White Collar Corner: Can one successfully oppose a federal civil forfeiture action?
Civil forfeiture actions present attorneys with a unique risk — the potential seizure of an innocent client’s property due to a co-owner’s wrongful use of it. Civil forfeiture allows the government to seize property that the government alleges is involved in, or that represents the proceeds of, criminal activity.
The Department of Justice (DOJ) justifies civil forfeiture as punishment and deterrence of criminal activity that generates revenue for law enforcement. However, civil forfeiture now extends beyond its originally intended targets of organized crime and drug kingpins, and frequently implicates innocent persons, including small businesses and unsuspecting family members.
Civil forfeiture actions are in rem proceedings, where the property itself is the defendant; the wrongdoing — or lack thereof — of the property’s owner or claimant is deemed irrelevant. Where property is co-owned by multiple parties, one owner’s use or involvement of it in suspected criminal misconduct puts the property at risk of forfeiture for all. A co-owner may, however, assert innocent owner status as a defense against forfeiture.
At the onset of a civil forfeiture action, the government has the initial burden of demonstrating probable cause that the property is subject to forfeiture. To satisfy this burden, the government need only establish a nexus between the alleged illegal conduct and the property on “reasonable grounds, rising above the level of mere suspicion.”
Once the government establishes this, the burden shifts to the owner opposing forfeiture. Unlike the government, the claimant is held to a preponderance of the evidence standard, and must prove both (1) ownership of the property and (2) “innocent owner” status, meaning that the illegal use of the property was without the claimant’s knowledge or consent. A claimant may also attempt to rebut the government’s evidence of a nexus between the property and the alleged criminal action.
Proof of ownership is not particularly difficult to establish, as 18 U.S.C. § 983(d)(6)(A) defines an “owner” as anyone with an ownership interest in the specific property, “including a leasehold, lien, mortgage, recorded security interest, or valid assignment of an ownership interest.”
Proving that a claimant is an innocent owner, however, may be more challenging. The claimant must show by a preponderance of the evidence that the criminal involvement of the property occurred either without the claimant’s knowledge or, even with such knowledge, without the claimant’s consent.
Turning first to lack of knowledge, a claimant must prove not only lack of knowledge of the property’s alleged illegal use, but also that the claimant was not “willfully blind” to the use. Courts will weigh the scope of the underlying alleged criminal action against the claimant’s evidence of ignorance. The strongest innocent owner defenses typically involve more than just a claimant’s own assertions, without any corroboration, of his or her lack of knowledge.
While innocent owner defenses based on a lack of knowledge are typically asserted by claimants who acquired their ownership interest prior to the property’s involvement in criminal activity, a claimant may also prevail where the ownership interest was acquired during or after the criminal activity. To prevail, the claimant must prove that at the time they obtained the property, they were genuinely ignorant that the property was “involved in or traceable to” any criminal activity.
Alternatively, where a claimant is unable to prove unawareness of the criminal activity, the claimant may still prevail on the grounds that he or she did not consent to it. However, a claimant must provide evidence sufficient to prove that under the circumstances, all reasonable steps to curtail the illegal activity were taken; evidence that some steps were taken is insufficient. This can represent a major challenge — with hindsight being 20/20, courts can be highly critical of a claimant’s actions (or inaction).
Although opposing civil forfeiture actions can be an uphill battle, the Civil Asset Forfeiture Reform Act (CAFRA) provides that the United States is liable for the reasonable attorneys’ fees for a claimant who “substantially prevails” in a civil forfeiture proceeding. However, courts have held that a party “prevails” only where there is a “judicially sanctioned change in the legal relationship of the parties.” A settlement agreement that is “so ordered” by the court, for example, represents a non-judicial resolution to the action, and does not entitle a claimant to attorneys’ fees. Well-founded challenges to this narrow reading of CAFRA have been made. The United States Supreme Court recently declined the opportunity to review the issue in Salgado v. United States, without comment.
While civil forfeiture actions present a unique risk, that risk can be at least partially mitigated by early preparation, thorough investigation and development of evidence corroborating an innocent owner defense. Counsel should identify situations where a client is potentially exposed to forfeiture early on, and advise them on the risks of co-ownership. Bank accounts with multiple account holders, joint lienors on property or residences co-owned by multiple family members can complicate civil forfeiture risks. It is likewise important to understand the client’s knowledge (or lack of knowledge) of a co-owner’s prior or current criminal history. Then, explore what appropriate protective steps the client took in light of any such knowledge, and whether the co-owner concealed facts, or otherwise circumvented those steps. All of this will go to permitting a court to determine that a client was unaware of the criminal activity and was not willfully blind to it. Lastly, ensure the client has adequate backups of any and all relevant documents or records — successfully opposing civil forfeiture is considerably more difficult after the government seizes the files needed to demonstrate innocent ownership.
Alan J. Bozer is a partner with Phillips Lytle LLP and leader of the firm’s White Collar Criminal Defense & Government Investigations Practice Team. He is active in trying criminal and civil cases, as well as handling appellate and arbitration work. He can be reached at (716) 504-5700 or email@example.com.
John G. Schmidt Jr. is a partner with Phillips Lytle LLP and co-leader of the firm’s Commercial Litigation Practice Team. He concentrates his practice in the areas of business disputes, commercial litigation, employee disloyalty, federal practice, business torts, elder fraud, technology litigation, computer forensics, white collar/government investigations defense, FDCPA defense and class action defense. He can be reached at (716) 847-7095 or firstname.lastname@example.org.
G. Michael Seaman is an attorney with Phillips Lytle LLP, where he concentrates his practice in the areas of commercial litigation, data security and privacy, and white collar criminal defense and government investigations. He can be reached at (716) 847-5437 or email@example.com.