By Stephen J. Dunn
On receiving his monthly bank statements, a small business owner notices that the United States government has seized the balances of his accounts during the month. He calls the bank, and is given contact information of a Special Agent of the Internal Revenue Service Criminal Investigation Division. The owner’s lawyer calls the agent and leaves a voicemail message. An Assistant United States Attorney calls the owner’s attorney back saying that the funds were seized because of “structuring.” The AUSA adds that the government does not intend to seize any more money from the business, or to prosecute the business owner. The owner had no advance notice of the seizure. He is supposed to accept this.
According to the U.S. Department of Justice, civil asset net forfeitures surged to $4.2 billion in the year ended September 30, 2012, from $1.7 billion in the preceding year—a one-year increase of over 150%.
18 United States Code § 5313, enacted in 1982 as part of the Bank Secrecy Act, requires banks to report to the U.S. Treasury transactions in money in excess of $10,000. The purpose of the requirement is to alert Treasury to possible drug trafficking and attendant tax evasion. People evade this requirement by arranging their bank transactions in amounts less than $10,000. For example, instead of depositing $90,000, a person may make ten separate deposits of $9,000 each.
Congress responded by enacting 18 USC §§ 5324 and 5317 in 1986. 18 USC § 5324 makes it a crime for any person to structure or to attempt to structure transactions with one or more financial institutions for the purpose of evading the currency transaction reporting requirements of 18 USC § 5313.
The cases say that structuring has three elements: (1) arranging one’s currency transactions with banks so that they are less than $10,000; (2) doing so with knowledge of the requirement that banks report currency transactions in excess of $10,000; and (3) with intent to evade the bank reporting requirement.
18 USC § 5317(c)(2) provides in part:
“Civil forfeiture. Any property involved in a violation of section 5313 . . . or 5324 of this title, or any conspiracy to commit any such violation, and any property traceable to any such violation or conspiracy, may be seized and forfeited to the United States in accordance with the procedures governing civil forfeitures in money laundering cases pursuant to section 981(a)(1)(A) of title 18, United States Code.”
From the earliest days of the republic, the government has seized property used to perpetrate a crime, or produced by crime. But first the government must convict the property’s owner of a crime. This requires the government to carry the heavy burden of persuading the trier of fact that beyond a reasonable doubt that the elements of the crime are proved.
18 USC § 5317(c)(2) broadens forfeiture beyond its traditional criminal realm, into civil cases. To prevail in a civil case, the plaintiff need only persuade the trier of fact by a mere preponderance of evidence that the elements of the cause of action have been proved.
Broadly interpreting 18 USC § 5317(c)(2), the IRS Criminal Investigation Division liberally seized bank balances. CID did so based upon its subjective interpretation that structuring had occurred, without any judicial intervention. It was a due process nightmare.
Congress responded by enacting the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”). This requires the government to procure an ex parte warrant from a U.S. District Court upon probable cause before seizing property. Within 60 days after the government seizes property, it must send written notice of the seizure to parties interested in the property (i.e., the owner). The interested parties then have 35 days to file a claim for the property. If a timely claim is filed, government has 90 days to either indict the claimant or bring a lawsuit in federal court seeking a judgment of civil forfeiture of the property. If the government does neither, it must return the seized property forthwith.
Congress struggled with the fungible nature of cash. For example, where there are many deposits to a bank account, some of which are allegedly structured and some of which are not, and there are many withdrawals from the bank account, so that the account balance turns over frequently, it is impossible to trace the balance in the account at any given time to one or more specific, allegedly structured, deposits. Congress resolved this by doing away with the tracing requirement for fungible property, but imposing a short statute of limitations—the government must bring a civil forfeiture lawsuit within one year after the allegedly structured transaction. The short statute of limitations works to the depositor’s advantage.
If the government does file a civil forfeiture action, the depositor’s accountant should be alerted to reconcile deposits into the depositor’s bank accounts to receipts reported on the depositor’s tax return for the subject year.
In a civil forfeiture lawsuit, the government prevails by proving the alleged structuring by a preponderance of evidence. The claimant can demand a jury trial. If, during the pendency of the suit, the claimant persuades the court that it needs a distribution of the seized funds to pay its expenses of suit, the court can order such a distribution to the claimant. If the claimant substantially prevails in the suit, the judge may in her discretion award the claimant legal costs against the government.
It is clear from the legislative history of CAFRA that Congress intended to limit civil forfeitures to alleged structuring connected with an underlying offense of drug trafficking or money laundering. Money laundering arises out of drug trafficking—that will be the subject of a separate post.
The business owner can also argue that the amount of money seized from his bank accounts violates the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution.
A person can gain exemption from the currency reporting requirements by having its bank complete FinCEN Form 110, Designation of Exempt Person, as to it and file the form with the IRS. Banks are reluctant file Forms FinCEN 110 for small businesses, as filing of the form draws greater IRS scrutiny upon the bank. But our owner should ask his bank to file a FinCEN Form 110 for it with the IRS, for several reasons. If the bank files the form, it will demonstrate to the jury the fortuitous nature of the government’s conduct. It will also benefit the business going forward. If the bank refuses to file the form, it will demonstrate to the jury the unfairness of the system.
Civil forfeiture remains a travesty of due process. The property owner receives no advance notice; he is not afforded an opportunity to participate in the District Court warrant hearing. Once the property is seized, the owner may file a claim, at peril of being indicted, or of incurring heavy civil litigation costs. The spectre of these unappealing potential consequences undoubtedly persuades many victims of civil forfeiture to do what the AUSA suggested here—go away without filing a claim.
Not our business owner. He finds bank deposits inconvenient, and does not make them every day. Some of his deposits exceed $10,000. He was unaware of the bank’s currency transaction reporting requirements. He was under the mistaken impression that if he made bank deposits in excess of $10,000, he would have a reporting requirement. As the owner thus did not arrange his deposits to evade the bank’s currency transaction reporting requirements, he did not structure. There is no underlying offense of drug trafficking or money laundering. The owner asserted a claim for the seized funds. He intends to prevail, and to recover his legal costs in the matter.
November 5, 2013 update: We won! The United States District Court issued an Opinion & Order yesterday dismissing the Government’s Complaint for Forfeiture with prejudice. There were many problems with the Government’s case, not the least of which was that it filed its Complaint for Forfeiture late. Having substantially prevailed in the case, my client is entitled to recover his attorney fees and costs. We are working on a motion for attorney fees and costs. I cannot identify my client or the case until such time as my client authorizes me to do so.
The result in this case reassures my conviction that the United States is the greatest country on the face of the earth. SJD