Civil Forfeiture and the Cash Problem

October 9, 2014

Halloween is nearly upon us, and if you feel an adolescent need to terrify your lawyer, or your landlord or shut down an airport, try paying in cash. Used twenties in a brown paper lunch bag would be best;  grease stains add a special touch.

Actually, don’t try this, unless you crave law enforcement attention.

When is currency more frightening than a chainsaw?  Large quantities of cash create a presumption in law enforcement circles of criminal activity. The presumption is a byproduct, perhaps unintended, of the largely discredited “War on Drugs.”

Civil forfeiture laws that permit governments to seize cash, bank accounts, boats, planes, automobiles and real estate on the suspicion of criminal activity can create havoc for small businesses that deal in cash, even when no criminal charges are ever filed. The laws can also create chaos for the network of businesses, landlords, bankers and suppliers that deal with cash-based businesses.

Most people are simply dumbfounded at the notion that state or federal law enforcement can simply seize money or property without due process. The legal details vary widely from state to state and between state and federal governments, but that, at its core, is the situation.

A Brief History of Forfeiture

Criminal forfeiture laws, in general, make a little more sense. If you rob a bank, use the cash to buy a Buick, but are thereafter convicted of the crime of bank robbery, you cannot keep the Buick.

Civil forfeiture laws had their roots in nineteenth century maritime regulation and attempts to enforce customs laws. If a merchant in England shipped wool without paying required tariffs, there was no realistic way to bring the merchant into U.S. courts, so the government gave itself the power to seize the wool, and far more importantly, the ship. This essentially deputized ship owners to ensure that foreign merchants complied with U.S. law. Civil forfeiture had a later renaissance during Prohibition, especially because it allowed the seizure of valuable automobiles along with the moonshine.

But things got stranger, beginning in the early ’80s with the expansion of the War on Drugs, when law enforcement agencies began to be permitted to keep the money or the proceeds resulting from the sale of other assets that had been seized. This arguably created a perverse profit motive for the seizures.

What Businesses Does This Affect?

Cash-based businesses are particularly vulnerable. Think about food trucks, street vendors, flea markets and lawn service providers, the smallest of the small, who use cash because it’s simple. However, being stopped for a seat belt violation with a lot of cash in the car after a particularly good day at the craft fair can cost the vendor both the cash and the car.

The legal marijuana industry is in a special situation of its own. The conflict between state laws that legalize marijuana to some extent and federal law which criminalizes it, scares most banks away and forces the businesses to operate in cash.  And of course, the intended targets, illegal drug sales and gambling, also get swept up.

Let’s go back to the nineteenth century ship owner, though.  Forget the wool; the big issue here is the ship. To protect his very valuable asset, the ship owner had to undertake the enforcement of U.S. customs law, and he presumably became very wary of shady wool merchants.

The commercial property owner who leases a storefront to a business that ostensibly sells cupcakes, but has a profitable sideline in methamphetamine is similarly at risk. Forget the cupcake entrepreneur’s bank accounts and the cash under the floorboards; civil forfeiture laws would permit the seizure of the landlord’s building.

The net could theoretically spread even wider to the bank that financed the cupcake business, the supplier who sold sugar and the large wholesale buyer. And of course, no one,  employees, suppliers or creditors, will get paid.

This is the nightmare scenario, and that is why your lawyer tossed you and your bag of cash so summarily out of the office.

More Legal Nitty-Gritty

Any general statement about law is at least partially wrong, and the same is true of civil forfeiture laws. It is not impossible, although it is very difficult, for property owners to get seized property back. Each state and the federal government have different laws, and the laws, themselves, are changing.

California, for example, used one standard before 1994 and another thereafter, and its rules are different for boats, cars, airplanes and cash of $25,000 or more and for cash in a smaller amount. The differences generally relate to two main issues:

  • The burden of proof, that is, how convincing must the government’s evidence be to keep the property or, alternatively, how convincing must the owner’s evidence be to get it back, and
  • The process of getting the property back.

In states where the owner has to demonstrate beyond a reasonable doubt that the property seized was not used in a criminal enterprise and the procedure involves a hearing before a prosecutor, rather than an impartial judge, it is very difficult to reclaim the property.

In states where the owner only has to demonstrate a likelihood of innocent use, or where the government must show near certainty of illegal purpose, and the hearing takes place before a judge, it is much easier for the owner to prevail. The map below grades states on how well they protect property owners, and there is not much good news.

Civil-Forfeiture-Map

Even when the property owner wins, it can be a Pyrrhic victory because of the passage of time.  It can take a year or more to get a hearing.  Even if the cupcake entrepreneur were completely innocent, there was no methamphetamine, the money under the floor had been there for 80 years, and no criminal charges were ever brought, he or she has been out of business for a year.  The same may be true of the landlord in the absence of some deep pockets.

Hence the calls for legal reform.  One of the original rationales for civil asset forfeiture laws, the inability to bring parties before U.S. courts is simply not present in modern forfeiture cases.  The net captures too many innocent parties in an effort to shut down illegal enterprises and giving governments a financial incentive to pursue these kinds of actions distorts law enforcement.

Anne Wallace, Esq.

By

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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