The way they are enforcing criminal forfeiture laws against third parties is just plain criminal

(c) 2014 Brenda Grantland

Today I approved the first comment ever on this blog.  I screen all comments to avoid spam and because I don’t want a bunch of comments that don’t contribute substantially to the issue under discussion.

The comment I approved today — posted November 30, 2014 by “Folly” in response to my article “Criminal forfeiture laws need to be reformed too” — is well worth reading.  Scroll down to the end of the above linked blog article to read Folly’s comment, describing his/her experience as a third party in a criminal forfeiture case.   This comment illustrates exactly why the criminal forfeiture laws need to be amended.

As I understand it, Folly’s assets including his/her residence and bank accounts were seized in 2008.  Folly and a codefendant were indicted in 2009.  After a 3-week trial in 2011, the jury acquitted Folly and convicted the codefendant.  The codefendant appealed.  Two years after Folly’s acquittal the judge set a hearing on Folly’s assets.  A year after the hearing the court finally ruled on Folly’s third party petition, finding Folly’s assets were still forfeitable despite Folly’s acquittal.

Folly’s story makes some very important points:

1.  When your property is seized in someone else’s criminal case, and you are not a defendant in that case, you cannot intervene in the case or participate in the trial.

Third parties are told to be patient, there is nothing they can do about it.  Currently under the law there is nothing at all they can do about it, as I explained in my earlier blog about criminal forfeiture.  In my case where the defendant owned a 1% interest with the innocent third parties owning 99%, I got a hearing when there was a threat the property would go into foreclosure, and the judge was very sympathetic to the innocent third parties’ situation, but he said his hands were tied. The statute emphatically prohibits third parties from getting any hearing at all in court until after the criminal defendant is convicted and a preliminary order of forfeiture is entered.

At trial the government witnesses and the defense witnesses can say whatever they want about your property, and it can be an absolute lie, but you are not given the ability to cross-examine them or present evidence to contradict them.  Quite often both sides are telling fabrications.  The government wants to forfeit as much property as possible, and the criminal defendant wants the property forfeited to be someone else’s property, not his own.  Both sides are motivated to set up the forfeiture of third parties’ property.  A criminal defendant is not motivated to defend against forfeiture of someone else’s property.  Why would he testify “that wasn’t my bank account” or “I never owned any interest in that house” when he could get credit against his sentence for forfeiting property without losing anything if he aids the forfeiture of someone else’s property?

2.  Worst of all, the criminal defendants’ trial and/or guilty pleas — which the third party is barred from participating in — decides the issue of forfeitability, which can’t be challenged by the third party later

This is a point that Folly mentioned but didn’t stress enough.

How dare they hold your property hostage and prevent you from intervening in the proceedings which establish whether or not your property is forfeited, and then say you can’t challenge that ruling later in a third party hearing?

Believe it or not, that is currently what the prevailing law on third party hearings states.  I am challenging that now in one of my cases.  More about that later.

3.  Even though statutes and case law make it clear that only the property of convicted criminal defendants can be forfeited in a criminal forfeiture case — prosecutors sometimes ignore that rule and get away with it

Civil forfeiture and criminal forfeiture are based on different types of jurisdiction.  Briefly, these are the distinctions.

In criminal forfeiture cases, the criminal trial and criminal forfeiture case are “in personam” — against the convicted defendant based on “personal jurisdiction” over the  defendant.  Jurisdiction is based on the defendant being charged with a crime.  If the indictment gives notice of forfeiture allegations, the court’s jurisdiction over the criminal defendant also gives it jurisdiction over the defendant’s property.  Once made a party by being charged with a crime, the defendant is allowed to participate in every aspect of the litigation process, confront witnesses, demand a jury trial, etc.

Ordinary civil cases (not forfeiture cases), are also based on in personam jurisdiction over the person being sued. In those cases the litigation is by one civil litigant against  another.  Defendants are made parties by service of process and allowed to participate in all aspects of trial, confront witnesses, demand a jury trial, etc.

Civil forfeiture — as you may recall if you watched the excellent comedy parody of it by Jeff Goldblum in the October 5, 2014 episode of Last Week Tonight With John Oliver — is an action against the property itself, based on the property’s guilt of a crime. The court does not have personal jurisdiction over any person — the person is not on trial, just the property.  The jurisdiction is called “in rem” — meaning against the thing. It is an archaic doctrine that originated in biblical times, based on the superstition that a dead person could not rest in peace until the object that killed him is confiscated and given to the church (or later, the king).  In the original biblical passage that led to this modern day law, “If an ox gore a man or a woman, that they die: then the ox shall be surely stoned, and his flesh shall not be eaten; but the owner of the ox shall be quit” (meaning the owner will not be paid for the ox).  Traditionally, the owner’s innocence in the ox’s crimes was irrelevant.  The U.S. Supreme Court held in Bennis v. Michigan, 516 U.S. 442 (1996), that the owner’s innocence is still irrelevant in civil forfeiture cases, unless the statute creates an innocent owner defense.  Congress created a universal innocent owner defense in the Civil Asset Forfeiture Act of 2000, which applies to most but not all civil forfeiture cases.

So exactly what jurisdiction does a criminal court have over third parties in criminal forfeiture cases?  Actually — none.  Because jurisdiction in criminal cases is in personam against the criminal defendant and his property, the court has no jurisdiction at all over third parties.  Third parties get dragged into this process because they claim an ownership interest in property that the government is trying to forfeit from a criminal defendant.  This is not based on in rem jurisdiction.  It is essentially a quiet title process.  The court does not have any jurisdiction over the third party himself, and can only forfeit the interests owned by convicted criminal defendants — in theory.

At the third party hearing, theoretically all the third party has to do is prove that they own the property or have an interest in the property superior to the criminal defendants’ (e.g. a lien), and the extent of their interest and their property is exempted from forfeiture.

The judgment will affect the defendant’s share of the property but not the third party’s – in theory.

This theory breaks down in the case of after-acquired property.   When third parties obtain their interests after the criminal defendant committed the crime the statute requires them to prove they were bona fide purchasers for value without knowledge of the forfeitability of the property.  This puts those people into a complete limbo jurisdictionally speaking. Any case involving alleged proceeds of crime by definition falls into that category, because crime proceeds do not exist until after the crime is committed, the cases say.

This puts those third parties into a very weird jurisdictional limbo where they are deprived of their constitutional rights to due process, based on proceedings against someone else, yet they are not allowed to defend against it.  They are not allowed to challenge the basis of the criminal forfeiture judgment — which may have been established by the guilty plea of the criminal.  They are not allowed to move to suppress illegally seized evidence.  They are not allowed to question the witnesses against them.  And worst of all they are denied a jury trial.

The Supreme Court has made it clear that a case can either be in personam or in rem, but not both.  The third party process does not fit into either in personam or in rem jurisdiction. Some courts have said it is like a quiet title action. It is sort of like an ordinary civil case in which someone who co-owns property is sued and the other co-owner is not — except that in an ordinary civil case, if the judgment the plaintiff requests could affect the third party’s property interests, then they are required to join them as a party and allow them to participate in the proceedings to defend their interests.  See Fed. R. Civ. P. Rule 19(a)(1)(B)(i) (if “person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may… as a practical matter impair or impede the person’s ability to protect the interest” they “must be joined as a party.”) Because “necessary parties” are joined as a party in ordinary civil cases, they get to participate in the entire process including challenging the basis for the suit, raising defenses, demanding a jury trial, etc.

The complete vacuum of due process rights to which criminal forfeiture third parties are subjected is not like any other kind of case affecting property rights.

I can see from Folly’s description of what happened that the government has borrowed certain onerous concepts from in rem cases that have no business being used in criminal forfeiture.  Folly said both the government and the court have admitted that Folly was not claiming the proceeds, but only the other property which was not proceeds.  From the description it sounds like the government is using the “facilitating bank account” theory, or the “expanding drop of ink theory” — seen in in rem civil forfeiture cases, though discredited for decades — to take the clean property too.  As the theory goes, drop one tainted dollar into a bank account, where it is commingled with clean money, and it taints the entire account, including provably clean funds.  In most jurisdictions that theory was emphatically rejected in the 1990s.  But such a theory must by definition be based on the theory that the property itself is on trial, and that only the property’s guilt is at issue.

The government can’t have it both ways. If it chooses to use in personam criminal forfeiture with its exclusion of third parties from the litigation process, only the criminal defendant is on trial and the court only has jurisdiction over the criminal defendant and his property.  In such a case, the property’s alleged taint is irrelevant.

Unless the criminal defendant actually owns some interest in the property, the criminal court doesn’t have in personam jurisdiction to affect ownership of it.

Even when a criminal defendant owns a portion, if third party’s share of the property is separable from the criminal defendant’s share (such as funds in a joint account), the court should promptly release the third party’s share to them immediately upon learning the criminal defendant did not own that portion.







Brenda Grantland

Brenda Grantland is a private attorney in Mill Valley California, with 30 years' experience primarily in asset forfeiture defense, as well as federal criminal appeals and victims rights and restitution. Brenda handles federal cases throughout the country, and frequently works with other attorneys or legal teams as a consultant or co-counsel.

One thought to “The way they are enforcing criminal forfeiture laws against third parties is just plain criminal”

  1. Brenda…”the drop of ink” analogy is EXACTLY what we used in trying to defend my bank accounts, and we ALSO tried to explain that the accounts are merely “containers”. We also tried a “drop of oil” analogy…showing that the tainted funds that made their way into my accounts (yes, I deposited them, but didn’t know they were criminal funds) and that the “taint” should not be considered spread from the criminal funds to the clean funds IN A THIRD PARTIES ACCOUNT.
    The problem is the law says “all property “involved in” money laundering is forfeitable. So the court found my accounts were “involved in” money laundering for which my co-defendant was convicted.
    Considering I did do the financial transactions in question…and was acquitted, I would have thought the co-defendant would have gotten a Rule 29 acquittal on those transactions that I personally did. But they didn’t.
    The problem is, the jury convicted the codefendant for transactions that I did, and that they had nothing to do with. (I hope you’re following this)
    The appeals court made it even worse!(because the criminal appeal is finished…but I, as a third party am still waiting on my appeal as to the forfeited assets) The appeals court gave the issue the most cursory explanation…stating “that if transactions are complex, they are presumptively money laundering”…without any analysis of the transactions. Very disappointing.

    Also, my accounts were opened AFTER the criminal activity started. So there’s this thought process by the government and the courts about the accounts: they argue they are forfeitable merely BECAUSE of the time frame. (they both made much of the fact that my accounts were opened after the start of criminal activity)
    But picture this: someone is doing criminal activity between say,
    2010 and 2012. YOU open your bank account in 2011, and make numerous deposits. It’s yours and yours alone. In January of 2012, you unknowingly deposit criminal proceeds into your account. And then make more deposits of your own money throughout 2012. In December of 2012, your account is seized….as “involved in money laundering” (because the Gov traced that criminal proceeds check to your account). AND THEY TAKE THE WHOLE ACCOUNT! Not just the traceable amount.
    In the forfeiture proceeding, long after trial…the Gov tries to say that BECAUSE codefendant was a criminal in 2010, and you opened your account in 2011…it is forfeitable to the Gov, and you can’t have a superior interest because your account came into existence AFTER the criminal acts. Even while admitting that part of the funds in the account are not proceeds.
    But wait a minute!
    IF you had never deposited the “bad” check…your account would never have had a connection to the crime! And what about the checks deposited AFTER the bad check? The account has now become a “facilitator” of money laundering (which is why it got seized)
    now what?
    My point is…each check deposited both BEFORE and AFTER the nexus (the deposit of the ‘bad’ check) was vested to ME…not the convicted codefendant.
    The account is merely a container. The bad check is a drop of oil that we argued does NOT contaminate my funds. BUT if the account belonged to the defendant convicted of money laundering…all THEIR clean funds WOULD be forfeited as “involved” in money laundering.
    So conveniently, the district found me a nominee owner of my own bank accounts that I contaminated (unknowingly) myself. (Like I wanted that to happen!)
    That way, the “clean” funds could be forfeited to the Gov.
    I have been just beside myself on this.
    How can this have happened that I get accused of a crime for depositing the “bad” check…
    get acquitted
    and then end up losing all my other money because I deposited the bad check?
    I know I’ve previously described this as “down the rabbit hole” but everytime I write about it…it’s still the same. Just mind boggling.

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