. The principal distinction is the civil nature of the
forfeiture proceeding. Because forfeitures are civil, the burden of
proof is not the "beyond a reasonable doubt standard."(74) This means
that opening net worth may be established with less certainty than in
criminal prosecutions. It also means that not every hypothesis
inconsistent with guilt need be negated. Ironically, since civil
discovery is available in forfeitures, it is also easier to meet the
requirements of a net worth case. The claimant, for example, may be
deposed and asked to state his net worth at particular time periods. He
may be compelled to produce supporting documentation. He may be asked to
account for any cash hoards, and to explain all sources of income.
Despite these obvious advantages, however, net worth theory has rarely
been applied to forfeitures.
Net Worth Forfeiture Cases
A review of federal and state decisions reveals only two cases that
explicitly apply to the net worth theory in this context. Other
decisions, however, have relied on informal variations of this doctrine
emphasizing the discrepancy between a claimant's life-style and his
apparent means of legitimate support. Examples of this approach have
already been supplied.(75) Another illustration, which comes a step
closer to using net worth analysis, is United States v. Four Parcels of
Real Estate.(76) Civil forfeiture was effected through the following
evidence: a) extensive evidence of claimant's cash expenditures on his
home; b) a tax return showing gross income in 1980 of $35,650; and c)
two financial statements, found during a search incident to arrest,
showing a net worth of $239,000 in 1981 and of $1,079,000 in 1983.
Apparently, no effort was made to comply with formal net worth
requirements, but probable cause was still found.
Given the government's probable cause burden in federal cases, it is
unlikely that complex net worth analysis will have to be used in that
context. Two criminal forfeiture cases, however, have used this method
successfully. In United States v. Harvey,(77) the government conducted
an in-depth analysis of defendant's records. The investigation included
records from his corporations, banks, real estate holdings, and tax
returns. Critical statements by the defendant were obtained through
nonconsensual electronic surveillance.(78) Based on this evidence,
prosecutors established at trial that the defendant had a zero net worth
in 1976, earned approximately $120,000 from legitimate sources between
1976 to 1982, and accumulated a net worth of $4.5 million during that
time period. This evidence was considered sufficient for a restraining
order holding the assets for trial. In reaching this decision, the judge
cited the government's use of net worth analysis which had been approved
in tax cases.(79) Because defendant Harvey never went to trial, however,
the net worth analysis was not tested again.
At this writing, United States v. Lewis(80) is the only reported
decision explicitly addressing the net worth doctrine in a forfeiture
setting. Although it stands alone, Lewis is very significant because it
was a criminal forfeiture. Since the government was able to use net
worth analysis successfully under the reasonable doubt standard, the
doctrine holds great potential for civil forfeitures operating under the
preponderance standard and liberal discovery rules. Moreover, Lewis is
significant because the court applied the net worth doctrine despite the
government's failure to establish the defendant's opening net worth. The
Court held that "where the government shows an accumulation of income
far beyond the defendant's legitimate means, an opening net worth figure
is not essential."(81)
Although this holding was limited to the "unique facts" involved,(82)
Lewis is potentially broadly applicable because its circumstances, in
fact, were hardly unique. Rather, the court stressed factors typical of
many narcotics investigations. First, consensually recorded tapes
revealed the defendant's statement refuting "the possibility of a
preexisting legitimate source for his remarkably high net worth."(83)
Second, the decision observed that "the government proved the existence
of a lucrative drug distribution enterprise over several years."(84)
Third, "the government's financial evidence was thorough; for the period
in question, the evidence [appeared] to foreclose all leads which might
have suggested other legitimate sources of income."(85) Accordingly,
Lewis provides an appropriate benchmark for considering future net worth
applications.(86)
Conclusion
Asset forfeiture continues to hold great potential for attacking large
scale narcotics trafficking. Using the benefits of civil discovery and a
lower burden of proof, law enforcement has an important opportunity to
strike at the profits generated by such criminality. Thus far, most
civil forfeitures have been accomplished by federal authorities.
Although federal law is admittedly preferable to most state statutes,
the states do have adequate legal tools to achieve comparable success.
Existing case law demonstrates that forfeitures can be accomplished
through modes of proof that are relatively straightforward. Beyond that,
net worth analysis may offer new means for reaching the proceeds of
complex narcotics enterprises.
Endnotes
1. 18 U.S.C. Section 1961 et seq. (1976); 21 U.S.C. Section 848 (1983).
2. See, e.g., Russello v. United States, 464 U.S. 16, 27-28 (1983); S.
Rep. No. 617, 91st Cong., 1st Sess. 78 (1969).
For a historical overview of criminal and civil forfeiture doctrine see
Clark, Civil and Criminal Penalties and Forfeitures: A Framework for
Constitutional Analysis, 60 Minn. L. Rev. 379 (1976); Maxeiner, Bane of
American Forfeiture Law Q Banished At Last?. 62 Cornell L. Rev. 768
(1977).
4. Smith, Prosecution And Defense Of Forfeiture Cases 4-2 (1986)
[hereinafter cited as Smith, Forfeiture].
5. Citations to some pertinent state statutes are set forth infra notes
33, 36-37.
6. As recently as 1981, however, federal enforcement efforts were
severely criticized. See Asset Forfeiture Q a Seldom Used Tool In
Combatting Drug Trafficking (GAO April 1981).
7. See generally The National Governors' Association, Et Al., State Laws
And Procedures Affecting Drug Trafficking Control:A National Overview
73-77
8. See, e.g., United States v. Regan, 232 U.S. 37, 50(1914).
9. See infra notes 22-24, 33-35 and accompanying text.
10. See, e.g., United States v. $31,828,760 F.2d 228, 230 (8th Cir.
1985); United States v. Monkey, 725 F.2d 1007,1012 (5th Cir. 1984).
11. See United States v. One Assortment of 89 Firearms, 465 U.S. 354,
360 (1983); United States v. Fifty Thousand Dollars, 757 F.2d 103,104
(6th Cir. 1985); United States v. Premises Known as 2639 Meetinghouse,
633 F. Supp. 979, 983 (E.D. Pa. 1986) (one of forfeiture claimants had
never been prosecuted).
12. SMITH, Forfeiture, supra note 4, at 10-3.
13. See Baxter v. Palmigiano, 425 U.S. 308, 318 (1976). In United States
v. A Single Family Residence, 803 F.2d 625, 629 n.4 (11th Cir. 1986),
Baxter was cited as permitting an adverse inference when a witness
asserted the Fifth Amendment in a civil deposition.
14. For this reason, claimants customarily request that civil
proceedings be stayed pending resolution of the criminal case. This
issue is discussed in Smith, Forfeiture, supra note 4, at 10-2.
15. See, e.g., United States v. A Single Family Residence, 803 F.2d 625,
629-30 (11th Cir. 1986).
16. See id., at 630; re Maria Familienstiftung v. United States, 643 F.
Supp. 139, 145 (S.D. Fla. 1986) (citing other authority).
17. See, e.g., Smith, Forfeiture, supra note 4, at 9-62; N.J. STAT. ANN.
Section 2C:64-3(d) (West 1982).
18. Smith, Forfeiture, supra note 4, at 9-54.2. A further benefit of
civil forfeiture is the government's right to appeal. See id., at 11-26.
19. This is especially so when couriers have been intercepted. Under
such circumstances, the courier may not have the necessary legal
interest in the proceeds, and his employer is rarely inclined to risk
discovery by contesting the forfeiture. Id., at 420. In many instances,
all concerned deny ownership. Id., at 4-23. Consequently, default
judgments are quite common. Id., at 4-28.
20. The full text of section 881 is set forth in the appendix.
21. Smith, Forfeiture, supra note 4, at 434 to 4-35.
22. See, e.g., Unites States v. $41,305 in Currency, 802 F.2d 1339,1343
n.6 (11th Cir. 1986); Unites States v. $5,644,540 in Currency, 799 F.2d
1357,1362 (9th Cir. 1986).
23. See, e.g., United States v. One 56 Foot Motor Yacht, 702 F.2d
1276,1282 (9th Cir. 1983); United States v. One 1964 Beechcraft, 691
F.2d 725, 728 (5th Cir. 1982).
24. United States v. $250,000 in Currency, 808 F.2d 895, 897 (1st Cir.
1987); United States v. A Single Family Residence, 803 F.2d 625, 628
(11th Cir. 1986).
25. See, e.g., United States v. $4,255,625.39 in Currency, 762 F.2d 895,
904 (11th Cir. 1985); Unites States v. $13,000 in Currency, 733 F.2d
581, 585 (8th Cir. 1984).
26. See, e.g., United States v. Banco Cafetero Panama, 797 F.2d
1154,1160 (2d Cir. 1986); United States v. $4,265,000 in Currency, 762
F.2d 895, 904 (11th Cir. 1985) (citing extensive authority).
27. See, e.g., United States v. $250, 000 in Currency, 808 F.2d 895, 900
(1st Cir. 1987); United States v. A Single Family Residence, 803 F.2d
625, 629-30 (11th Cir. 1986).
28. 640 F. Supp. 899-900 (D. Md. 1986).
29. Id., at 900.
30. 747 F.2d 761, 762-63 (D.C. Cir. 1984).
31. Id.
32. This project involved a survey of cases and statutes in the
following states: Arizona, Colorado, Florida, Georgia, Illinois,
Michigan, New Jersey, New Mexico, and Pennsylvania. In addition, every
state was surveyed for cases involving net worth analysis or explicit
analysis focusing on the tracing concept. No traditional net worth case
was located. Pertinent state decisions are cited in the footnotes below.
33. ARIZ. REV. STAT. ANN. Section 13-4305, 4311(H)(Supp. 1986).
34. In re Forfeiture of Approximately $48,900, 432 So. 2d 1382,1385
(Fla, Dist. Ct. App. 1983)(noting legislative intent to conform to
federal law). This decision is potentially very important because
prosecutors won a favorable interpretation despite statutory language
which did not reflect the federal model. See also People v. Lot 23,Q
Colo.QP.2dQ(April 13,1987)(forfeiture under public nuisance statute;
holding that once the government establishes a prima facie case, burden
shifts to claimant and that claimant's failure to present evidence
mandates forfeiture).
35. See People v. Lot 23, 735 P.2d 184,188 (Colo. 1987); Commonwealth v.
$15,836.85QCash, 511 A.2d 871, 873 (Pa. Super. Ct. 1986); ILL. ANN. STAT
ch. 56 v2 para. 1655(3)(b)(Smith-Hurd, Supp. 1986).
36. See FLA. STAT. ANN. Section 893.10 (West 1976, Supp. 1987); GA. CODE
ANN. Section 16-13-50 (Supp. 1986); MICH. STAT. ANN. Section 14.15(7531)
(1987 Supp.).
37. See ILL. STAT. ANN. ch. 561/2 para. 1505(5) (Smith-Hurd, Supp.
1986); MICH STAT. ANN. Section 14.15(7521)(f)(Supp. 1987); PA. STAT.
ANN. tit. 35, Section 780-128(1)(iii)(Supp. 1986).
38. See, e.g., People v. Lot 23, 735 P.2d 184,189-91 (Colo. 1987)
(judicial inference). See also People v. Strong, 502 N.E.2d 744, 748-49
(Ill. App. 3rd Dist. 1986); Commonwealth v. $15,836.85QCash, 511 A.2d
871 (Pa. Super. Ct. 1986).
39. Two Pennsylvania decisions stand out as significant in this respect.
See Lappas v. Brown, 483 A.2d 979, 983-84 (Pa. Super. Ct. 1984) (some
evaluation of bank records and claimant's reported source of legitimate
income); MI Grossman v. Commissioner of Police, 465 A.2d 1007,1009 (Pa.
Super. Ct. 1983) (detailed analysis of marijuana sales operation; issue
not addressed on appeal).
40. 643 F. Supp. 139 (S.D. Fla. 1986).
41. Id., at 142-48.
42. 797 F.2d 1154 (2d Cir. 1986).
43. Id., at 1157-59.
44. Id., at 1159-62.
45. See supra note 25 and accompanying text.
46. See supra notes 28-31, and 37-38 and accompanying text.
47. 572 F. Supp. 994 (E.D.N.Y. 1983).
48. Id., at 995-96.
49. 745 F.2d 733, 745-46, 762-63 (2d Cir. 1984).
50. 709 F.2d 1298,1298-99 (9th Cir. 1983).
51. See generally United States v. Four Parcels of Real Estate, 647 F.
Supp. 1440 (N.D. Ala. 1986); United States v. One Plymouth Colt Vista,
644 F. Supp. 1546, 1549-50 (N.D. Ill. 1986); United States v. One Chevy
Blazer, 572 F. Supp. 994, 995 (E.D.N.Y. 1983).
52. 803 F.2d 625 (11th Cir. 1986).
53. Id., at 629.
54. 572 F. Supp. at 996. See also United States v. One 1980 Red Ferrari,
827 F.2d 477 (9th Cir. 1987) (fictitious name).
55. See United States v. Premises Known as 2639 Meetinghouse, 633 F.
Supp. g79, 990 (E.D. Pa. 1986).
56. 797 F.2d at 1159.
57. 803 F.2d 625 (11th Cir. 1986).
58. Id., at 629.
59. 633 F. Supp. 979, 983-85 (E.D. PA. 1986).
60. QF. Supp.Q (S.D.N.Y. 1986) (Lexis Genfed Library).
61. See United States v. Harvey, 560 F. Supp. 1040,1090-91 (S.D. Fla.
1983).
62. See United States v. Certain Real Property, 568 F. Supp. 434, 436
(W.D. Ark. 1983).
63. 759 F.2d 1316,1330 (8th Cir. 1985).
64. See supra note 15 and accompanying text.
65. 774 F.2d 1432 (9th Cir. 1985).
66. Id., at 1435.
67. 648 F. Supp. 436, 437-38 (D. Mass. 1986).
68. For an excellent review of net worth analysis, see U.S. Department
of Justice, Criminal Tax Manual Section 31 et seq. (1985) [hereinafter
cited as Criminal Tax Manual].
69. United States v. Sorentino, 726 F.2d 876, 879-80 (1st Cir. 1984).
70. Holland v. United States, 348 U.S. 121,132-37 (1954).
71. Criminal Tax Manual, supra note 68, at 31-17.
72. Id., at 31-26.
73. Id., at 31-19 et seq. (citing numerous examples).
74. See supra note 8 and accompanying text.
75. See supra notes 47-51 and accompanying text. In addition, a
substantial number of criminal casesQnot involving forfeitureQhave used
this method to corroborate criminality. See Nossen, "One-on one"
Uncorroborated Testimony: the Dilemma of Prosecutors, Defense Attorneys
and the Courts in Fraud, Waste, and Abuse, Cases, 58 NOTRE DAME L. REV.
1019 (1983) (containing numerous citations); R. Nossen, The Detection,
Investigation And Prosecution Of Financial Crimes (1982).
76. 647 F. Supp. 1440 (N.D. Ala. 1986); see also In re Coastal Seafood
Enterprises, 648 F. Supp 79 (D.S.C), aff'd without opinion, 823 F.2d 546
(4th Cir. 1987) (emphasizing discrepant expenditures); United States v.
Miscellaneous Jewelry, 667 F. Supp. 232 (D. Md. 1987) (same); Lappas v.
Brown, 483 A.2d 979, 984 (Pa. Super, Ct. 1984).
77. 560 F. Supp. 1040,1090 (S.D. Fla. 1983).
78. Id., at 1090-91.
79. Id.
80. 759 F.2d 1316 (8th Cir. 1985).
81. Id., at 1327-28.
82. Id.
83. Id.
84. Id., at 1328.
85. Id.
86. Lewis also contains a useful review of the admissibility of
financial records to rebut net worth defenses. Id., at 1328-30.
ADDENDUM
Addendum Contents
I. Proceeds Broadly Defined
II. The Government's Burden of Proof
III. General Evidentiary Principles
IV. Common Factors of Circumstantial Proof
"Close Proximity"
Cash Hordes
Concealment Efforts and Commingled Funds
Extensive Cash Expenditures
Informal Net-Worth Analysis
Formal Net-Worth Analysis
Failure to Account for Income; Inherently Incredible Testimony and
Affirmative Misrepresentations
Proof of Narcotics Trafficking
Statements by Informants
Expert Opinions
Conclusion
Endnotes
Civil Forfeiture: Tracing the Proceeds of Narcotics Trafficking
In 1987, the Bureau of Justice Assistance (BJA) commissioned the Police
Executive Research Forum to prepare a monograph on an important aspect
of asset forfeiture: establishing the evidentiary link between narcotics
trafficking and the illicit proceeds generated by such activity.
Although Congress had authorized civil forfeiture of narcotics proceeds
almost a decade earlier, 21 U.S.C. $881(6) (1978), relatively few court
decisions had addressed the process by which the evidentiary connection
between narcotics trafficking and forfeitable proceeds could be
established. Nevertheless, the few available cases did suggest certain
principles as possible guidelines for law enforcement. The original
version of this monograph, published in 1988, set forth those guiding
principles.(1)
Since 1988, both federal and state authorities have intensified their
efforts to combat narcotics trafficking through civil forfeiture. As a
result, the case law on this subject has increased substantially. Recent
decisions have both confirmed the evidentiary principles identified in
the original monograph and articulated in more detail the standards for
tracing narcotics proceeds. Accordingly, it is appropriate to supplement
the original monograph with updated authority.
Because this monograph is designed as a supplement, it does not provide
general background on civil forfeiture. Instead, it summarizes the most
pertinent background materials. The reader is directed to the original
monograph for the remainder.
This monograph is organized in four sections. Section I addresses the
concept of "proceeds" within the meaning of the federal narcotics law on
civil forfeiture. Section II explains the operation and significance of
the burden of proof under the federal statute. Section III sets forth
general evidentiary principles, and section IV addresses common
evidentiary factors of circumstantial proof. Although the monograph
focuses on federal law, both the "proceeds" concept and the evidentiary
principles discussed readily apply to state forfeiture actions as well.
I. Proceeds Broadly Defined
21 U.S.C. $881(6) authorizes forfeiture of "all moneys, negotiable
instruments, securities, or other things of value furnished or intended
to be furnished by any person in exchange for a controlled substance . .
. [and] all proceeds traceable to such an exchange . . ." [emphasis
added] Under the "relation back" doctrine, the government's interest in
these proceeds vests at the time of the illegal act; the forfeiture
proceeding merely perfects this interest. Consequently, courts interpret
the term "proceeds" to include derivative proceeds, such as interest,
dividends, income, or property derived from the original trafficking
activity.(2)
For example, in United States v. One Parcel of Real Estate,(3) narcotics
violators initially used their profits to buy property in North
Carolina. Later, they sold the property and used the proceeds to buy
real estate in Florida. The government obtained forfeiture of the
Florida property as derivative proceeds, thereby benefiting from
appreciation of the original investment.(4) Other decisions have
likewise taken an expansive view of the term "proceeds."(5) Moreover,
adding insult to injury, the Fifth Circuit has ruled that unsuccessful
claimants (property owners) may not deduct forfeiture losses on their
income tax returns.(6)
II. The Government's Burden of Proof
In $881 forfeiture cases, the government faces a minimal burden of
proof. It need establish only probable cause that the targeted property
is subject to forfeiture. Moreover, probable cause is defined flexibly
in this context; the evidence need furnish only a "reasonable ground for
belief . . . [that the property constitutes narcotics proceeds],
supported by less than prima facie proof, but more than mere
suspicion."(7) This burden may be met with hearsay evidence.(8) In
addition, the proceeds need not be linked to a particular narcotics
transaction, but only to narcotics trafficking generally.(9)
Once the government meets its burden of proof and goes forward, the
burden shifts to the claimant, who must establish his or her case by a
preponderance of the evidence.(10) Failure by the claimant to make out a
prima facie case will result in summary judgment for the government (at
the pretrial motion stage) or in a directed verdict (at the trial
stage). Most cases are decided by summary judgment because most
claimants are unable to present enough evidence even to raise a serious
factual issue. Thus, "a showing of probable cause alone will support a
judgment of forfeiture."(11)
III. General Evidentiary Principles
In general, the courts have allowed law enforcement considerable leeway
in making the connection between narcotics trafficking and illicit
proceeds. Perhaps the most significant factor in decisions granting
forfeiture has been the judiciary's repeated emphasis that
circumstantial evidence may provide an adequate basis for finding that
targeted assets represent narcotics proceeds. Thus, a "direct connection
between the property subject to seizure and the illegal activity that
renders the items forfeitable need not be shown in order to establish
probable cause.''(12) Given some prosecutors' initial reluctance to
apply forfeiture statutes aggressivelyQbecause of concern that illicit
assets could not be accurately identifiedQthe judiciary should be given
credit for applying evidentiary principles that do not make the tracing
process unduly rigid.
Recently, the courts have also stressed that determination of probable
cause should be made under a "totality of the circumstances" standard.
For example, in United States v. Thomas,(13) the Fourth Circuit reversed
a district court which, in denying forfeiture, had "consider[ed] . .
[the] evidence piecemeal rather than as parts of a total picture."(14)
For this reason, the Fourth Circuit observed: The government fairly
complains that the court engaged in a "divide and conquer" approach to
its case, one that required each item of evidence to establish probable
cause independently or be altogether disregarded. Parsing evidence in
isolation for a fatal flaw threatens to transform the standard of
"probable cause" into a steep threshold requirement that would impede
the operation of the forfeiture statutes.(15)
Similarly, in United States v. Parcels of Land (Laliberte),(16) the
First Circuit stated that "all that is required is that a court be able
to look at the 'aggregate' of the facts and find reasonable grounds to
believe that the property probably was derived from drug
transactions."(17)
In addition to indicating that evidence should be evaluated under a
"totality of the circumstances" test, the judiciary has identified
certain types of circumstantial evidence as especially probative in
forfeiture cases. The most convincing evidence generally reflects the
following factors: l) "close proximity" between asset and drugs; 2)
"cash hordes"; 3) concealment efforts and commingled funds; 4) extensive
cash expenditures; 5) informal net worth analysis; 6) formal net worth
analysis; 7) the claimant's failure to account for income; 8) proof of
narcotics trafficking 9) informant statements; and 10) expert opinions.
This evidence, which may appear in a wide variety of combinations
depending on the facts of the case, provides a viable basis for
establishing that targeted assets constitute narcotics proceeds. The
evidentiary factors are discussed in the next section.
End of article 19 (of 37)--what next? [npq]