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Money Laundering and Forfeiture Digest

Summaries and Analyses of Recent Money Laundering and Asset Forfeiture Cases

April 2017

Prepared by Stefan D. Cassella Asset Forfeiture Law, LLC www.assetforfeiturelaw.us

Aggravated Identity Theft / Plea Agree-ment A defendant convicted of aggravated iden-tity theft in violation of 18 U.S.C. § 1028A may be ordered to forfeit the proceeds of his offense even though there is no statutory forfeiture authority for that violation. Because a conviction under § 1028A re-quires proof that the defendant committed the offense while committing a violation of another statute, a defendant convicted of vi-olating § 1028A may be ordered to forfeit the proceeds of the underlying predicate of-fense, if there is statutory authority for the forfeiture of the proceeds of that crime. United States v. Pollard, ___ F.3d ___, 2017 WL 908244 (9th Cir. Mar. 8, 2017) Ninth Circuit * Defendant used false identi-fication documents to open fraudulent bank accounts and steal money. His indictment charged him with both aggravated identity theft and bank fraud in violation of 18 U.S.C. §§ 1028A and 1344, respectively. The in-dictment also contained a forfeiture notice pertaining to the bank fraud offense, but be-cause there is no express statutory authority for forfeiture for a violation of Section 1028A, it contained no such notice pertain-ing to aggravated identity theft. Defendant ultimately entered a guilty plea only to the Section 1028A violation.

Despite the absence of statutory authority for forfeiture in aggravated identify theft cases and the absence of a reference to that offense in the forfeiture notice in the in-dictment, Defendant agreed to the forfeiture of $4.1 million in proceeds of that offense. He also agreed to waive his right to appeal the forfeiture judgment. Despite some initial misgivings, the dis-trict court entered the forfeiture judgment in the amount of $4.1 million. United States v. Pollard, 2015 WL 1982761 (D. Nev. Apr. 30, 2015) (Digest July 2015). And despite his waiver, Defendant appealed. The threshold question on appeal was whether the waiver in Defendant’s plea agreement barred him from objecting to the forfeiture order on any ground whatsoever. The panel held that Defendant’s waiver of his right to object to the forfeiture order on Eighth Amendment grounds was valid, as was his waiver of his right to object that the

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Government did not give him notice that the forfeiture would be based on Section 1028A as Rule 32.2(a) appears to require. It also held that he had waived his right to have the Government establish the amount of the for-feiture order by a preponderance of the evi-dence. The court held, however, that a defend-ant’s waiver does not preclude an appellate court from reviewing an illegal sentence. Therefore, to the extent that Defendant ar-gued that the forfeiture order was illegal be-cause there is no statutory authority for for-feiture in connection with a violation of the aggravated identify theft statute, he was free to appeal. The court acknowledged that Congress has not enacted any forfeiture authority for a violation of Section 1028A per se. It noted, however, that proof of a violation of Section 1028A necessarily requires proof that the defendant committed the identify theft of-fense while committing another illegal act. Here, Defendant was convicted of aggra-vated identity theft only because he agreed that he had committed the offense while committing bank fraud. When a conviction for aggravated iden-tity theft is premised on a proven or admit-ted violation of a predicate offense such as bank fraud, the court said, and there is stat-utory authority for the forfeiture of the pro-ceeds of that predicate, the defendant may be ordered to forfeit the proceeds of the un-derlying crime as part of his sentence for vi-olating Section 1028A.

Accordingly, because the bank fraud conviction was essential to Defendant’s conviction for aggravated identity theft, and because forfeiture is authorized for bank fraud, the court held that the district court was authorized to order Defendant to forfeit the $4.1 million in bank fraud proceeds,

even though he was convicted of aggra-vated identity theft and not convicted of bank fraud. SDC

Contact: AUSA Dan Hollingsworth (D. Nev.) Comment: One of the tenants of forfeiture law is that there is no common law of forfei-ture. Thus, there can be no forfeiture im-posed as part of the sentence for a criminal offense unless Congress has authorized for-feiture as part of the punishment for that of-fense. Congress has not authorized forfeiture for aggravated identity theft. Thus, it has been assumed, until now, that a defendant con-victed only of a violation of Section 1028A cannot be ordered to forfeit any property as part the criminal case. But that assumption turns out to have been wrong. Aggravated identity theft is one of those of-fenses that requires proof that the defend-ant committed the offense while committing another crime. Here, the defendant was accused of committing the identity theft vio-lation while committing bank fraud. The court reasoned that although there is no forfeiture authority for aggravated identify theft per se, there is forfeiture authority for bank fraud. And because proof (or an ad-mission to) the bank fraud violation was es-sential to the Section 1028A conviction, for-feiture of the proceeds of the bank fraud could lawfully be imposed as part of the sentence for the aggravated identity theft vi-olation. This is an important development in forfei-ture law; the absence of statutory authority for forfeiture for violations of Section 1028A has often been cited as a glaring loophole in the statutory forfeiture scheme. But there is another aspect of this opinion that may

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turn out to be equally important. The defendant in this case expressly agreed to the forfeiture in his plea agreement and waived all right to appeal, even though he was not pleading to an offense for which for-feiture is statutorily authorized. That is not an uncommon event: prosecutors frequently accept a defendant’s agreement to forfeit property derived from or used to commit an offense other than the one to which the de-fendant is pleading guilty. For example, the Government may accept a guilty plea to a tax offense or a Section 1001 violation (for which there is generally no forfeiture author-ity) and have the defendant agree to the for-feiture of the proceeds of a related mail or wire fraud offense even though all of the mail or wire fraud counts in the indictment are dismissed as a condition of the plea. The prosecutor’s assumption in such cases is that the defendant will be bound by his plea agreement and that therefore there will be no one to complain if the court enters a forfeiture order as part of the defendant’s sentence despite the absence of any statu-tory authority to do so. But that turns out not to be so. As the court expressly holds in this case, a defendant’s agreement to an illegal sentence i.e., a sentence that is not authorized by statute, is not binding on either the defend-ant or the appellate court. Thus, while this case is great news for pros-ecutors frustrated by the lack of express for-feiture authority for violations of § 1028A, it carries with it a warning: beware of plea agreements in which the defendant agrees to forfeit property in connection with a crime other than the one to which he is pleading guilty. That may work in aggravated iden-tity theft cases in the narrow circumstances present here, but in general the better prac-tice is to have the defendant agree not to contest the parallel civil forfeiture of the

property involved in the counts that are be-ing dismissed from the indictment as part of a plea agreement. See the next case sum-mary for an instance where this was done, albeit in a way that opened the door to an-other problem. SDC

Plea Agreement / Community Property / Role of State Law Because wife’s community property interest was extinguished under state law when her husband agreed to forfeit the property, she had no right to object to the Government’s motion for an order of forfeiture. United States v. Tracts 31A, Lots 31 and 32, ___ Fed. Appx. ___, 2017 WL 946288 (5th Cir. Mar. 9, 2017). Fifth Circuit * Defendant was charged with defrauding a school district of $3.7 million by submitting false or inflated invoices for electrical supplies and materials. The in-dictment contained a notice that the Gov-ernment would seek the forfeiture of two an-nuities that Defendant had purchased with $3.4 million in fraud proceeds. The Gov-ernment also filed a parallel civil forfeiture action against the two annuities to which both Defendant and his wife filed claims un-der Texas’s community property law. As part of a written plea agreement, the Government agreed to dismiss the fraud charges and allowed Defendant to plead to a misdemeanor tax offense. In return, De-fendant agreed not to contest the civil forfei-ture of the two annuities. All went according to plan at Defend-ant’s plea hearing, with the same attorney representing both Defendant and his wife, and the wife not raising any objection to De-fendant’s agreement to forfeit the annuities. But when the Government moved for an or-

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der of forfeiture in the civil case, Defend-ant’s wife obtained her own counsel and ob-jected. She had never signed the plea agreement, she said, and had never waived or withdrawn her claim to the annuities in the civil forfeiture case.

The district court overruled her ob-jections and entered summary judgment for the Government. The wife appealed.

On appeal, the Government relied

on a provision of Texas law that governs the disposition of community property by one spouse. It provides that when community property is held in one spouse’s name, that spouse is presumed to have the authority to alienate the property without the other spouse’s consent, and a third party to whom the property is conveyed is entitled to rely on that spouse’s authority to convey it, as long as the third party did not have actual notice of the need for the other spouse’s consent.

The court adopted the Government’s

argument and held that under state law, the Government, in negotiating the plea, was entitled to rely on Defendant’s apparent au-thority to alienate the two annuities, and that his wife therefore had no legal ground to ob-ject to the forfeiture.

Accordingly, the court affirmed the

entry of summary judgment disposing of the wife’s claim and forfeiting the property to the Government. SDC

Contact: AUSAs Robert Rawls and Michael Lockhart (E.D. Tex.) Comment: This case illustrates how the Government can avoid the problem that arose in United States v. Pollard (see the previous case summary) by having the de-fendant in a criminal case agree not to con-test the civil forfeiture of property when there was no legal authority for the forfeiture

of the property in his criminal case. But un-fortunately, the case also illustrates an en-tirely separate problem that the Government could easily have avoided. The holding in this case is that the wife loses because, under Texas law, her com-munity property interest was extinguished when her husband agreed to forfeit the property in circumstances that indicated that he had the authority to do so. That’s a nice demonstration of the way state law can be used to determine the outcome of a claim in a civil forfeiture case. But there is a much broader lesson here, and there was an al-ternative and more straightforward way of dealing with the wife’s claim under federal forfeiture law. The teaching point is that the prosecutor should never have accepted a plea in which one spouse agreed to forfeit property in which the other spouse had claimed an in-terest without having the uncharged spouse sign-on to the plea agreement, preferably while being represented by her own counsel (or at least after waiving, in writing, any ob-jection to the joint representation by her husband’s attorney). There is no regulation or policy that says that the Government can-not accept such a plea without making the spouse a party to it; but as this case illus-trates, it can avoid a lot of legal heartburn by insisting that she do so. The alternative resolution would have been for the Government to move for summary judgment on the wife’s claim in the civil for-feiture case on the merits. The two annui-ties that were subject to forfeiture in this case were purchased with fraud proceeds; therefore, the wife could not have claimed a pre-existing interest in the annuities under 18 U.S.C. § 983(d)(2); she could have made a successful claim only by showing that she had acquired her interest in the property as a bona fide purchaser for value under § 983(d)(3).

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In short, a spouse in a community property state cannot circumvent forfeiture law by as-serting that her interest in her husband’s criminal proceeds arose automatically under state law. When the defendant committed the fraud, the Government’s interest imme-diately vested in the fraud proceeds. Thus, the wife acquired nothing unless she was a BFP. See United States v. Martinez, 228 F.3d 587, 590 (5th Cir. 2000) (relation back doctrine vests title to criminal proceeds in the Government at the time the crime oc-curs, precluding the defendant’s wife from ever acquiring an interest under community property law); United States v. Hooper, 229 F.3d 818, 821-22 (9th Cir. 2000) (to prevail under § 853(n)(6)(A), the claimant must have a preexisting interest in the forfeited property; because proceeds do not exist be-fore the commission of the underlying of-fense, spouse in community property state could not rely on § 853(n)(6)(A) to challenge the forfeiture of drug proceeds); United States v. Brewer, 591 F. Supp. 2d 864, 869 (N.D. Tex. 2008) (following Hooper; it is un-necessary to determine if defendant’s wife could acquire an interest in real property purchased with criminal proceeds under state community property law, because in all events, her interest would not be a pre-existing interest under § 853(n)(6)(A)); United States v. Boscarino, 2013 WL 1833018, *2 (D. Ariz. Apr. 30, 2013) (follow-ing Hooper; community property interest in proceeds of defendant’s crime is not a pre-existing interest under § 853(n)(6)(A); mo-tion to dismiss for failure to state a claim granted); United States v. Peterson, 820 F. Supp. 2d 576, 585-88 (S.D.N.Y. 2011) (ap-plying Hooper; domestic partner with a com-munity property interest in defendant’s prop-erty could not assert a claim under § 853(n)(6)(A) to portion of property acquired with fraud proceeds), aff’d, 537 Fed. Appx. 3, (2nd Cir. 2013). SDC

Forfeiture and Restitution / Gross v. Net Proceeds Second Circuit joins all others in holding that forfeiture and restitution are both man-datory and may not be offset against each other. Because there is “no lawful way to embez-zle funds,” a defendant convicted of embez-zlement must forfeit the gross proceeds of her offense without any deduction for her di-rect costs. United States v. Bodouva, ___ F.3d ___, 2017 WL 1076339 (2nd Cir. Mar. 22, 2017). Second Circuit * Defendant was the Chief Operating Officer of an architecture firm. She embezzled money from the firm’s 401(k) plan by withholding payments from employee salaries but not remitting the money to the plan. She was convicted of violating 18 U.S.C. § 664 and was ordered to forfeit $127,854 in embezzlement proceeds. She appealed, arguing that the district court should have given her credit against the for-feiture order for the funds that she voluntar-ily paid in restitution to the plan after her in-dictment but before her trial. The panel held that the district court had no discretion in the matter, and thus did not err in refusing to credit the restitution payment to the amount of the forfeiture or-der. Restitution and forfeiture are “creations of distinct statutes,” the court said, and serve different purposes. Criminal forfei-ture is a form of punishment while restitution is intended to return the victim and the per-petrator to the status quo that existed before the violation took place. Accordingly, Con-gress’s failure to provide for the offset of one against the other does not constitute

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“an unfair double disgorgement.” Defendant argued that the offset was required by the definition of “proceeds” in the forfeiture statute, 18 U.S.C. § 981(a)(2)(B). Setting up a 401(k) plan, she said, is not an inherently unlawful activity; rather, it is a lawful service that she pro-vided in an unlawful way. Therefore, in her view, she was entitled to have the amount of her forfeiture judgment reduced by her “direct costs,” which would include the amount of her restitution payments. The panel did not agree. Defendant’s argument, the court said, “misidentifies her criminal conduct. Her crime was not the unlawful provision of services to [her firm’s] employees. Her crime was embezzlement, [and] there is simply no way to lawfully em-bezzle funds.” Accordingly, Defendant was not entitled to any offset against the forfeiture order for any direct costs. SDC Contact: AUSA Dina McLeod (S.D.N.Y.) Comment: The panel’s principal holding – that forfeiture and restitution serve different purposes and may not be offset against each other – follows all of the other circuits that have addressed this question. See § 20-8 of Asset Forfeiture Law in the United States (2d ed. 2013) and 2016 Supplement. The panel collects some of the other appel-late cases on that point. For the Fifth Cir-cuit’s even more recent opinion on the same issue, see the next case summary. What is most interesting is the defendant’s creative argument that paying voluntary res-titution is a “direct cost” of committing a crime, and that because she was not doing anything inherently illegal, she was eligible to have her forfeiture order reduced by her “direct costs” pursuant to 18 U.S.C. § 981(a)(2)(B).

The panel did not reach the question whether paying restitution is a “direct cost.” Rather, it simply held that the defendant’s crime – embezzlement – is indeed inher-ently illegal (“embezzlement . . . cannot be done lawfully”), and thus the definition of “proceeds” in Section 981(a)(2)(B) did not apply in her case. I find this highly significant. Defendants in fraud cases, for example, frequently argue that they weren’t doing anything inherently illegal when they defrauded their investors, the party issuing a fraudulently-obtained contract, or the myriad other victims of fraud. To the contrary, they say, they were merely engaged in lawful conduct but in an unlawful way. But if, as the Second Circuit says in this case, there is no lawful way to commit em-bezzlement, there is also no lawful way to commit fraud. Which is why I have always believed that a person convicted of fraud should be required to forfeit the gross pro-ceeds of his or her offense. See id. § 25-4(d). SDC

Forfeiture and Restitution / Excessive Fines / Joint and Several Liability Fifth Circuit likewise holds that a district court lacks the authority to offset forfeiture and restitution against each other. Panel also holds that there is no Eighth Amendment violation in holding a participant in a health care fraud conspiracy liable for the forfeiture of the proceeds of the conspir-acy that were foreseeable to him. United States v. Sanjar, ___ F.3d ___, 2017 WL 1162166 (5th Cir. Mar. 27, 2017). Fifth Circuit * Defendant was part of a con-spiracy to use a mental-health center to

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overbill Medicare for unnecessary services and for services that were never rendered. He was convicted of conspiracy to commit health care fraud and was ordered to forfeit $4 million and to pay restitution in the same amount.

Defendant appealed his conviction and the forfeiture order, and the Govern-ment cross-appealed the district court’s or-der directing the Government to apply the forfeited funds to restitution. Defendant’s argument was that the for-feiture order violated the Excessive Fines Clause of the Eighth Amendment because the only benefit he received from participat-ing in the scheme was his salary. The panel responded, however, that the forfei-ture order was based on the proceeds of the crime, and that because Defendant “played a major role in sustaining the [illegal] opera-tion,” it was “not obvious” that the amount of the order was grossly disproportional to the gravity of his offense. In its cross-appeal, the Government ob-jected that a district court lacks the authority to order the Government to applied forfeited funds to restitution. The panel agreed. In an earlier decision, the Fifth Circuit held that it was not error for a district court to refuse to order the Government to apply forfeited funds to restitution. Its reasoning in that case was that both forfeiture and res-titution are mandatory. For the same rea-son, the panel held that a district court has no authority to order the Government to ap-ply forfeited funds to restitution, even if the court wants to do so. First, the court noted that restitution and forfeiture serve distinct purposes: “Res-titution is remedial in nature; its goal is to make the victim whole. Forfeiture is puni-tive; it seeks to disgorge any profits or prop-erty an offender obtains from illicit activity.”

Moreover, both “are mandatory features of criminal sentencing that a district court does not have authority to offset.” To the con-trary, 21 U.S.C. § 853(i) “contemplates that it is for the Attorney General to decide whether to offset one against the other.” That the Government (through the Medicare program) would be both the victim entitled to restitution and the recipient of the for-feited funds does not make any difference. The court acknowledged that it would make sense for the Government to apply forfeited funds to restitution where the victim would otherwise be without compensation. Indeed, the court noted that it is the policy of the Department of Justice to do exactly that. “But Congress left it to the executive branch to decide whether to follow through on that sensible policy.” So Defendant’s appeal was denied and the Government’s cross-appeal was granted. SDC Contact: DOJ Attorneys Dave Goodhand and Ellen Meltzer. Comment: Virtually every circuit has now decided that forfeiture and restitution are both mandatory, and that a trial judge is not required to offset one against the other. The Fifth Circuit’s decision on that point is United States v. Taylor, 582 F.23 558, 566 (5th Cir. 2009). This decision, like the Sec-ond Circuit’s decision in United States v. Bodouva, takes that one step further: courts lack the discretion to offset forfeiture and restitution against one another even if they would like to do so. (See previous case summary). This case touches only briefly on the Eighth Amendment issue, holding in a single para-graph that making a defendant who played a significant role in a conspiracy liable for the forfeiture of the foreseeable proceeds does not constitute an excessive fine. The

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court does not discuss the underlying issue: whether all defendants in a conspiracy may be held jointly and severally liable for all of the proceeds of the conspiracy by virtue of the Pinkerton doctrine. If Pinkerton does not support joint and several liability, of course, the court would never reach the Eighth Amendment argument. The Supreme Court heard oral argument on the joint and several liability issue in Hon-eycutt v. United States on March 29, 2017. My review of the transcript suggested to me that the Court is struggling with the issue, and was trying to figure out where in the substitute assets statute, 21 U.S.C. § 853(p), the authority for joint and several lia-bility exists. That the authority derives from the imposition of a money judgment – not from the application of the substitute assets statute – seemed lost on the Court, at least during the colloquy with the Assistant Solici-tor General. How that issue will be resolved is totally up in the air at this point. The transcript of the Honeycutt argument is posted on my web-site at http://assetforfei-turelaw.us/?page_id=168. SDC

Proceeds / Forfeiture and Restitution / Joint and Several Liability / Excessive Fines / Indictment – Rule 32.2(a) A defendant who is entitled to deduct the “direct costs” of his fraud scheme under § 981(a)(2)(B) has the burden of proving what those costs were; he may not simply deduct the market value of the goods or services that he delivered. The forfeiture for a scheme to defraud in-cludes the proceeds of the entire scheme, including the proceeds of conduct that oc-curred outside the statute of limitations.

Court declines to depart from binding prece-dent regarding joint and several liability even though the Supreme Court has granted cert. to review that issue. United States v. Reed, 2017 WL 843082 (E.D. La. Mar. 3, 2017). E.D. La. * Defendant A and Defendant B were convicted of conspiring to commit mail and wire fraud in connection with the use of $78,000 in campaign contributions for per-sonal purposes. Defendant A was also convicted of a number of substantive charges involving an additional $609,000. As part of Defendants’ sentences, the Gov-ernment moved for a forfeiture order holding both Defendants jointly and severally liable to forfeit the proceeds of the conspiracy, and for a separate order holding Defendant A liable to forfeit the proceeds of the sub-stantive counts on which he alone was con-victed. Both Defendants objected to the Government’s motion. In a few instances, the court agreed with Defendants that the Government had included dollar amounts in its calculations without having established by a preponder-ance of the evidence that the money was derived from the conduct for which Defend-ants were convicted, and it reduced the amounts of the two money judgments ac-cordingly. But the court rejected all of De-fendants’ legal challenges to the forfeiture orders. First, Defendants argued that under 18 U.S.C. § 981(a)(2)(B), they were entitled to deduct the direct costs that they incurred in committing their offense. The court agreed on that point, but it held that the burden was on Defendants to prove what those direct costs were. The only evidence offered by Defend-ants was the market value of a video that

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they produced and for which they over-charged the campaign fund. But the court held that the market value of the video was not the same as the cost of producing it, and only the latter would constitute a de-ductible “direct cost.” Similarly, the court refused to allow a deduction for the taxes that were paid on the illegally-diverted campaign funds. Taxes, the court pointed out, are expressly excluded from the definition of costs that may be deducted from the forfeiture amount under Section 981(a)(2)(B). Next, Defendants argued that they were entitled to a deduction for the amount of money that they refunded to the cam-paign after illegally diverting the money to their personal use. But the court held that Defendants are not entitled to reduce their forfeiture liability by the amount of restitution they have paid to their victim, even if they make the reimbursement voluntarily. Forfeiture has a punitive purpose, the court said, and forfeiture and restitution may be ordered for the same illegal activity. Thus, Defendants were liable for the amount they illegally diverted from the cam-paign whether or not they later repaid it. Defendant B, who was convicted only of the conspiracy, also objected that he should not be held jointly and severally lia-ble to forfeit funds that he did not personally obtain. He urged the court to follow the District of Columbia Circuit’s decision on that point in United States v. Cano-Flores, or at least to withhold ruling on that question until the Supreme Court resolved the split in the circuits regarding joint and several liabil-ity in United States v. Honeycutt. But the court held that it was bound by Fifth Circuit precedent to impose joint and several liabil-ity.

Next, Defendant A objected that the for-feiture for the substantive mail and wire fraud offenses should be limited to the amounts involved in the actual counts of conviction and should not include un-charged conduct that was part of the overall scheme to defraud. Alternatively, he ar-gued that if uncharged conduct were to be considered, it should be limited to conduct occurring within the statute of limitations. The court rejected both arguments. It is well-established, the court said, that forfeiture in mail and wire fraud cases extends to the proceeds of the entire scheme and is not limited to the amount of money derived from the particular execu-tions of the scheme that were alleged as substantive counts. That the scheme straddled the statute of limitations, the court added, is no reason to limit the forfeiture to less than the total amount derived from the scheme. Defendant A objected that including the conduct that occurred outside of the statute of limitations violated his rights under the Excessive Fines Clause of the Eighth Amendment, but the court disagreed. For-feiture of the amount of illegal proceeds that a defendant actually received, the court said, is not disproportional to the offense. Finally, Defendant A objected that the amount the Government was seeking to for-feit greatly exceeded the amount set forth in the forfeiture notice in his indictment. Rule 32.2(a), the court noted, requires only that the Government provide the defendant with notice that it will be seeking forfeiture in the event of his conviction. It does not require it to set forth the amount of the expected money judgment. Here, the indictment nevertheless ad-vised Defendant A that the Government would be seeking to forfeit “at least

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$390,932.” The court held that this com-plied with Rule 32.2(a) and did not estop the Government from seeking to forfeit a larger amount once all of the evidence was pre-sented at trial. Accordingly, the court granted the Gov-ernment’s motion to enter the forfeiture judgments but reduced the Government’s requests to $46,200 (for the conspiracy for which Defendants were jointly and severally liable) and $574,063 (for the substantive counts for which only Defendant B was lia-ble). SDC Contact: AUSAs Maria Carboni and Jordan Ginsberg Comment: There is a lot going on in this case, but a few points stand out. First, it’s worth noting that the court declined to with-hold ruling on the joint and several liability issue pending the Supreme Court’s decision in Honeycutt. If other district court’s follow suit, the joint and several liability rule will re-main in place at least for the next few months in the overwhelming majority of cir-cuits that have adopted that rule. But see United States v. Lara, ___ Fed. Appx. ___, 2017 WL 527912 (6th Cir. Feb. 8, 2017) (holding appeal on joint and several liability in abeyance pending the Supreme Court’s decision in Honeycutt). The court’s ruling on the deduction available to the defendants for the “direct costs” of their fraud scheme is also interesting. De-fendants who obtain a contract by fraud, or who overbill for the goods and services de-livered, often attempt to take advantage of the “direct costs” deduction in § 981(a)(2)(B) by subtracting the value of the goods or ser-vices actually provided. But as the court in this case points out, the market value of what was provided is not the same as the cost of producing it, and only the latter is de-ductible.

Finally, the court follows the Fifth Circuit’s decision in United States v. Taylor, 582 F.3d 558, 566 (5th Cir. 2009), in holding that be-cause forfeiture and restitution are both mandatory, a defendant is not entitled to off-set restitution voluntarily paid against the amount of his forfeiture judgment, and United States v. Sigillito, 899 F. Supp.2d 850, 861-62 (E.D. Mo. 2012), in holding that a defendant must forfeit the proceeds of the entire scheme, even if some of the pro-ceeds were realized outside of the 5-year statute of limitations. SDC

Money Laundering / Section 1957 / Pro-ceeds / $10,000 Requirement / Knowledge Proceeds remain proceeds as they change form; when fraud proceeds are used to gamble, the gambling winnings become “proceeds” for purposes of money launder-ing under Section 1957. Where the defendant is not the person who committed the underlying fraud, his knowledge that the money he used to con-duct a financial transaction was criminal proceeds may be established by circum-stantial evidence. United States v. Rivera-Izquierdo, ___ F.3d ___, 2017 WL 876258 (1st Cir. Mar. 6, 2017). First Circuit * Defendant’s step-daughter ran a $2.5 million fraud scheme, used the money to feed her gambling habit, and gave some of her gambling winnings to Defend-ant, who used the money to buy two cars. Defendant was convicted of two counts of money laundering under 18 U.S.C. § 1957 and appealed. Defendant challenged his conviction on several grounds. First, he argued that he did not violate Section 1957 because the

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money that he used to buy the cars was his step-daughter’s gambling winnings, not the proceeds of her fraud. But the court held that the Government did not need to prove that Defendant’s transaction involved the actual fraud proceeds; rather, it was suffi-cient to show that the money Defendant used to buy the cars was “derived from” the fraud proceeds. Because the evidence was overwhelming that the step-daughter generated her gambling winnings exclu-sively from the funds that she took by fraud, the Government met its burden. Defendant also argued that the district court gave the jury the wrong instruction when it defined “proceeds” to mean “gross receipts,” not net profits. The instruction tracked the definition of “proceeds” in Sec-tion 1956(c)(9), but as Defendant pointed out, his offense occurred prior to the enact-ment of that statute in May 2009. Thus, in Defendant’s view, the court should have de-fined “proceeds” as net profits in accord-ance with the Supreme Court’s decision in Santos. The panel held, however, that even if Defendant was correct that Santos applied in this case, it would have made no differ-ence. Because the underlying fraud scheme had few expenses, the court said, virtually all of the money the step-daughter obtained from the scheme would have been net profits. Thus, the court’s error in giving the wrong jury instruction did not affect the outcome of the case. Finally, Defendant argued that even if the evidence was sufficient to show that the money involved in his financial transactions was fraud proceeds, there was no evidence that he knew it. To the contrary, he said, the evidence was only that he knew the money came from this step-daughter’s gam-bling habit. But the court did not agree. Knowledge of the illegal source of the

money involved in a money laundering transaction may be shown by circumstantial evidence. Here, there was evidence that Defendant knew that his step-daughter had no source of income aside from the fraud of-fense that she could have used to fund her gambling venture. Among other things, that evidence included the family relation-ship between Defendant and his step-daughter, and his participation in her scheme in that he recruited new victims, pressured them to engage in the fraudulent transactions, and threatened those who complained. So the court affirmed the convictions on both money laundering counts. SDC Contact: DOJ Trial Attorneys Charles Walsh and Luke Cass Comment: The principal holding in this case is straightforward and unremarkable: proceeds remain proceeds even as they change form; so the conversion of fraud proceeds to gambling winnings did not break the link between the fraud offense, which was the “specified unlawful activity,” and the Section 1957 violation. Other cases holding the same thing are collected in Section VIII.G of the Money Laundering Case Outline. Of course, the case could have been more complicated (and hence more interesting) if there had been evidence that the step-daughter had commingled funds from an unknown source with her fraud proceeds when she gambled. If that had been the case, the court would have had to address the conflicting case law regarding the trac-ing rules that apply when the Government has to show that at least $10,000 in SUA proceeds were involved in the alleged § 1957 transaction. The parties evidently did brief that issue, be-cause the court cited several of the cases

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holding that strict tracing is not required as well as the Ninth Circuit’s contrary decision giving the defendant the benefit of the doubt when the transaction involves at least $10,000 in commingled untainted funds. Compare, United States v. Rutgard, 116 F.3d 1270, 1292 (9th Cir. 1997) with United States v. Johnson, 971 F.2d 562, 570 (10th Cir. 1992), United States v. Sokolow, 91 F.3d 396, 409 (3d Cir. 1996) and United States v. Moore, 27 F.3d 969, 976-77 (4th Cir. 1994). The court did not feel it necessary to take sides on that issue, however, because in its view, there was no evidence that any un-tainted funds had been commingled at any stage in the process. All of the cases on both sides of the issue are collected in Sec-tion XVI.E of the Money Laundering Case Outline. SDC

Money Laundering / Funneling Third party who opened bank accounts at the behest of a drug dealer, and allowed the drug dealer to use them to funnel drug pro-ceeds from his customers in Illinois back to California, is guilty of concealment money laundering. United States v. Sheridan, ___ Fed. Appx. ___, 2017 WL 663511 (7th Cir. Feb. 16, 2017). Seventh Circuit * A California Drug Dealer sold marijuana to a customer in Illinois, and needed a way to transfer the payments back to California. He asked Defendant, his cousin, to open bank accounts at sev-eral banks, and directed his customer to de-posit the drug proceeds into Defendant’s ac-counts at Illinois branches of those banks. Defendant would then withdraw the money from California branches of the same banks and turn it over to Drug Dealer, minus De-

fendant’s fee. Drug dealer also gave De-fendant marijuana as part of his compensa-tion for his role in the scheme. Defendant was charged with 32 counts of concealment money laundering, 18 U.S.C. § 1956(a)(1)(B)(i), corresponding to 32 deposits made by the Illinois customer. He was convicted and appealed. Defendant’s principal argument on ap-peal was that the transactions did not con-ceal or disguise anything. The deposits and withdrawals, he said, were simple transactions that were all conducted “openly and notoriously” through bank accounts held in Defendant’s own name, and merely facilitated the transfer of funds from the Illi-nois customer to the California Drug Dealer. The panel was not impressed. What mattered, the court said, was not whether the transactions concealed Defendant’s identity, but whether he used them to con-ceal the money’s relationship to the Illinois customer and to the California Drug Dealer. Because the transactions concealed the na-ture of the funds, the identity of their true owner, and his control over them, the con-cealment element of the money laundering statute was satisfied. Defendant also argued that there was insufficient evidence to show that he knew the funds were illegally derived. But the court held that knowledge may be shown by circumstantial evidence, and that the evi-dence in this case included Defendant’s role in helping his cousin to package and ship marijuana from the residence that they shared. Finally, Defendant argued that there was insufficient evidence that the money deposited and withdrawn from his accounts was actually drug proceeds. The court held, however, that the jury could infer the nature of the money being deposited from

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the fact that the Illinois customer was selling marijuana and had no other reason to be depositing cash into Defendant’s bank ac-counts. So the convictions for concealment money laundering were affirmed. SDC Contact: AUSA Jason Bohm (C.D. Ill.) Comment: This is a classic funneling case. A California drug dealer has customers in another part of the country who need to send the payments for the drugs back to the West Coast. In the old days, the preferred method was to pay a courier to drive the money across the country – running the considerable risk that it would be seized during a traffic stop somewhere along the way. (Based on the prevalence of civil for-feiture cases involving currency seizures coming out of Nebraska, the trip from the Missouri to the Platte seems to have been the most risky part of the journey from the point of view of the courier and his em-ployer.) But our domestic financial institutions have afforded drug dealers with a much less risky method of accomplishing the same thing: al-low the drug dealer to open an account at a bank that has branches in both California and the part of the country the drugs are shipped, allow the customer (or his minions) to deposit the drug proceeds in branches close to where they reside and where the drugs are sold, and allow the drug dealer to withdraw the funds (generally within a day of the deposit so that there is nothing for law enforcement to seize, even if it gets wind of the scheme) back in California. To further minimize the risk, of course, it be-hooves the drug dealer to find a willing ac-complice to open the various funneling ac-counts and handle the withdrawal of the funds on the receiving end. In this case, the California drug dealer prevailed upon his

cousin to do that, all in return for a small fee and a bit of marijuana. The “willing accomplice” can complain all he wants that he had no role in the underlying drug transaction, but he is still guilty of money laundering. Section 1956(a)(1)(B)(i) makes it an offense to conduct a financial transaction knowing that its purpose is to conceal or disguise the source, ownership, nature, location or control of criminal pro-ceeds. It does not require proof that the defendant was the person who committed the underlying crime that generated the ille-gal proceeds or that the defendant con-cealed or disguised his own identity. Ra-ther it is sufficient, as it was here, if the de-fendant knew that the transaction was de-signed to conceal someone else’s crime and the connection of the money to it. Accordingly, in this case, for opening the bank accounts, allowing them to be used to funnel drug proceeds from Illinois to Califor-nia, and turning the money over to his cousin the drug dealer, the defendant earned a sentence of 33 months in prison on each of the 32 counts of money launder-ing, to run concurrently. SDC

Money Laundering Forfeiture A parcel of real property is forfeitable in its entirety as the object of a money laundering offense if the defendant pays for improve-ments to the property with fraud proceeds. That the defendant has subdivided the prop-erty and used the fraud proceeds to improve only some of the subdivisions does not limit the forfeiture to less than all of the property. Property is also subject to forfeiture in a money laundering case if its development was the object of the underlying fraud scheme that generated the proceeds being laundered.

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United States v. Beltramea, ___ F.3d ___, 2017 WL 765806 (8th Cir. Feb. 28, 2017). Eighth Circuit * Defendant pled guilty to wire fraud and money laundering in connec-tion with an investment fraud scheme, but objected to the Government’s motion to for-feit his real estate development project as property involved in the money laundering offenses. The court conducted an eviden-tiary hearing, found that the property was forfeitable in its entirety, and granted the Government’s motion. United States v. Beltramea, 160 F. Supp.3d 1119 (N.D. Iowa 2016) (March 2016 Digest). Defendant ap-pealed. The Government’s theory was that the property was forfeitable in connection with one or both of the two money launder-ing counts to which Defendant pled guilty. The first offense involved Defendant’s use of $44,831 in fraud proceeds to pay a con-tractor for improvements to the real prop-erty. The second offense involved his use of the fraud proceeds to purchase a cashier check which he used to open a bank ac-count in his mother’s name. Defendant later used $32,361 drawn from that account to pay for additional construction work on the real property and to pay off a loan se-cured by the property. Defendant argued that the real prop-erty was not involved in the second money laundering count because the offense to which he pled guilty was the purchase of the cashier’s check, not the use of the money derived from that check to make any pay-ments on the real property. In Defendant’s view, these were two separate transactions, and because he was convicted of money laundering in connection with one and not the other, the property involved only in the latter transaction could not be forfeited. Defendant also argued with respect

to both money laundering offenses that the real property had been subdivided for devel-opment, and that the forfeiture should be limited to the subdivisions that the fraud pro-ceeds were used to improve. The panel found that it was unnec-essary to determine if the second money laundering count was sufficient to support the forfeiture because the property was for-feitable in its entirety based on the first transaction. The entire parcel, the court said, was involved in the first money laundering count in either of two ways. First, it held that the property was the subject of the $44,831 payment to the contractor to improve the property and thus facilitated the money laundering offense. That Defendant had subdivided the property made no difference. To determine whether a parcel of real property comprises a single parcel or multiple parcels, a court must look to the documents memorializing the defendant’s acquisition of the property and must ignore his later attempts to subdivide it. Once the court determines that the property was ac-quired as a single parcel, the panel said, “nothing in § 982(a)(1) allows the court to order forfeiture of less than [all of it].” Second, and in the court’s view “most importantly,” the property was in-volved in the money laundering offense be-cause the development of the property “was central to the entirety of [Defendant’s] scheme from the outset.” So the forfeiture of the real property in its entirety was affirmed under both theo-ries. SDC Contact: AUSA Jacob Schunk (N.D. Iowa) Comment: The property subject to forfei-ture in a money laundering case includes

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the criminal proceeds being laundered, any other property that is the subject matter of the money laundering transaction, and any property used to facilitate the money laun-dering offense. See Chapter 27 of Asset Forfeiture Law in the United States (2d ed. 2013). Although the court says that the for-feited property “facilitated” the money laun-dering offense, the forfeiture of the property based on the payment to the contractor to make improvements is actually better illus-tration of the “subject matter” theory. Id., § 27-9(d); see also Sections II.A and B.2(b) of my Money Laundering Forfeiture Case Out-line. For some other recent illustrations of sub-ject matter theory, see United States v. Kivanc, 714 F.3d 782, 794-95 (4th Cir. 2013) (residence in which fraud proceeds were invested is subject to forfeiture in its entirety as property involved in a money laundering offense, even though legitimate funds were also invested in the property); United States v. Vico, 2016 WL 233407, *8 (S.D. Fla. Jan. 20, 2016) (parcels of real property purchased with commingled funds in violation of § 1957 are forfeitable in their entirety as the “corpus” of the offense); United States v. Wijetunge, 2015 WL 6605570, at *10 & n.60 (E.D. La. Oct. 28, 2015) (distinguishing United States v. 1980 Rolls Royce, 905 F.2d 89, 90 (5th Cir. 1990); in money laundering cases, forfeiture is not limited as it is under a proceeds theory to the part of the property traceable to the pro-ceeds of the underlying offense). In my comment following the summary of the district court’s decision in this case in the March 2016 Digest, I said that it was not obvious that the second money laundering conviction, standing alone, would have sup-ported the forfeiture, because in that case the Government was forced to rely on the theory that the property was “traceable to” the money laundering offense, and not that

it was “involved in” it. The panel did not re-solve that issue, however, and based the forfeiture solely on the conviction on the first money laundering count. What is surprising about this opinion, how-ever, is that the court did not limit its reason-ing to either the “subject matter” or “facilita-tion” theories but held “most importantly” that the property was subject to forfeiture because it was the object of the underlying investment fraud scheme. That is, the court found that because the defendant committed the investment fraud to obtain money to use to develop his real property, and then committed money laundering of-fenses when he proceeded to do so, the property was forfeitable as property involved in the money laundering. This is a controversial point. Years ago, the Fifth Circuit held in United States v. Wyly, 193 F.3d 289, 302 (5th Cir. 1999), that real property that was central to a brib-ery/money laundering scheme was forfeita-ble as facilitating property because without it, there would have been no money laun-dering offense. See also United States v. $488,342.85, 969 F.2d 474, 477 (7th Cir. 1992) (dicta) (property involved in money laundering offense not limited to money de-rived from the SUA, but may include funds that facilitated the SUA); United States v. Eleven Vehicles, 836 F. Supp. 1147, 1155 (E.D. Pa. 1993) (forfeiture of property in-volved in arms export conspiracy of which money laundering was integral part). This theory has been rejected in more re-cent decisions, however, and no court has applied it since the 1990s. To the contrary, the more recent cases, including cases from the Eighth Circuit, hold that to be “involved in” money laundering, the property must be the subject of, or must be used to facilitate, the money laundering transaction; that it was the object of the underlying crime is ir-relevant. See United States v. Huber, 404

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F.3d 1047, 1059 (8th Cir. 2005) (property in-volved only in the underlying fraud scheme, but not in the money laundering offense, is not forfeitable under section 982(a)(1)); United States v. Approximately 250 Docu-ments Containing the Forged Handwriting of President John F. Kennedy, 2008 WL 4129814, at *3 (S.D.N.Y. 2008) (because forged documents used to perpetrate a fraud scheme were involved only in the un-derlying SUA and not in the subsequent money laundering, they were not forfeitable under section 981(a)(1)(A)); In re 650 Fifth Ave. and Related Props., 777 F. Supp. 2d 529, 565 (S.D.N.Y. 2011) (following 250 Documents; building managed in violation of IEEPA may have facilitated or been in-volved in the underlying SUA, but it was not involved in the money laundering offense). To be sure, the property in this case was forfeitable in its entirety under the subject matter theory, making it unnecessary for the panel to rely on the second ground for af-firming the forfeiture. Indeed, the panel’s reference to the property’s being “central to” the scheme, including the money laundering transactions, may have been nothing more than another way of articulating the subject matter theory. Nevertheless, the case seems to have breathed new life into the theory that property may be forfeited in a money laundering case solely on the ground that it was central to the underlying SUA. SDC

Structuring / Sentencing The sentence for a defendant convicted of structuring cash transactions may be in-creased by two levels under the Sentencing Guidelines if the defendant’s purpose was to evade taxes. United States v. Tran, ___ Fed. Appx. ___, 2017 WL 1078554 (6th Cir. Mar. 22, 2017).

Sixth Circuit * Defendant, a chiropractor, pled guilty to filing false tax returns and to structuring $196,000 in cash transactions. He was sentenced to 27 months in prison and ordered to pay $36,575 in taxes owed to the IRS and to forfeit $108,000 as prop-erty involved in the structuring offense. He appealed his sentence. Defendant’s argument was that the court, in calculating the applicable offense level under the Sentencing Guidelines, im-properly included both the two-level en-hancement for structuring more than $100,000 in a 12-month period, and the two-level enhancement for structuring with the intent to promote another crime. He conceded the validity of the first enhance-ment but objected to the second. The panel held, however, that in ac-cepting the statement of facts set forth in his plea agreement, Defendant had conceded that he structured his cash transactions to facilitate the underreporting of his income on his tax returns. Accordingly, the court held that the two-level enhancement applied and that the sentence was proper. SDC Contact: AUSA Andrew Sparks (E.D. Ky.) Comment: While the outcome of this ap-peal turned on the defendant’s concession that the two-level enhancement applied, the case nevertheless illustrates two points: First, that the two-level enhancement for structuring with the intent to facilitate an-other crime applies when the crime being facilitated is tax evasion – which is the case in the vast majority of structuring cases; and second, that a defendant may be ordered both to pay taxes owed to the IRS and also to forfeit the property involved in his crime. The opinion does not discuss this point nor say that the defendant was not allowed a credit against the forfeiture for the amount paid in taxes, but most courts decline to al-

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low such a credit, reasoning that the for-feited money belongs to the Government, and that the defendant may not pay his taxes with the Government’s money. See Section XXI of the Civil Forfeiture Case Out-line. SDC

Rule 41(g) Motion / 60-day Deadline The 60-day deadline for commencing a non-judicial forfeiture proceeding following the seizure of property does not apply when the property has a value in excess of $500,000 and nonjudicial forfeiture is therefore impos-sible. The absence of a deadline in cases involv-ing high value property does not leave the claimant without a remedy: he may file a Rule 41(g) motion challenging the legality of the seizure, or arguing that the delay in commencing a proceeding violates due pro-cess. Omidi v. United States, ___ F.3d ___, 2017 WL 957207 (9th Cir. Mar. 13, 2017). Ninth Circuit * The Government obtained a warrant and seized approximately $100 mil-lion from Claimant’s bank accounts on prob-able cause to believe that the funds were subject to forfeiture as criminal proceeds. The Government, however, did not immedi-ately commence any forfeiture proceedings; instead, it held the money as part of an on-going criminal investigation.

Claimants questioned the legality of this procedure and filed a motion requesting the return of their property pursuant to 18 U.S.C. § 983(a)(1)(F) – the statute that re-quires the Government to return property when it misses the statutory deadline for commencing a forfeiture proceeding. The district court denied the motion and Claim-ants appealed.

Section 983(a)(1)(F) provides that the Government must return property seized for forfeiture if it does not commence a for-feiture proceeding within the deadline set forth in Section 983(a)(1)(A). That statute, in turn, provides that in nonjudicial forfeiture proceedings, the Government must com-mence the proceeding within 60 days of the seizure of the property by sending notice to interested parties. Claimants’ argument was that the Government missed that 60-day deadline and therefore had to return their property. But the panel held that the deadline did not apply to this case.

As Section 983(a)(1)(A) expressly

provides, the 60-day deadline only applies to nonjudicial (i.e., administrative) forfeiture proceedings. Administrative forfeiture pro-ceedings, however, can only be com-menced if the property is cash or is personal property having a value of $500,000 or less. 19 U.S.C. § 1607. Here, the seized prop-erty had a value of $100 million dollars. “Thus,” the panel said, “the Government could not have pursued nonjudicial forfeiture proceedings even it had wanted to.” And because this was not and could not have been a nonjudicial forfeiture proceeding, the deadline did not apply.

Claimants complained that it was

anomalous for Congress to impose a 60-day deadline for the commencement of for-feiture proceedings when the property has a value of less than $500,000, but to impose no deadline when the property has a much greater value. But the court held that “this apparent anomaly” did not give it “license to rewrite the statutory text.”

Moreover, the court said, Claimants

were not left without a remedy. If the Gov-ernment seizes property that is not subject to the 60-day deadline, the property owner is free to seek the return of his property by filing a motion under Rule 41(g). In such a motion, he could, for example, contest the

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probable cause for the seizure or argue that the Government’s delay in commencing a forfeiture action violated his right to due pro-cess.

The court acknowledged that a Rule

41(g) motion is not equivalent to filing a claim and litigating the forfeiture issues on the merits. For one thing, the claimant bears the burden of proof in a Rule 41(g) proceeding “whereas the Government bears that burden in judicial forfeiture proceed-ings.” “Nonetheless,” the court concluded, “the key point is that owners of personal property worth more than $500,000 are not deprived of timely access to the courts alto-gether if they seek to challenge the Govern-ment’s seizure of their property.” Claim-ants’ problem in this case was that instead of availing themselves of that procedure, they relied on a statute that does not apply to their case.

Accordingly, the district court’s de-

nial of Claimant’s motion under Section 983(a)(1)(F) was affirmed. SDC

Contact: AUSA Steve Welk (C.D. Cal.) Comment: The holding in this case is straightforward and unquestionably correct: the 60-day deadline in § 983(a)(1)(A) only applies to nonjudicial forfeiture proceedings; because the forfeiture of $100 million seized from a bank account can never be pursued in a nonjudicial proceeding, the 60-day deadline did not apply, and so neither did the sanction for missing the deadline in § 983(a)(1)(F). While this may be the first reported appel-late decision directly on point, there many district court cases saying the same thing. See Section 4-6(c) of Asset Forfeiture Law in the United States (2d. ed. 2013) and 2016 Supplement; Section III.C.5 of the Civil Forfeiture Case Outline. See also id. Sec-tion VIII.C.17 (listing the cases discussing

what deadline applies for commencing a ju-dicial forfeiture action when the case did not start as an administrative forfeiture). In discussing the alternative remedies, one thing the court did not mention was that the Department of Justice has addressed the apparent “anomaly” in the statutory scheme by adopting a policy requiring prosecutors, in cases where judicial forfeiture proceed-ings are not authorized (and where the 60-day deadline therefore does not apply) to commence a judicial forfeiture proceeding within 90 days of receiving a written request for the return of the seized property from the property owner. See Chapter 2, section I.G of the Asset Forfeiture Policy Manual (2013) at 58-61. The point of the policy was to place property owners in cases involving high value prop-erty in the same position they would be in if the Government had in fact commenced a nonjudicial forfeiture proceeding: in such cases, if the property owner files a claim to the seized property the Government is re-quired to commence a judicial forfeiture pro-ceeding within 90 days pursuant to 18 U.S.C. § 983(a)(3). See generally Langbord v. U.S. Dept. of Treasury, 832 F.3d 170 (3rd Cir. 2016) (Jordan, J., dis-senting) discussing the policy requiring commencement of a judicial forfeiture action within 90 days of receiving a request for the return of property that could not be forfeited administratively). The Government is not required by law to comply with its policy, and unfortunately, it sometimes does not. But there is no rea-son why an aggrieved property owner should not invoke the policy by making the written request for the return of his property whenever property having a value in excess of $500,000 is seized. The court’s discussion of the Rule 41(g) mo-tion as an alternative remedy is interesting

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for another reason. As the court points out, the motion is not the equivalent of contest-ing the forfeiture on the merits. Not only does the claimant bear the burden of proof in a Rule 41(g) proceeding, but more im-portant, the standard of proof in such a pro-ceeding is only probable cause; in a judicial forfeiture proceeding, the Government must establish the forfeiture by a preponderance of the evidence. Nevertheless, a Rule 41(g) motion does provide a property owner with a vehicle to raise a number of issues including, as the court suggests, a challenge to the legality of the seizure itself, and a challenge to the de-lay in commencing forfeiture proceedings on due process grounds. See United States v. Sims, 376 F.3d 705, 708 (7th Cir. 2004) (Rule 41(g) motion may be used to recover seized property if the Government fails to commence a forfeiture action for an unrea-sonable period of time). SDC

Pre-Trial Restraint / Lis Pendens / Substi-tute Assets / Rule 32.2(b)(5) Defendant who refused to show that he lacked other funds with which to retain counsel had no right to challenge the Gov-ernment’s filing of a notice of lis pendens on his property. Defendant failed to preserve his objection to the Government’s tactic of filing a lis pen-dens on his property under a proceeds the-ory, only to switch to a substitute assets the-ory when it came time to forfeit the property. Court did not impinge on defendant’s rights by failing to inquire if he wanted the jury re-tained to determine the forfeiture of his property, because defendant had no such right once the Government switched to a substitute assets theory.

United States v. Fisch, ___ F.3d ___, 2017 WL 1018313 (5th Cir. Mar. 14, 2017). Fifth Circuit * Defendant, a criminal de-fense attorney, extorted money from his cli-ents, promising them that he would use it to pay off corrupt Government officials to get their cases dismissed. He was convicted of obstruction of justice and other offenses, and ordered to pay a $1.1 million forfeiture judgment. The district court subsequently granted the Government’s motion to forfeit Defendant’s residence as a substitute asset in partial satisfaction of the money judgment. United States v. Fisch, 2016 WL 4702588 (S.D. Tex. Sept. 8, 2016) (October 2016 Digest). Defendant appealed Defendant’s first objection was that by filing a notice of lis pendens on his resi-dence during the time his case was pend-ing, the Government deprived him of the op-portunity to use the equity in the residence to retain counsel in violation of the Sixth Amendment. Moreover, he argued that the district court’s denial of his request for a hearing on the validity of the lis pendens de-prived him of due process. The Fifth Circuit follows the Jones-Farmer rule, which allows a defendant to challenge a pretrial restraining order only if he first shows that he lacks other funds with which to retain counsel. In this case, the district court gave Defendant three opportu-nities to comply with the rule, but Defendant insisted that he had a right to a hearing whether he needed the money to retain counsel or not. It was at that point that the district court denied him a hearing on his challenge to the lis pendens. United States v. Fisch, 2013 WL 5774876, *6 (S.D. Tex. Oct. 24, 2013) (January 2014 Digest). The panel affirmed the district court. Assuming arguendo that a lis pendens is a restraining order – an issue that the panel

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did not reach – the panel held that Defend-ant had a Fifth Amendment right to a hear-ing only if he first showed that he lacked other funds with which to retain counsel. Having failed (or refused) to make that showing, his request for a hearing was properly denied. Moreover, the court held that because Defendant did not properly raise his chal-lenge to the lis pendens, the Government was never required to show that the resi-dence was traceable to his offense. Thus, the district court was correct in declining to address Defendant’s Sixth Amendment ar-gument that the pre-trial restraint of property that was not traceable to his offense vio-lated his right to counsel. Defendant nevertheless objected to the Government’s “tactic” of restraining his property on the ground that it was traceable to his offense only to switch theories at the eleventh hour and request its forfeiture only as a substitute asset. But the court held that Defendant had not raised this issue in the court below, and could not raise it for the first time on appeal. Finally, Defendant objected that the dis-trict court failed to comply with Rule 32.2(b)(5) when it did not inquire of Defend-ant whether he wanted the jury retained to determine if his residence was traceable to his offense. But the panel held that be-cause the Government switched to a substi-tute assets theory, Defendant had no right under the rule to a jury trial, and that there-fore the district court’s failure to ask if he wanted the jury retained did not affect his rights in any way. So the conviction and the forfeiture or-der were both affirmed SDC Contact: AUSA Katherine Haden (S.D. Tex.) Comment: There are lots of issues in this

case. First, the Fifth Circuit continues to follow Jones-Farmer, and holds that a crimi-nal defendant has no right to challenge a pre-trial restraining order – or in this case, a notice of lis pendens – without showing that he lacks other funds with which to retain counsel. The key point is that the defend-ant’s failure to make the Jones-Farmer showing disposed of both his Fifth Amend-ment right to a hearing, and his Sixth Amendment claim that he was deprived of his right to counsel: if he has other funds, there is no Fifth Amendment right to a hear-ing because his Sixth Amendment rights are not in jeopardy. See § 17-6 of Asset For-feiture Law in the United States (2d ed. 2013) and 2016 Supplement on the applica-tion of the Jones-Farmer rule. That much is straightforward. What is more problematic is that the Government’s decision to switch to a substitute assets the-ory, after restraining the defendant’s prop-erty for four years under a proceeds theory, raises a host of questions: If the Govern-ment believed that the residence was trace-able to the defendant’s offense, why did it switch to a substitute assets theory at sen-tencing? Was that a tactic to deprive the defendant of his right to have the jury deter-mine the forfeitability of his property? Would there have been anything wrong with the Government’s doing that, given that even if the jury had found against the Gov-ernment on that issue, the property would have been forfeitable anyway as a substi-tute assets? If the Government was not sure at the out-set that the residence was traceable to the offense, did it improperly restrain a substi-tute asset without statutory authority to do so, only to skate by because the defendant did not qualify for a pre-trial probable cause hearing? Or did the Government believe in good faith that it could file a notice of lis pendens on a substitute asset even though substitute assets are not subject to pre-trial

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restraint? The opinion in this case does not answer any of those questions. Those interested in them might want to take a look at the fol-lowing sources: Section XIII.F of the Crimi-nal Forfeiture Case Outline (on the Govern-ment’s right to switch theories of forfeiture); id. § IV.H.3 (on the right to file a notice of lis pendens on a substitute asset); id. § VIII.I.4 on the consequences of the court’s failure to inquire if the defendant wants the jury re-tained under Rule 32.2(b)(5)); id. § VIII.I.5 (on the right to a jury if the Government is seeking only a money judgment); id. § XIII.D.3 (on the Government’s right to forfeit property as a substitute assets after the jury finds that it is not traceable to the offense). SDC

Substitute Assets / Inmate Trust Account A defendant who did not object to the entry of a forfeiture judgment on direct appeal cannot challenge the validity of the judg-ment when the Government moves under Rule 32.2(e) to forfeit substitute assets. A federal prisoner cannot object on privacy grounds when the Government discovers that he has money in his inmate trust ac-count and moves to forfeit it to satisfy an outstanding forfeiture judgment. United States v. Kimball, ___ Fed. Appx. ___, 2017 WL 781512 (6th Cir. Feb. 28, 2017). Sixth Circuit * Defendant was convicted of drug trafficking and money laundering and was sentenced to serve two consecutive terms of life in prison and ordered to pay a $30 million forfeiture money judgment. He appealed his conviction and sentence but did not appeal the forfeiture judgment. His appeals were unsuccessful.

The Government was able to satisfy a small portion of the forfeiture judgment by forfeiting certain assets that had been re-strained pre-trial and named in a bill of par-ticulars, but the judgment remained largely unsatisfied when the Government discov-ered that Defendant had $12,663 in his in-mate trust account. Accordingly, eleven years after Defendant’s conviction, the Gov-ernment moved pursuant to Rule 32.2(e) to forfeit that amount as a substitute asset. The district court granted the motion and Defendant appealed. The panel rejected Defendant’s appeal on several grounds. First, it held that Defendant had no right to use his opposition to the Rule 32.2(e) motion to challenge the validity of the origi-nal forfeiture order on grounds that he could have raised on direct appeal. Whatever right Defendant may have had to challenge the forfeiture, the court said, had been waived. Second, it held that even if Defendant had not waived his challenge to the forfei-ture order, it had no merit. His argument was that the forfeiture of the assets listed in the pre-trial restraining order and bill of par-ticulars represented a complete satisfaction of any criminal forfeiture he owed, but the court disagreed. The forfeiture judgment, the court said, clearly stated that the Gov-ernment was entitled to forfeit substitute as-sets to satisfy the $30 million judgment. When the judgment remained unsatisfied af-ter the Government forfeited the restrained assets, the Government was entitled to look for other assets, and to move to forfeit them when it found them. In moving to forfeit the funds in the inmate trust account, that is ex-actly what the Government did. Finally, the court rejected Defendant’s argument that the Government violated his right to privacy when it gained knowledge of

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the contents of his inmate trust account, and violated his right to due process when it moved to forfeit it.

When a person enters into the prison system, the court said, he signs pa-perwork that authorizes the prison to admin-ister his inmate trust account and authorizes the Director of the Bureau of Prisons to serve as custodian of any funds received by the inmate during incarceration. Thus, the Government’s discovery of the contents of the inmate trust account did not violate De-fendant’s privacy rights.

Moreover, Rule 32.2(e) affords a de-

fendant the right to notice of the Govern-ment’s intent to forfeit his property as a sub-stitute asset and the opportunity to oppose the motion. Defendant was afforded those rights, so there was no violation of due pro-cess.

Accordingly, the forfeiture of the

$12,663 in the inmate trust account as a substitute assets was affirmed. SDC

Contact: AUSA Deb Phillips (M.D. Tenn.) Comment: In affirming the forfeiture of the contents of an inmate trust account to sat-isfy an outstanding forfeiture money judg-ment, this decision is consistent with all of the others that have considered this issue. See Section XIII.D.5 of the Criminal Forfei-ture Case Outline. This is the first case, however, to rule explicitly that there is no privacy violation in the Government’s learn-ing the contents of a prisoner’s account and moving to forfeit it. The case may also be the only one to hold that a defendant cannot use his opposition to a Rule 32.2(e) motion to challenge the validity of the underlying forfeiture order on grounds that he could have raised on direct appeal. I am not aware of another case di-rectly addressing that issue. There are

many cases, of course, holding that at a de-fendant may not use a Rule 41(g) motion, the ancillary proceeding, or a Section 2255 petition to challenge a forfeiture order on grounds that he could have raised on direct appeal. SDC

Health Care Fraud The Government’s failure to establish the mens rea element of a health care fraud of-fense means that there can be no forfeiture of the proceeds of that offense. United States v. $4,931.28 in Bank Account Funds, 2017 WL 776644 (C.D. Cal. Feb. 27, 2017). C.D. Cal. * The Government filed a civil for-feiture action against the assets of a busi-ness that provided wheelchairs to Medicare beneficiaries. It alleged that the business committed $11 million in health care fraud by billing for equipment provided to persons who were fulltime residents of nursing homes, knowing that wheelchairs provided to such persons are not eligible for Medi-care reimbursement. Following a bench trial, the court found that the Claimant, the business’s owner, may have believed in good faith that he could bill Medicare under an exception to the rule regarding nursing homes, and thus held that the Government failed to establish that Claimant had the knowledge necessary to establish that he was committing a health care fraud offense. So the court entered judgment for the claimant. SDC Contact: AUSA Frank Kortum

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Cultural Property / Archaeological Re-sources Protection Act Court orders the forfeiture of 119 items of archaeological interest taken from federal land in violation of ARPA. United States v. Archaeological Resources Taken From The Emigrant Trail, 2017 WL 892806 (E.D. Cal. Mar. 6, 2017). E.D. Cal. * Claimant traveled to the vicinity of the Emigrant Trail in the Humboldt-Toiyabe National Forest to look for artifacts from the Gold Rush era (1849-52). Using metal detectors, he located and removed approximately 119 items of archaeological interest that were more than 100 years old, including horseshoes, wagon parts, metal buckles, rifle parts, and bullets, all without a permit to do so. Claimant was charged with a criminal violation of the Archaeological Resources Protection Act (ARPA), 16 U.S.C. § 470ee, but entered into a Deferred Prosecution Agreement whereby he agreed to the civil forfeiture of the artifacts pursuant to 16 U.S.C. § 470gg(b). Accordingly, the court entered a Con-sent Judgment of Forfeiture. SDC Contact: AUSA Kevin Khasigian Comment: For other cases on the use of the civil forfeiture provisions in ARPA and other statutes to recover cultural property, see the lecture outline that is posted on my website. This is the link: http://assetforfei-turelaw.us/?p=939. SDC

Claim and Answer / Motion to Dismiss Complaint A court will not consider a motion to dismiss

a forfeiture complaint that is filed by a per-son whose claim was late and unverified. A district court did not abuse its discretion in refusing to allow a claimant to file a late claim. United States v. $417,143.78, more or less, in U.S. Currency, ___ Fed. Appx. ___, 2017 WL 946720 (2d Cir. Mar. 8, 2017). Second Circuit * When Claimant was caught with 1,000 kg of cocaine on board a private jet, his wife transferred over $400,000 from the account he had used to lease the jet to a personal account held in both their names. The Government seized that account and filed a civil forfeiture action alleging that it was derived from drug traf-ficking and involved in money laundering. Claimant and his wife filed unverified claims (signed only by their attorney) months after the expiration of the filing deadline in Rule G(5)(a). When given the opportunity to perfect his claim, Claimant chose instead to file a motion to dismiss the Government’s complaint for failure to state a claim. His wife, on the other hand, moved to amend her claim to contain a verified sig-nature. The Government moved to strike both claims for lack of statutory standing. With respect to Claimant, the court held that a motion to dismiss is no substitute for filing a timely verified claim. Under Rule G(8)(c), a court may not consider a motion to dismiss unless the claimant first estab-lishes statutory standing, and Claimant’s claim was both late and unverified, so he lacked statutory standing. Thus, the court held that it was obliged to strike his claim on that ground without considering his motion to dismiss. The court also declined to exercise its discretion to permit the wife to file a late claim. United States v. $417,143.78, more

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or less, in U.S. Currency, 2015 WL 5178121 (E.D.N.Y. Sept. 2, 2015) (October 2015 Di-gest). Both claimants appealed The panel agreed with the Govern-ment that Claimant had no right to move to dismiss the forfeiture complaint until he sat-isfied the pleading requirements in Rule G(5). Therefore, the district court properly denied Claimant’s motion. Turning to the wife’s claim, the panel noted that courts do have discretion to allow amendments to correct procedural defects in claims filed in forfeiture proceedings, but it found no abuse of discretion here. Among other things, it noted that the wife offered no reason for her late claim, that she never requested an extension of time, and that she did not attempt to file a perfected claim until after the Government moved to strike her original claim. That Claimants did not reside in the United States, and that there was no indication that their claims were false, the court said, were not reasons to find that the district court abused its discretion. So the dismissal of the claims with-out considering the motion to dismiss the complaint was affirmed. SDC Contact: AUSAs Varuni Nelson and Tanya Hill (E.D.N.Y.) Comment: Although this opinion is un-published, prosecutors will want to keep it handy for the following quotation regarding the importance of strictly enforcing the pleading requirements in Rule G(5): “A criti-cal purpose of Rule G is that it forces claim-ants to come forward as quickly as possible after the initiation of forfeiture proceedings, so that the court may hear all interested par-ties and resolve the dispute without delay. That purpose would be thwarted if claimants came to view the strictures of Rule G as

mere suggestions rather than as rules that will presumptively be enforced.” SDC

Claim and Answer / Time for Filing Claim To file a timely claim, a claimant need only describe the claimed property, swear to his interest in it, and serve the Government. A prisoner cannot complain that he was un-able to file a claim because he lacked ac-cess to his financial records while incarcer-ated. United States v. $94,600 in U.S. Currency, ___ Fed. Appx. ___, 2017 WL 1040769 (7th Cir. Mar. 17, 2017). Seventh Circuit * Defendant was arrested and charged with sex trafficking of children by force and incarcerated. While the crimi-nal case was pending, the Government commenced a parallel civil forfeiture action against $94,600 in cash, a Bentley automo-bile and other items that had been seized from Defendant’s residence. Defendant asked for and was granted an extension of time for filing a claim to the defendant property. When he asked for additional extension of 120 days, however, the court granted him only 30 days. When Defendant missed that deadline, the Gov-ernment filed a motion for a default judg-ment. Defendant responded by filing a ver-ified claim, but the court held that the claim was out of time and granted the Govern-ment’s motion. Defendant appealed. United States v. Approximately $94,600 U.S. Currency, 2015 WL 5254542 (E.D. Wis. Sept. 9, 2015) (October 2015 Digest). On appeal, Defendant argued that the district court abused its discretion in not granting his request for an extension of time to file his claim. He said that because he was being shuffled between locations in the

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prison system, he lacked access to receipts and legal materials that he considered nec-essary to file his claim. But the panel did not agree. Defendant did not need any documents to file a timely claim, the court said. “He needed only to describe the claimed prop-erty, swear to his interest in it, and serve the Government.” It is possible, the court continued, that Defendant truly believed that he needed his materials to file a verified claim, but “mis-takes of law (even by plaintiffs proceeding pro se) generally do not excuse compliance with deadlines.” Accordingly, the court held that while the district court could have accepted De-fendant’s late claim, it did not abuse its dis-cretion in declining to do so. SDC Contact: AUSA Scott Campbell (E.D. Wis.)

Standing / Claim and Answer Claimant’s statement that money seized from his ex-wife’s residence belonged to him, coupled with his claim that the money was his life savings and the working capital of his business, was sufficient to establish standing. United States v. $70,670.00 in U.S Cur-rency, 2016 WL 8314622 (S.D. Fla. Dec. 21, 2016). S.D. Fla. * Agents executed a warrant at Claimant’s ex-wife’s residence and seized $112,000 in currency and two cashier’s checks. Initially, the ex-wife denied any knowledge of the money, but ultimately Claimant and the ex-wife both filed claims asserting a possessory and ownership inter-est in different portions of it. The Govern-ment nevertheless moved to dismiss the

claims for lack of standing, asserting that they were too vague to satisfy the pleading requirements. The court denied the motion. Standing only requires a showing of a colorable inter-est in the property, the court said; it does not require proof of ownership. The sei-zure of the money from her residence, cou-pled with her claim to a portion of the money, was sufficient to establish the ex-wife’s standing despite her initial denial of any knowledge of the money and her lack of any legitimate income. Similarly, the court held that Claimant’s assertion that the money belonged to him and represented his life savings and the working capital of his business was suffi-cient both to establish a colorable interest in the money for purposes of Article III stand-ing and to satisfy the pleading requirements in Rule G(5)(a). SDC Contact: AUSA Nalina Sombuntham

Firearms Government successfully forfeits an unreg-istered firearm after the owner is acquitted of possessing the same firearm in a criminal case. United States v. One Interord Corp. Model USAS-12, 12 Gauge Shotgun, 2017 WL 98812 (E.D. Ark. Mar. 14, 2017). E.D. Ark. * Federal agents, executing a search warrant, found a shotgun in Claim-ant’s residence that should have been regis-tered under the National Firearms Act as a “destructive device not suitable for a sport-ing purpose.” Claimant was charged with a criminal offense for failing to register the firearm, but was acquitted. The Govern-ment nevertheless proceeded to seek the civil forfeiture of the firearm pursuant to 26

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U.S.C. § 5872. Claimant did not seriously contest the elements of forfeiture under that statute: that he knew he had a firearm in possession that was classified as a destructive device, that it was operational, and that it was not registered. He opposed the forfeiture, how-ever, on two grounds. First, he argued that the Government was estopped from bringing the forfeiture action because an ATF agent had told Claimant that he was not required to regis-ter the gun. Claimant, however, was una-ble to name the agent or the date of the conversation or offer any other evidence that the conversation ever occurred. Second, he argued that his acquittal on the criminal charge meant that the jury must have believed his defense that he relied on the assurance of a Government official that his possession of the firearm was legal. But the court held that the acquittal on the criminal charge did not bar the civil action. The jury in the criminal case, the court said, could have acquitted Claimant for any number of reasons unrelated to his claim re-garding the alleged conversation with the ATF agent. Moreover, the burden of proof in the criminal case was beyond a reasona-ble doubt, which is a higher standard than applies in a civil forfeiture case. So the court granted judgment of forfei-ture for the Government. SDC Contact: AUSA Cameron McCree Comment: There are lots of cases holding that an acquittal in a related criminal case does not bar a subsequent civil forfeiture. The one this court relied on was United States v. One Assortment of 89 Firearms, 465 U.S. 354 (1984). SDC

Administrative Forfeiture / 90-Day Dead-line / Equitable Tolling DEA was wrong to reject Claimant’s original claim, but the court equitably tolls the filing deadline so that a complaint filed within 90 days of Claimant’s second claim will be con-sidered timely. United States v. $614,338.00 in U.S Cur-rency, 2017 WL 899887 (D. Del. Mar. 7, 2017). D. Del. * DEA agents seized $614,338 from Claimant during a traffic stop and sent him notice that the money would be forfeited. Claimant responded with a claim asserting that he “is the lawful owner of said property and/or possessed the property with the knowledge and consent of another person.” The DEA rejected the claim, advising Claimant that a claimant may not assert his legal interest in the alternative, but gave Claimant additional time to perfect his claim. In response, Claimant removed the “and/or” language, asserting that he “owned and possessed the property with the knowledge and consent of another person.” The DEA accepted the second version of the claim and the US Attorney com-menced a civil forfeiture action against the money within 90 days of the DEA’s receipt of the amended claim. Claimant moved to dismiss the complaint however, on the ground that there was nothing wrong with his original claim, and that the 90-day dead-line for filing a complaint therefore ran from the date of the original claim, not from the filing of the second one. The court found itself unable to agree with the DEA that Claimant’s first claim was defective. It saw little difference between the original claim and the second one, and given the DEA’s acceptance of the second claim, it held that the original claim was in

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proper form. Accordingly, the court agreed with Claimant that the 90-day deadline ran from the filing of the original claim. But that was not the end of the court’s analysis. To the contrary, the court held that because the DEA’s position was not un-reasonable, and because the Government had acted in good faith (as exemplified by its giving Claimant an explanation for its re-jection of his claim and an opportunity to perfect it), the filing deadline should be equi-tably tolled Accordingly, the court deemed the Gov-ernment’s complaint to be timely filed and denied claimant’s motion to dismiss. SDC Contact: AUSA Lesley Wolf Comment: There are many cases holding that the time for filing a complaint under 18 U.S.C. § 983(a)(3) should be tolled in cir-cumstances like those in this case where there is a good faith disagreement as to whether the seizing agency acted reasona-bly in rejecting a claimant’s original claim and asked him to file a new one. That makes sense: if the courts did not equitably toll the deadline in that situation, it would be too risky for the seizing agency ever to re-ject a claim and let the filing deadline expire in the expectation that it would begin to run again when a replacement claim was re-ceived. See Section VIII.C.8 of the Civil Forfeiture Case Outline. SDC

Proceeds of Mortgage Fraud Government’s reliance on Section 982(a)(2) instead of Section 981(a)(1)(C) in a mort-gage fraud case limited the forfeiture of the fraud proceeds to the money taken from FDIC-insured financial institutions. Money taken from other lenders was not de-

rived from fraud “affecting a financial institu-tion as Section 982(a)(2) requires. United States v. Mayer, ___ Fed. Appx. ___, 2017 WL 587113 (11th Cir. Feb. 14, 2017). Eleventh Circuit * Defendant was con-victed of mortgage fraud involving 12 prop-erties, and was ordered to forfeit $4.4 mil-lion as the proceeds of the offense pursuant to 18 U.S.C. § 982(a)(2). He appealed the forfeiture order, arguing that only one-fourth of the proceeds were derived from fraud against FDIC-insured financial institutions as opposed to non-financial institutions.

The court agreed that forfeiture un-der Section 982(a)(2) is limited to cases af-fecting a financial institution and vacated and remanded the forfeiture order. Contact: AUSA Linda McNamara (M.D. Fla.) Comment: The opinion does not explain who the lenders were who provided the other three-fourths of the mortgage fraud proceeds except to say that they were not FDIC-insured financial institutions. Assum-ing that fraud against those lenders did not fall into the category of fraud “affecting a fi-nancial institution,” what should the Govern-ment have done differently to obtain the full forfeiture? It should have pursued forfeiture under 18 U.S.C. § 981(a)(1)(C), the forfeiture statute for all wire fraud offenses, not 982(a)(2). Can the Government preserve its forfeiture order on remand by switching to Section 981(a)(1)(C) at the eleventh hour? Maybe so. See United States v. Silvious, 512 F.3d 364, 369 (7th Cir. 2008) (Government’s acknowledged error in citing section 982(a)(2) instead of sections 981(a)(1)(C) and 2461(c) in a mail fraud case did not de-prive defendant of his right to notice under Rule 32.2(a)); United States v. Wall, 285

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Fed. Appx. 675, 684-85 (11th Cir. 2008) (in-dictment that improperly cited § 982(a)(2) instead of §§ 981(a)(1)(C) and 2461(c) was nevertheless sufficient to put defendants on notice that Government was seeking forfei-ture of the proceeds of the mail and wire fraud offenses alleged in the indictment); United States v. Joel, 2012 WL 2499424, *6 (M.D. Fla. June 5, 2012) (following Wall and Silvious; that Government initially cited § 982(a)(2) in the indictment does not pre-clude it from asking the court to enter the forfeiture order under § 981(a)(1)(C) once it realized that relying on § 982(a)(2) would vi-olate the ex post facto clause). SDC

Pre-Trial Restraint of Substitute Assets The Solicitor General’s concession that Section 853(e) does not authorize the pre-trial restraint of substitute assets forces the Government to concede that the Fourth Cir-cuit’s contrary rule has been abrogated; but the Fourth Circuit may not agree. United States v. Chamberlain, No. 16-4313 (4th Cir. March 29, 2017). Fourth Circuit * The Government obtained a pre-trial restraining order pursuant to the Fourth Circuit’s rule interpreting 21 U.S.C. § 853(e) to permit the pre-trial restraint of sub-stitute assets. Defendant objected that the Fourth Circuit rule was abrogated by the Su-preme Court’s decision in Luis v. United States. But the district court held that Luis had no effect on the Fourth Circuit’s rule and overruled Defendant’s objection. United States v. Chamberlain, 2016 WL 2899255 (E.D.N.C. May 17, 2016) (Digest June 2016). Defendant appealed. The Government filed a brief in the Fourth Circuit defending the district court’s decision but while the appeal was pending

the Solicitor General filed a brief in the Su-preme Court in Honeycutt v. United States that took a different view. In his brief, the Solicitor General conceded that Section 853(e) “is limited to . . . the traceable pro-ceeds of the offense” and does not apply to substitute assets. In light of the Government’s conces-sion in Honeycutt, the Government con-cluded that it could no longer defend the Fourth Circuit rule regarding the pretrial re-straint of substitute assets, and accordingly asked the Court of Appeals to remand the case to the district court where the Govern-ment intended to ask the court to terminate the restraining order under Section 853(e). In a surprise response, the Fourth Circuit declined to remand the case. In a one-sentence order, the court said the fol-lowing: “Upon consideration of the govern-ment’s motion to remand the case to the district court for further proceedings in order that the restraining order at issue in the case may be terminated, the court denies the motion.” Accordingly, at this moment, the sta-tus of the authority to restrain substitute as-sets pursuant to Section 853(e) in the Fourth Circuit remains unclear. SDC Contact: AUSA Steve West (E.D.N.C.) Comment: I do not know where this strange tale will end. The Government filed a well-reasoned brief on appeal, explaining why the Supreme Court’s decision in Luis did not vitiate the Fourth Circuit’s long-standing rule authorizing the pre-trial restraint of substi-tute assets pursuant to Section 853(e). (The brief is posted in the Brief Bank section of my website at http://assetforfei-turelaw.us/wp-content/up-loads/2016/02/USA-Response-Brief.pdf). For whatever reason, the Solicitor General nevertheless decided to concede the issue

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in Honeycutt – the case involving joint and several liability for criminal forfeiture judg-ments – even though the application of Sec-tion 853(e) to substitute assets was not at issue in that case. Given the Solicitor General’s unilateral con-cession, the Government had no choice but to withdraw its brief in this case and seek a remand to the district court, but there were more surprises in store. Rather the grant-ing the Government’s motion, Fourth Circuit held on to the case, keeping the issue and the appeal alive. Where this will end is far from clear. SDC

Civil Forfeiture and Due Process / Views of Justice Thomas Justice Thomas suggests that civil forfeiture violates due process. Leonard v. Texas, ___ S. Ct. ___, 2017 WL 863675 (Mar. 6, 2017) Supreme Court * The Supreme Court de-nied cert. in a civil forfeiture case from Texas in which the claimant attempted to argue that civil forfeiture violates due process. Jus-tice Clarence Thomas concurred in the de-nial of cert., but issued a statement in which he expressed sympathy for the claimant’s position. Civil forfeiture, Justice Thomas noted, is often used as a form of punishment, yet be-cause the cases are handled as civil pro-ceedings, the Government is able “to seize the property without any pre-deprivation judi-cial process and to obtain forfeiture of the property even when the owner is personally innocent (though some statutes . . . provide for an innocent owner defense).” Moreover, in his view, “civil proceedings often lack cer-tain procedural protections that accompany criminal proceedings, such as the right to a jury trial and a heightened standard of proof.”

Most important, the Justice expressed his concern that civil forfeiture has become “highly profitable” for law enforcement agen-cies. “Because the law enforcement entity responsible for seizing the property often keeps it,” he wrote, “these entities have strong incentives to pursue forfeiture,” which in his view “has led to egregious and well-chronicled abuses.” Justice Thomas acknowledges that two centuries of Supreme Court precedents sup-port the use of civil forfeiture. He argues, however, that the time may have come to re-consider that line of cases. He gives two reasons why such a review might succeed: 1) the historical cases were justified by ne-cessity, because the party responsible for the crime was frequently located overseas and thus beyond the jurisdiction of the United States Courts; and 2) civil forfeiture in histor-ical practice was narrower in scope, being limited to the forfeiture of the instrumentali-ties of the crime, and not including its pro-ceeds. Given that modern civil forfeiture cases are not limited to cases where the wrongdoer is unavailable and are not limited to the in-strumentalities of the crime, he suggests that forfeiting property under a preponderance standard and without the other aspects of criminal due process may no longer survive constitutional scrutiny. Because the claimant in the Texas case raised these issues for the first time in the Supreme Court, Justice Thomas concurred in the denial of cert., but he plainly invited other litigants to raise these issue in future cases. SDC Comment: Justice Thomas’s statement is closely follows the talking points put forward by the Institute for Justice in their attacks on civil forfeiture as a violation of due process, largely because the police departments are

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able to fund their operations with the forfeited property. To date, no court has adopted that position. Justice Thomas’s analysis, like that of the In-stitute for Justice, focuses solely on the use of civil forfeiture by the state and local police, and does not address the role civil forfeiture plays in the vast majority of federal cases in which it is employed. Indeed, in many of those cases, civil forfeiture is just as neces-sary as it was 200 years ago: we still take money from pirates, whom we now call ter-rorists, as well as international gangsters, corrupt foreign officials, fugitives, human traf-fickers and others who remain beyond the reach of the jurisdiction of the US courts, but whose assets can be seized. I had the opportunity to respond to some of Justice Thomas’s comments at an Inns of Court program in Washington recently. A transcript of my presentation is posted on my website at http://assetforfei-turelaw.us/?page_id=168. SDC

Notes

Administrative Forfeiture / Notice / Mo-tion for Return of Forfeited Property Thomas v. United States, ___ Fed. Appx. ___, 2017 WL 781473 (11th Cir. Mar. 1, 2017). Eleventh Circuit * The Eleventh Circuit af-firmed the denial of Claimant’s Section 983(e) motion for the return of forfeited property without a hearing. Notice of the administrative forfeiture of Claimant’s prop-erty was properly sent to the attorney who was representing Claimant in a related crim-inal case, and because the court was able to determine that the civil and criminal pro-ceedings were related from the record, no evidentiary hearing was necessary.

Contact: AUSA Dahil Goss (N.D. Ga.)

Ancillary Proceeding / Pleading Require-ments United States v. Whitfield, 2017 WL 961875 (S.D. Ga. Mar. 10, 2017). S.D. Ga. * Defendant pled guilty to a drug offense and agreed to the forfeiture of a par-ticular firearm. Claimant filed a claim in the ancillary proceeding but failed to sign it un-der penalty of perjury, and gave a different serial number from the one on the forfeited firearm. So the court dismissed the claim for failure to comply with the pleading re-quirements and for failing to state a claim to the forfeited property. Contact: AUSA Carlton Bourne

Forfeiture of Real Property / Service of the Property Owner United States v. Real Property Known as 2430 Gibbs Williams Road, 2017 WL 744687 (N.D. Tex. Feb. 6, 2017). N.D. Tex. * Section 985(c)(2) requires that in cases involving the civil forfeiture of real property, the Government “serve” a copy of the complaint on the property owner. Where there were three owners, one of whom was incarcerated and one of whom was a fugitive, the court held that it was suf-ficient to serve the prisoner by serving a corrections officer where the owner was in-carcerated, and to provide constructive ser-vice on the fugitive by posting notice of the forfeiture on the Government’s forfeiture website. Contact: AUSA Mark Tindall

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Serial Structuring United States v. Eagleman, 2017 WL 598483 (D. Mont. Feb. 14, 2017). D. Mont. * Defendant cashed four checks, each in the amount of $9,000, on four sepa-rate days at a check cashing business. Convicted of structuring, she moved to set aside the guilty verdict on the ground the Government failed to prove that she pos-sessed more than $10,000 at the time she cashed any of the checks. But the court held that for purposes of serial structuring, as opposed to lump sum structuring, the Government need only prove that she struc-tured her transactions with the intent to evade the reporting requirement, and that proof that she had more than $10,000 in hand was not necessary. Contact: AUSA Bryan Dake Comment: The cases holding that serial structuring does not require proof that the defendant had more than $10,000 in hand at one time include the following: United States v. Sperrazza, 804 F.3d 1113 (11th Cir. 2015)(defendant who conducts a series of sub-$10,000 cash transactions with the intent to evade the currency reporting re-quirement is guilty of “serial structuring” even if he never has more than $10,000 in his possession at one time); United States v. Van Allen, 524 F.3d 814, 820-21 (7th Cir. 2008) (breaking a “cash hoard” of more than $10,000 into smaller amounts is not the only way to commit a structuring offense; under section 103.11(gg), writing and cashing a series of sub-$10,000 checks is also struc-turing). SDC

Ancillary Proceeding / Motion to Dismiss United States v. Beltran-Chimal, 2017 WL 1102705 (E.D. Tenn. Mar. 23, 2017).

E.D. Tenn. * Claimant filed a claim contest-ing Defendant’s forfeiture of $5520 on the ground that she had given the money to De-fendant as a gift. The court granted the Government’s motion to dismiss the claim on the ground that even if true, the claim did not state a basis on which Claimant could recover under 21 U.S.C. § 853(n)(6). To recover under that statute, the claimant must have retained an interest in the for-feited funds, which she did not allege. Contact: AUSA Frank Dale

Section 981(k) / Funds in Correspondent Account of Foreign Bank United States v. $1,879,991.64 Previously Contained in Sberbank of Russia’s Inter-bank or Correspondent Bank Account, 2017 WL 1084525 (D.N.J. Mar. 22, 2017). D.N.J. * In January, the court held that when the Government initiates a civil forfei-ture action by seizing funds from the corre-spondent account of a foreign bank pursu-ant to 18 U.S.C. § 981(k), the bank lacks standing to contest the forfeiture as long as a customer has equivalent funds in any ac-count at the foreign bank. It is not neces-sary that the customer’s funds be in the ac-count into which the customer deposited the funds derived from the offense giving rise to the forfeiture. United States v. $1,879,991.64 Previously Contained in Sberbank of Russia’s Interbank or Corre-spondent Bank Account, 2017 WL 396542 (D.N.J. Jan. 30, 2017) (March 2017 Digest). In its latest opinion, the court clarifies the reasoning in its earlier opinion and denies Claimant’s motion for reconsideration. Contact: AUSA Pete Gaeta

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Table of Contents Aggravated Identity Theft / Plea Agreement ............................................ 1

United States v. Pollard, ___ F.3d ___, 2017 WL 908244 (9th Cir. Mar. 8, 2017) ................................................ 1

Plea Agreement / Community Property / Role of State Law ................................. 3

United States v. Tracts 31A, Lots 31 and 32, ___ Fed. Appx. ___, 2017 WL 946288 (5th Cir. Mar. 9, 2017) ......... 3

Forfeiture and Restitution / Gross v. Net Proceeds .............................................. 5

United States v. Bodouva, ___ F.3d ___, 2017 WL 1076339 (2nd Cir. Mar. 22, 2017) .................................. 5

Forfeiture and Restitution / Excessive Fines / Joint and Several Liability ......... 6

United States v. Sanjar, ___ F.3d ___, 2017 WL 1162166 (5th Cir. Mar. 27, 2017) ................................................ 6

Proceeds / Forfeiture and Restitution / Joint and Several Liability / Excessive Fines / Indictment – Rule 32.2(a) ......... 8

United States v. Reed, 2017 WL 843082 (E.D. La. Mar. 3, 2017) ........ 8

Money Laundering / Section 1957 / Proceeds / $10,000 Requirement / Knowledge ......................................... 10

United States v. Rivera-Izquierdo, ___ F.3d ___, 2017 WL 876258 (1st Cir. Mar. 6, 2017) .................................. 10

Money Laundering / Funneling ........... 12

United States v. Sheridan, ___ Fed. Appx. ___, 2017 WL 663511 (7th Cir. Feb. 16, 2017). ............................... 12

Money Laundering Forfeiture ............. 13

United States v. Beltramea, ___ F.3d ___, 2017 WL 765806 (8th Cir. Feb. 28, 2017) ........................................ 14

Structuring / Sentencing ..................... 16

United States v. Tran, ___ Fed. Appx. ___, 2017 WL 1078554 (6th Cir. Mar. 22, 2017) ........................................ 16

Rule 41(g) Motion / 60-day Deadline .. 17

Omidi v. United States, ___ F.3d ___, 2017 WL 957207 (9th Cir. Mar. 13, 2017) .............................................. 17

Pre-Trial Restraint / Lis Pendens / Substitute Assets / Rule 32.2(b)(5) .... 19

United States v. Fisch, ___ F.3d ___, 2017 WL 1018313 (5th Cir. Mar. 14, 2017). ............................................. 19

Substitute Assets / Inmate Trust Account .............................................. 21

United States v. Kimball, ___ Fed. Appx. ___, 2017 WL 781512 (6th Cir. Feb. 28, 2017) ................................ 21

Health Care Fraud .............................. 22

United States v. $4,931.28 in Bank Account Funds, 2017 WL 776644 (C.D. Cal. Feb. 27, 2017) ............... 22

Cultural Property / Archaeological Resources Protection Act ................... 23

United States v. Archaeological Resources Taken From The Emigrant Trail, 2017 WL 892806 (E.D. Cal. Mar. 6, 2017) .................................. 23

Claim and Answer / Motion to Dismiss Complaint ........................................... 23

United States v. $417,143.78, more or less, in U.S. Currency, ___ Fed. Appx. ___, 2017 WL 946720 (2d Cir. Mar. 8, 2017) .................................. 23

33

Claim and Answer / Time for Filing Claim .................................................. 24

United States v. $94,600 in U.S. Currency, ___ Fed. Appx. ___, 2017 WL 1040769 (7th Cir. Mar. 17, 2017)........................................................ 24

Standing / Claim and Answer ............. 25

United States v. $70,670.00 in U.S Currency, 2016 WL 8314622 (S.D. Fla. Dec. 21, 2016) ......................... 25

Firearms ............................................. 25

United States v. One Interord Corp. Model USAS-12, 12 Gauge Shotgun, 2017 WL 98812 (E.D. Ark. Mar. 14, 2017). ............................................. 25

Administrative Forfeiture / 90-Day Deadline / Equitable Tolling ................ 26

United States v. $614,338.00 in U.S Currency, 2017 WL 899887 (D. Del. Mar. 7, 2017) .................................. 26

Proceeds of Mortgage Fraud .............. 27

United States v. Mayer, ___ Fed. Appx. ___, 2017 WL 587113 (11th Cir. Feb. 14, 2017) ......................... 27

Pre-Trial Restraint of Substitute Assets ........................................................... 28

United States v. Chamberlain, No. 16-4313 (4th Cir. March 29, 2017) ...... 28

Civil Forfeiture and Due Process / Views of Justice Thomas .............................. 29

Leonard v. Texas, ___ S. Ct. ___, 2017 WL 863675 (Mar. 6, 2017) ..... 29

Notes................................................ 30

Administrative Forfeiture / Notice / Motion for Return of Forfeited Property ........................................................... 30

Thomas v. United States, ___ Fed. Appx. ___, 2017 WL 781473 (11th Cir. Mar. 1, 2017) ........................... 30

Ancillary Proceeding / Pleading Requirements ..................................... 30

United States v. Whitfield, 2017 WL 961875 (S.D. Ga. Mar. 10, 2017).... 30

Forfeiture of Real Property / Service of the Property Owner ............................ 30

United States v. Real Property Known as 2430 Gibbs Williams Road, 2017 WL 744687 (N.D. Tex. Feb. 6, 2017)........................................................ 30

Serial Structuring ................................ 31

United States v. Eagleman, 2017 WL 598483 (D. Mont. Feb. 14, 2017). .. 31

Ancillary Proceeding / Motion to Dismiss ........................................................... 31

United States v. Beltran-Chimal, 2017 WL 1102705 (E.D. Tenn. Mar. 23, 2017) .............................................. 31

Section 981(k) / Funds in Correspondent Account of Foreign Bank ........................................................... 31

United States v. $1,879,991.64 Previously Contained in Sberbank of Russia’s Interbank or Correspondent Bank Account, 2017 WL 1084525 (D.N.J. Mar. 22, 2017) .................... 31