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Asset Forfeiture: Civil Forfeiture - Part 2 - IV. Common Factors of Circumstantial Proof ''Close Proximity'' Despite recent decreased emphasis on seizures of cash and/or cars that occur during the arrest of drug violators, such seizures nevertheless continue to account for many civil forfeitures. The courts recognize that the location of assets in "close proximity" to narcotics is a relevant factor. Such evidence helps establish that the property constitutes drug proceeds or was intended to be exchanged in a narcotics transaction.(18) In each case, of course, the courts also examine the circumstances of the seizure for evidence of narcotics trafficking. Cash Hordes Courts often regard cash hordes as strongly indicative of narcotics trafficking. As one court has noted, "[a] large sum of cash, in and of itself, is evidence of its use for the purpose of an illegal drug transaction."(19) In situations involving a cash horde, the government ordinarily seeks to forfeit the horde as money obtained directly in exchange for narcotics. By itself, the presence of cash will not justify forfeiture. However, the attendant circumstances frequently provide additional proof linking the horde to narcotics trafficking. For example, as stated above, the money may have been found in close proximity to narcotics. In addition, as one court recently observed: Of particular significance is the nature of the currency itselfQthe way it was packaged, the mixed denominations of the bills, and the sheer amount of currency consisting of a large number of small billsQ which in this court's own experience . . . appears to be a common thread running through cases involving controlled substances and the proceeds therefrom.(20) Thus, the circumstances of each cash horde should be carefully analyzed for indications of drug dealing. Concealment Efforts and Commingled Funds Efforts to conceal the true ownership of property or to disguise the manner in which it was purchased constitute significant evidentiary factors. For example, in United States v. Parcels of Land (Laliberte),(21) the court noted: Laliberte attempted to shield this money from the attention of the government, which is a further indication of drug trafficking . . . Laliberte instructed [his partner] not to make deposits of . . . money in amounts greater than $10,000 in order to avoid scrutiny by the Internal Revenue Service. Laliberte also told his accountant not to itemize his personal investments . . . despite the tax benefits he could have realized from doing so.(22) Likewise, in United States v. Haro,(23) the court based its decision to allow a criminal forfeiture of a defendant's property, in part, on his efforts to conceal the property's true ownership.(24) The defendant, an attorney, undertook extensive measures to conceal narcotics proceeds in order to buy real estate. Such proof, albeit circumstantial, obviously serves to link assets to narcotics activity.(25) Commingled funds pose special difficulties for the government. Although commingling may be evidence of narcotics activity, the government's recovery is limited to the percentage of the property proven to be tainted.(26) Courts will carefully scrutinize allegedly commingled funds, however, to ensure that they are partially derived from legitimate sources.(27) Extensive Cash Expenditures Another factor often cited by the courts is the tendency of drug traffickers to engage in numerous large cash transactions. This pattern is so well recognized that the Fourth Circuit recently reversed a district court decision that failed to give such evidence proper weight: The district court found that during a nine-month stretch . . . [the claimant] made cash expenditures totaling $137,000.... The court failed to note the significance of this evidence, namely that the possession of unusually large amounts of cash . . . or the making of uncommonly large cash purchases . . . may be circumstantial evidence of drug trafficking.(28) Likewise, the Second Circuit, after recounting a claimant's various cash expenditures, recently concluded that "[t]he district court could reasonably infer that it was unusual to pay for expensive property such as real estate and heavy construction equipment with cash it could also find even more unusual [the claimant's] payments for some of the purchases with five, ten, and twenty dollar bills."(29) Informal Net-Worth Analysis The tendency of drug traffickers to engage in large cash transactions is frequently accompanied by the absence of legitimate means of employment capable of supporting such large expenditures. Accordingly, courts often consider an apparent discrepancy between an individual's lifestyle and his or her employment income as indicative of narcotics trafficking and its proceeds. In most cases, courts note this conflict without conducting the type of formal "net worth" analysis typical of tax prosecutions. For example, one leading commentator has observed: In the typical proceeds case, the government shows that a drug trafficker has acquired substantial assets, often purchased with cash, but has no legitimate or declared source of income that could account for more than a fraction of his wealth. Frequently, he has filed no tax returns for several years, and, of course, there is always the strong evidence of a "likely source from which [the trier of fact] could reasonably find that the net worth increases sprang." Such evidence is usually enough to show probable cause to believe that all of the trafficker's more valuable property is subject to forfeiture....(30) Thus, after quoting the above excerpt, one district court stated: Under a net worth theory, the government could survive a motion to dismiss by alleging, with sufficient particularity, that [the claimant] is a drug trafficker, that he has no other known source of income, and that he has accumulated substantial assets during the period in which he had no known source of income.(31) Accordingly, even an informal net worth analysis provides a strong evidentiary basis for finding that targeted assets constitute narcotics proceeds. Formal Net-Worth Analysis On occasion, the government has resorted to a more formal presentation of "net worth" proof. This process involves establishing an individual target's income during a designated period and comparing this figure with his expenditures or increased net worth during the same period. Given proof of substantial narcotics trafficking, the difference between these amounts suggests that the proceeds are illicit. Before 1988, the government rarely relied on this method of proof in forfeiture cases. Since then, however, law enforcement has learned that this highly effective method of tracing proceeds can be accomplished relatively easily and without the complexities of a tax prosecution. As a result, net-worth proof has become more common in civil forfeiture cases. More important, numerous appellate courts have relied on this mode of proof to sustain forfeitures. For example, in United States v. Parcels of Land (Laliberte)(32) the First Circuit initially noted that the claimant's average annual adjusted gross income was $27,690, and then set forth his numerous expenditures during this period. Based on a comparison of these figures, the court stated: The sheer magnitude of Laliberte's expenditures supports an inference that his property acquisitions were funded with the proceeds of drug trafficking. Laliberte's millions of dollars in purchases far exceeded his reported average annual income, . . . and there was no other apparent legitimate source of money to account for the magnitude of the expenditures.(33) Similarly, in United States v. Thomas,(34) the Fourth Circuit observed: Here the undisputed cash expenditures vastly exceeded Thomas' legitimate income. During this period, Thomas' only source of income was his business .... Records ... show that Thomas reported only $13,964 in gross income on his business license applications for the years 1983 through 1986 .... Thomas' tax returns ... report an income of approximately $11,000 in 1985 and $1,300 in 1986. According to testimony of his wife, Thomas also had significant obligations during this period: two separate households with a woman and five children in each. Evidence that cash expenditures by ThomasQa suspected drug traffickerQhugely exceeded any verifiable income suggest that the money was derived illegally.(35) Given the persuasive effect of net-worth analysis, this methodology has been repeatedly endorsed by federal appellate courts.(36) For this reason, although forfeiture can generally be achieved without such proof, net-worth analysis should be considered in major civil forfeiture actions aimed at narcotics proceeds. Failure to Account for Income; Inherently Incredible Testimony and Affirmative Misrepresentations Another circumstantial factor applied by the courts focuses on an individual's inability to account for the targeted asset and/or an individual's tendency to misrepresent how the property was obtained. The special nature of civil forfeiture proceedings provides the government with unique opportunities to develop this line of evidence. Because forfeiture actions under $881 are civil proceedings, individual's cannot take complete refuge under the privilege against self incrimination. The privilege does apply to civil proceedings, of course, but within that context judges may draw an adverse inference about individuals asserting the privilege.(37) As a result, owners of seized property are potentially exposed to scrutiny either through pretrial discovery or by cross-examination at trial. This exposure places pressure on those owners to explain how they obtained their money or other property. Accordingly, when property owners have failed to provide a satisfactory explanation, courts have cited this failure as indicative of a connection between narcotics trafficking and the asset(s) in question. For example, in United States v. 228 Acres of Land,(38) the Second Circuit based its probable cause finding, in part, on the following analysis: [The Claimant] failed to account adequately for his possession of such large sums of cash. He made no claim of prior gifts or of earlier investments. Instead, he claimed that the funds were after-tax profits from his jewelry business, but he failed to offer any bills, receipts or other records to prove that his . . . businesses were actually capable of generating such large sums of cash.(39) Most claimants resort to asserting that the money in question constitutes gambling winnings or cash that had been stored at home. This position has been almost universally rejected. For example: In trying to prove that the large sum of money in question is not subject to forfeiture, claimant asserts that he won the majority of the money gambling . . . He is unclear, however, as to the amounts he won and when he won the money. Also, for the years he claimed he won the money, his tax returns do not show any gambling winnings.... Claimant testified that he kept the money in a large wooden box in the utility room attached to his house; however, his wife testified . . . that she never recalled seeing a large wooden box .... The court also finds it highly unlikely that a person would keep such a large sum . . . in a box in a utility room accessible only from the outside . . . of the house.(40) Similarly, in other cases, courts have found the testimony of the owner in question to be contradictory, non-credible, or outright false. Such evidence, therefore, is considered indicative of a connection between an asset and narcotics trafficking.(41) Proof of Narcotics Trafficking A threshold requirement in this general context is proof of narcotics trafficking during a specified time period. Absent such proof, none of the factors set forth above would warrant forfeiture. In addition, however, courts are more likely to find that assets constitute narcotics proceeds when the government proves extensive narcotics activity. In other words, the more evidence of drug dealing, the more likely the assets will be deemed narcotics proceeds. Proof of trafficking is regarded indicative of illicit proceeds because judges recognize that the drug trade typically generates large profits. Thus, extensive proof of trafficking increases the likelihood of tainted assets. Such proof may consist of prior convictions and arrests for drug dealing as well as evidence that did not result in prosecution.(42) In addition, courts may consider the purity of the drugs in question as suggestive of both the claimant's role in the distribution chain and of the length of time he has been in the trade.(43) Thus, when the purity of the drugs is high, the violator is probably both high up in the distribution chain and likely to have been dealing drugs for a substantial period.(44) Statements by Informants In federal prosecutions, courts also have recognized the potential value of informant statements set forth in affidavits. Though generally not a major part of the government's case, such evidence is viewed as suggestive. For example, such evidence recently was used to help establish an individual's involvement in drug trafficking and to identify his illicit proceeds.(45) Therefore, its potential value ought to be kept in mind. Expert Opinions The significance of circumstantial evidence presented by the government's case may be explained to the court by an expert witness. For example, in United States v. 228 Acres of Land,(46) the court allowed a DEA agent to give an expert opinion on several matters, including the proposition that the purity of the claimant's heroin was indicative of both his role in the narcotics enterprise and his connection to the supply source.(47) Because an expert witness can explain the importance of facts that otherwise may appear innocuous or insignificant, such testimony can make a crucial difference in close cases. Moreover, because expert opinion affords the government a key opportunity to explain and summarize its case, expert testimony should be used whenever a forfeiture case is based on circumstantial evidence. Conclusion Asset forfeiture continues to be a critical weapon in the war on narcotics trafficking. Fortunately for law enforcement, the case law has developed in a manner that both interprets the term "proceeds" broadly and facilitates the tracing of such proceeds to narcotics trafficking. Thus, law enforcement need not rely only on direct evidence, which is rarely available, to establish a strong forfeiture case. Circumstantial evidence is often sufficient. To maximize the potential afforded by asset forfeiture, however, prosecutors and investigators must make every effort to present in court the array of circumstantial proof outlined in this monograph. Endnotes 1. See M. Goldsmith, Asset ForfeitureQCivil Forfeiture: Tracing the Proceeds of Narcotics Trafficking (BJA 1988). 2. D. Smith, The Prosecution and Defense of Forfeiture Cases, $4.03[4] (1990 Supp.) [hereinafter Smith, Forfeiture]. 3. 675 F. Supp. 645 (D. Fla. 1987). 4. Id. at 645-46; see United States v. One 1980 Rolls Royce, 905 F.2d 89, 91 (5th Cir. 1990). 5. See, e.g., United States v. Monkey, 725 F.2d 1007, 1012 (5th Cir. 1984). An expansive view of proceeds was addressed in the dicta, the issue itself was not brought up on appeal. 6. Wood v. United States, 863 F.2d 417, 419 (5th Cir. 1989). 7. United States v. $4,250,000 in Currency, 808 F.2d 895, 897 (5th Cir. 1987); United States v. A Single Family Residence, 803 F.2d 625, 628 (11th Cir. 1986). 8. United States v. One 56 Foot Motor Yacht, 702 F.2d 1276, 1282 (9th Cir. 1987), United States v. One 1964 Beechcraft, 691 F.2d 725, 728 (5th Cir. 1982). 9. United States v. $4,255,625.39 in Currency, 762 F.2d 895, 904 (11th Cir. 1985); United States v. $13,000 in Currency, 733 F.2d 581, 585 (8th Cir. 1984). 10. 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). 11. United States v. One 1980 Red Ferrari, 875 F.2d 186, 188 (8th Cir. 1989); see also United States v. Thomas, 913 F.2d 1111, 1114 (4th Cir. 1990). 12. United States v. Edwards, 885 F.2d 377, 390 (7th Cir. 1989), see also United States v. Thomas, 913 F.2d 1111, 1114 (4th Cir. 1990). 13. 913 F.2d 1111 (4th Cir. 1990). 14. Id. at 1115. 15. Id. at 1117. 16. 903 F.2d 36 (1st Cir. 1990). 17. Id. at 38-39 (emphasis added). 18. See, e.g., United States v. Pace, 898 F.2d 1218, 1235-36 (7th Cir. 1990); United States v. $91,960, 897 F.2d 1457, 1462 (8th Cir. 1990) 19. United States v. One Lot of $99,870, 1988 Dist. Lexis 15415 (D. Mass.) (noting, however, that such proof alone does not necessarily constitute probable cause). 20. United States v. $103,025, 741 F. Supp. 903, 905 (M.D. Ga. 1990). 21. 903 F.2d 36 (1st Cir. 1990). 22. Id. at 40. 23. 685 F. Supp. 1468 (E.D. Wisc. 1988), aff'd. sub. nom. United States v. Herrero, 893 F.2d 1512, 1543 (7th Cir. 1990). 24. Id. at 1470-71 & 1475. 25. See also United States v. 228 Acres of Land and Dwelling, 916 F.2d 808, 813 (2nd Cir. 1990) (effort to conceal income a factor in probable cause determination), United States v. 1.678 Acres of Land, 684 F. Supp. 426, 427 (W.D. N.C. 1988) (payments for property made in the name of third parties; violator deeded property to third party shortly after seizure of drugs and currency). 26. See, e.g., United States v. One Rolls Royce, 905 F.2d 89, 90-91 (5th Cir. 1990) (citing other authority); United States v. Certain Real Property at 2323 Charms Rd., 726 F. Supp. 164, 169 (E.D. Mich. 1989). Once this percentage has been determined, however, the government will likely benefit from a favorable accounting procedure to maximize the amount subject to forfeiture. United States v. Banco Cafetero Panama, 797 F.2d 1154, 1159 (2d Cir. 1986). 27. United States v. One Rolls Royce, 905 F.2d 89, 91 (5th Cir. 1990). 28. United States v. Thomas, 913 F.2d 1111,1115 (4th Cir. 1990). 29. United States v. 228 Acres of Land, 916 F.2d 808, 813 (2nd Cir. 1990); see also United States v. Parcels of Land (Laliberte), 903 F.2d 36, 40 (1st Cir. 1990); United States v. $215,300 United States Currency, 882 F.2d 417, 419 (9th Cir. 1989). 30. Smith, Forfeiture, supra note 2, $4.03, at 450 (1990 Supp.). This observation, however, is qualified by the following appropriate commentary: A problem of proof, however, arises where the government makes the mistake of trying to forfeit literally everything owned by the drug trafficker, including a great many items of small value. If the trafficker can show any non-drug income, fairness dictates that he ought to at least be able to keep a portion of his total assets corresponding to the proportion his non-drug income bears to his drug derived income. Id. at 451, cited with approval in United States v. Property at 2323 Charms Rd., 726 F. Supp. 164, 169 (E.D. Mich 1989) 31. United States v. Property at 2323 Charms Rd., 726 F. Supp. 164, 169 (E.D. Mich. 1989); see also United States v. Miscellaneous Property, 667 F. Supp. 232, 239-41 (D. Md. 1987). 32. 903 F.2d 36 (2d Cir. 1990). 33. Id. at 39-40. 34. 913 F.2d 1111 (4th Cir. 1990). 35. Id. at 1115 (citing other authority). 36. See United States v. One 1987 Mercedes 560 SEL, 919 F.2d 327, 331-32 (5th Cir. 1990); United States v. 228 Acres of Land, 916 F.2d 808, 813 (2nd Cir. 1990); United States v. Edwards, 885 F.2d 377, 390 (7th Cir. 1989), United States v. Nelson, 851 F.2d 976, 980 (7th Cir. 1988). 37. See, e.g., United States v. Thomas 913 F.2d 1111, 1115 (4th Cir. 1990) (citing Baxter v. Palmigiano, 425 U.S. 308 318 (1976)). 38. 916 F.2d 808 (2nd Cir. 1990). 39. Id. at 813. 40. United States v. $103,025 in U.S. Currency, 741 F. Supp. 903, 906 (M.D. Ga. 1990); see also United States v. Thomas, 913 F.2d 1111, 1118 (4th Cir. 1990). 41. United States v. 228 Parcels of Land, 916 F.2d 808, 813 (2nd Cir. 1990) (false statements); United States v. Haro, 685 F. Supp. 1468, 1470-71 & 1475 (E.D. Wisc. 1988) (testimony incredible and perjurious), aff'd. sub. nom. United States v. Herrero, 893 F.2d 1512, 1543 (7th Cir. 1990); United States v. One Lot of $99,870 in U.S. Currency, 1988 U.S. Dist. Lexis 15415 (D. Mass.) (contradictory testimony); United States v. 11348 Wyoming, 705 F. Supp. 352, 355-56 (E.D. Mich. 1989); cf. United States v. One 1987 Mercedes SEL, 919 F.2d 327 332 (5th Cir. 1990) (claimant unable to meet burden of proof); United States v. Parcels of Land (Laliberte), 903 F.2d 36 41-42 (1st Cir. 1990) (same). 42. See, e.g., United States v. Thomas 913 F.2d 1111, 1116 (4th Cir. 1990); United States v. One Lot of $99,870 in U.S . Currency, 1988 U.S. Dist. Lexis 15415 (D. Mass.) (arrest resulting in nolle prosequi still a probative factor). 43. United States v. 228 Acres of Land and Dwelling, 916 F.2d 808, 812 (2d Cir. 1990). 44. Id. 45. See id. at 41; United States v. Thomas, 913 F.2d 1111, 1117 (4th Cir. 1990). 46. 916 F.2d 808 (2d Cir. 1990). 47. Id. at 812 and 814 (2d Cir. 1990) End of article 20 (of 37)--what next? [npq] alt.society.resistance #21 (8 more) [1] From: kiddyr@gallant.apple.com (Ray Kiddy)