Forfeiture & Restitution

Hope C. Lefeber, EsquireHope C. Lefeber, LLC

Two Penn Center

1500 JFK Boulevard; Suite 1205

Philadelphia, PA 19102

email: hope@hopelefeber.com

tel: 610-668-7927

The Invisible Handcuffs

• Forfeiture & Restitution

Forfeiture In A Nutshell

• Legal process that allows the federal government to take “ill gotten gains” from the defendant

• Inserted into numerous federal statutes and ismandatory for over 200 federal crimes

• Gross Proceeds at time of commission of theoffense may be forfeitable

• Process begins immediately after sentencing

• Proceeds go to government, not victim

Restitution in A Nutshell

• Legal process that compels the Defendant to pay the victim as part of their criminal sentence.

• Mandatory Victim Restitution Act (“MVRA”), 18 U.S.C. Section 3663 and3663A

• Restitution mandatory in any offense against property, including any offense committed by fraud and deceit or an offense under 21 U.S.C. Section 856(a)(drug-involved property)

One Crime – Two Judgments

Historical Overview

• Date back to early common law, where

criminal and civil law were unified.

• Under that system, a criminal was responsible

for:

– Compensating victim

– Paying the costs of the King’s judge hearing the

case

Historical Overview cont’d

• Once criminal and civil law split:

Restitution declined—compensating the victim

became the exclusive concern of civil law.

Forfeiture continued—states continued to offset

the cost of administering justice with monies taken

from Defendant

FORFEITURE

Criminal Forfeiture

• Forfeiture cannot be traced to one federal statute.

• Instead, Forfeiture provisions are inserted into dozens of statutes (unlike Restitution’s MVRA)– Early examples: RICO (1970) and Comprehensive Drug Abuse

Prevention and Control Act of 1970, 21 U.S.C. Section 853

– Each statute determines the property subject to forfeiture and the required nexus between the property and the crime – “proceeds” or property used to facilitate a crime

• Criminal Forfeiture imposes in personam (against the person) judgments as well as in rem (against the thing)

• In many cases, the crimes which trigger forfeiture also trigger mandatory restitution under the MVRA.

18 U.S.C. § 982 Criminal Forfeiture

• § 982(a)(1) Money Laundering

• § 982(a)(2)(A) Banking Offenses

• § 982(a)(2)(B) Counterfeiting and Forgery; Smuggling:–Explosives; Identification–Access Device–Computer Fraud

• §982(a)(3) and (4) Frauds relating to FDIC and various federal programs and institutions

• §982(a)(5) Motor Vehicle Crimes• §982(a)(6) Immigration, Visa and Passport

Violations• §982(a)(7) Health Care Offenses• §982(a)(8) Telemarketing Fraud

Forfeiture Despite No Statutory Provision

• Even where statutes are silent as to forfeiture, government can seek criminal forfeiture where statute provides for civil forfeiture

– Example: Mail Fraud, Wire Fraud (not affecting a financial institution §982(a)(2)(A)

• 28 U.S.C. § 2461. Mode of recovery

(c) If a person is charged in a criminal case with a violation of an Act of Congress for which the civil or criminal forfeiture of property is authorized, the Government may include notice of the forfeiture in the indictment or information pursuant to the Federal Rules of Criminal Procedure. If the defendant is convicted of the offense giving rise to the forfeiture, the court shall order the forfeiture of the property as part of the sentence in the criminal case pursuant to the Federal Rules of Criminal Procedure and section 3554 of title 18, United States Code. The procedures in section 413 of the Controlled Substances Act (21 U.S.C. 853) apply to all stages of a criminal forfeiture proceeding, except that subsection (d) of such section applies only in cases in which the defendant is convicted of a violation of such Act.

•

• Section 2461(c) is part of the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”), Pub L. 106–185, § 16.

Civil Forfeiture 18 U.S.C.§981(a)(1)(C)

(a)(1) The following property is subject to forfeiture to the United States:

(C) Any property, real or personal, which constitutes or is derived from proceeds traceable to a violation …. or any offense constituting “specified unlawful activity” (as defined in section 1956(c)(7) of this title), or a conspiracy to commit such offense.

• Statute enumerates certain crimes with “catchall” provision for “any offense constituting ‘specified unlawful activity’”

Case

• United States v. Vampire Nation, 451 F. 3d 189,

199 (3d Cir. 2006) held:

‘…§2461(c) permits criminal forfeiture for

general mail fraud because (1) 18 U.S.C.

§981(a)(1)(C) authorizes civil forfeiture for

general mail fraud; and (2) no statutory provision

specifically authorizes criminal forfeiture for

general mail fraud.’

“Proceeds”Gross Receipts or Net Profits?

• Gross Proceeds applies to most criminal forfeiture that is statutorily mandated.

• If Indictment does not plead specific criminal forfeiture statute, argue:

– United States v. Annabi, 746 F. 3d 83 (2d Cir. 2014)(forfeiture of gross proceeds of loan fraud was excessive where government failed to plead criminal forfeiture in the indictment)

– United States v. Blackmun, 746 F. 3d 137 (4th Cir. 2014)(Hobbs Act robbery and firearms case where only Section 981 civil forfeiture catchall applied,):

• Punitive forfeiture violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant’s offense. Four relevant factors:

1. Amount of forfeiture and its relationship to the authorized penalty;

2. The nature and extent of criminal activity;

3. The relationship between the crime charged and other crimes; and

4. The harm caused by the charged crime.

– )

Additional Cases

• United States v. Jalaram, Inc., 599 F. 3d 347 (4th Cir. 2010)

(Mann Act, conspiracy, criminal forfeiture mandated by statute):

– ‘Punitive forfeiture violates the Excessive Fines Clause if it is grossly

disproportional to the gravity of a defendant’s offense’ – citing:

• Austin v. United States, 509 U.S. 602, 604-05 (1993)

• Alexander v. United States, 509 U.S. 544 (1993)

• United States v. Bajakajian, 524 U.S. 321 (1998)

• United States v. Corrado, 227 F. 3d 543 (6th Cir. 2000)(RICO)

– mandatory forfeiture may be reduced to make it proportional to crime

so as not to violate the Eighth Amendment

• United States v. Sarbello, 985 F. 2d 716, 717-718 (3d Cir.

1993)

• United States v. Seher, 562 F. 3d 1344 (11th Cir. 2009)

Negative Authority:

– U.S. v. Peters, 732 F.3d 93, 101 (2d Cir. 2013)

“Proceeds” means gross receipts of fraud irrespective of whether

funds were recovered

– United States v. Pitt, 193 F. 3d 751 (3d Cir. 1999)

Joint and several liability for forfeiture

– United States v. Browne, 505 F. 3d 1229 (11th Cir. 2007)

– United States v. Elder, 682 F. 3d 1065 (8th Cir. 2012)

• Joint and several liability

Good News & Bad News

• Bad News– Criminal Forfeiture applies to every crime and may be

mandatory. United States v. Monsanto, 491 U.S. 600 (1989)

– Amount of Forfeiture not limited to defendant’s assets at time of conviction (Vampire Nation)

• Good News– Argument regarding offsets to amount of “Proceeds” where not

specified in criminal forfeiture statutes• See: §981(a)(1)(H)(2) Definition of “Proceeds”

– Where criminal forfeiture provision not specified in Indictment, argue for offsets United State v. Annabi, 746 F. 3d 83 (2d Cir. 2014)

– Example: 18 U.S.C. §981(a)(2)(B) and (C)

– Excessive Fines and Disproportionality Argument Possible

Pretrial Forfeiture of Assets

• Pretrial Asset Forfeiture:

– United States v. Kaley, 134 S. Ct. 1090 (February 24,

2014) – Government has right to pretrial restraining order

without hearing; indictment supplies probable cause; no

exception for counsel fees!

• Kaley leaves open possibility of pretrial hearing to

determine whether the assets are traceable to the

criminal activity charged in the Indictment

What Property Can Be Forfeited?

Differs depending on statute—but can be broken down generally into 3 types:*

1. Criminally Derived Property - §981(a)(1)(C) “[a]ny property, real or personal, which constitutes or is derived from proceeds to a violation of …..or any offense constituting ‘specified unlawful activity.’”

2. Criminally Involved Property - §982(a)(1) “any property, real or personal, involved in such offense, or any property traceable to such property.”

3. Substitute Property – Catchall provision enabling government to pursue property of the defendant when unable to locate the above.

*Richard E. Finneran and Steven K. Luther, Criminal Forfeiture and the Sixth Amendment: The Role of the Jury at Common Law, 35 Cardozo L. Rev. 1 (2013).

Most Property

1. Criminally Derived Property

• Traceable Proceeds:– Acquired through a exchange or series of transactions involving those proceeds

– Drug cases – rebuttable presumption if property acquired during period of illegal activity, See 21 U.S.C. §853(d)

– 28 U.S.C. §2461(c) exempts §853(d) presumption from application to non-drug cases

– U.S. v. Betancourt, 422 F.3d 240 (5th Cir. 2005) • (targeting the winnings of a lotto ticket that was purchased with proceeds)

• “Relation Back Doctrine” -– Government’s interest vests the moment the criminal act occurs

– Superior to interest of subsequent owner unless subsequent owner can prove (1) an interest prior to the time the government’s interest vested; (2) a bona fide purchaser for value, 18 U.S.C. §853(n)(6)(B)

• Problem – attorney’s fees! See United States v. Timley, 507 F. 3d 1125 (8th

Cir. 2007)

2. Criminally Involved Property

Present in fewer statues—but has wider

application:

– Meaning of “involved” is very broad and gives

government significant power

– See example, § 982(a)(1) which covers property

used in actual crime or property traceable to such

property

– Property used to “facilitate” crime

– Firearms, intellectual property, pornography, etc.

3. Substitute Property

21 U.S.C. § 853(p) :

– Cannot be located

– Transferred or sold or deposited to third party

– Placed beyond the jurisdiction of the court

– Substantially diminished in value;

– Commingled

No 6th Amendment Right to Jury

Determination of Forfeiture

• Libretti v. United States, 516 U.S. 29 (1995)– 6th Amendment has no application to Forfeiture

– right to a jury for Forfeiture is “merely statutory in origin”

– United States v. Leahy, 438 F. 3d 328 (3d Cir. 2006)

• Fed. R. Crim. Pro 32.2(b)(5) gives the court the option to let jury decide upon party’s request. Bifurcation is possible.

• 18 U.S.C. §982(b)(1) and 28 U.S.C. §2461(c) make the forfeiture provisions of 21 U.S.C. §853 applicable to all criminal forfeitures

Post-Trial Forfeiture ProceduresRule 32.2

1. Indictment contains notice of government’s intent to seek forfeiture.

2. Conviction or Plea.

3. Hearing - Government proves nexus between funds and crime – Rule

32.2(b)(1)(B)

Standard: beyond preponderance of evidence

4. Preliminary Order of Forfeiture – Rule 32.2(b)(2)(B)

sufficiently in advance of sentencing.

4. Final Order of Forfeiture – Rule 32.2(b)(4)(A) and (B)

At sentencing Preliminary Order becomes final and Court must orally

include the Forfeiture Order as part of the sentence and in writing in the

Judgment. Final as to defendant.

5. Appeal - Time to appeal begins upon entry of judgment. Rule

32.2(b)(4)( C)

Process & Collection

“Money Is Green To Us”

• Federal Debt Collection Procedures Act, 28 U.S.C.§3001 et seq

– Clerk certifies Abstract Judgment, records as a lien• Any county where defendant resides

• Any county where property is located

– Discovery – interrogatories, depositions of third parties, subpoenas, etc.

– Writs of Execution or Writs of Garnishment

– Defendant lacks standing to contest by reason of original forfeiture order

• Forfeiture is Forward-Looking – Reaches Property Acquired In Future

– Vampire Nation, Ibid, United States v. Hampton, 732 F. 3d 687 (6th Cir. 2013); United States v. Smith, 656 F. 3d 821 (8th Cir. 2011)

– 20 YEAR COLLECTION PERIOD, or Death (whichever occurs first)• Money Judgment remains forever, unless discharged

• Lien is good for 10 years and may be renewed for 10 years

Process & Collection

• Lien- Abstract Judgment is certified and entered as a lien

– Against real property in county in which defendant resides or property

is located

– ERISA plans are exempt from forfeiture

• 401(K) plans cannot be forfeited unless directly traceable

• SEP-IRA – not clear

– Forfeiture lien remains until entire amount of judgment is paid

– Government has access to all public databases and will search for assets

• Supervised Release Period

– Defendants required to complete financial affidavits and supply W-2’s

• Wage garnishments are possible

Forfeiture: Bad Incentives

• Comprehensive Crime Control Act 1984 directs Forfeiture

monies into a DOJ account

• This fund is shared with the state police agencies involved in

the prosecution

• 28 USC § 524(c)(1)(I) “payment of overtime salaries, travel,

fuel, training, equipment, and other similar costs of State or

local law enforcement officers”

• Prosecuting these crimes has a direct affect on government’s

finances

RESTITUTION

Mandatory Victims Restitution Act (“MVRA”)

18 U.S.C. §3663A

• MVRA makes Restitution mandatory and it applies:– Where “victim” was directly and proximately harmed as a result

of commission of the offense

– “Victim” must suffer physical injury or financial loss

– In addition to any other penalty or insurance payout

– Without regard to simultaneous forfeiture obligations

– Without regard to Defendant's ability to pay

– Without any input from jury

– Not dischargeable in bankruptcy

• MVRA will not impose Restitution where:– Too many victims to identify

– Too complicated to determine the extent of losses• 18 U.S.C. § 3663A(c)(3)

Possible Defenses or Offsets

• Proximate Cause Requirement – Paroline v. U.S., 134 S. Ct. 1710 (2014)

– Paroline makes exception to proximate cause requirement for pornography where there were thousands of images and the harm from the defendant’s conduct in viewing the images was anonymous

– Amount of Restitution: Court must apportion liability among the defendants to reflect the level of contribution to the victim’s loss… of each defendant.” Id., at p. 1728.

• Excessive Fines Clause of Eighth Amendment – Paroline, Id.– Held: Though excessive fines was intended to apply to fines imposed by

government, restitution still implicates “the prosecutorial powers of government.” Id., at p. 1726.

• Government Has Burden of Proof– Proximate Causation

– Amount of Loss

“Victim”

WHO?• “A person directly and proximately harmed as a result of the commission

of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed . . . .” 18 U.S.C. §3663A(a)(2)

• Person is not directly and proximately harmed if injury is attributable, in part, to intervening cause unrelated to offense. United States v. Cutter, 313 F. 3d 1 (1st Cir. 2002); United States v. La Fuente, 353 F. 3d 766 (9th Cir. 2003);

• United States, State & Local governments can be “victims” under MVRA;

• Other family members?• United States v. Wilcox, 487 F. 3d 1163 (8th Cir. 2007)(restitution for cost of transporting

child rape victim for medical treatment, but no lost income for parent);

• United States v. Hayward, 359 F. 3d 631 (3d Cir. 2004)(parents of sexually exploited children entitled to restitution for travel expenses to enable children to participate in investigation and trial).

Calculating Loss

Distinction Between Amount of Loss v. Restitution

Amount of Loss: §2B1.1 Fraud

• Greater of Actual Loss or Intended Loss (note 3(A))

• Issues as to deduction of amounts pledged as collateral, collateral (ex. autos, collateral in mortgage fraud, etc.)– United States v. Morrison, 713 F. 3d 271 (2d Cir. 2013)(in mortgage fraud

scheme, where actual loss is less than intended because scheme was detected, amount of loss is the full intended loss)

– United States v. Underhill, 2011 WL 33796 (3d Cir. 2011)(not precedential)(in mail fraud prosecution for fraudulent construction loan, court properly applied credit for amount received upon disposition of collateral)

Restitution: Seek credits for all amounts repaid or collateral received or disposed of

Calculating Loss

Restitution:• Personal Injuries

– compensation for medical expenses, rehabilitation, lost income, participation in prosecution, psychiatric and psychological treatment, funeral expenses §3663(b)(2(A)(C), 3663A(b)(2)(A)(B)(C)

– May include medical expenses paid by third parties

– Issue as to whether lost income extends to future income

– Relocation of witnesses

• Joint & Several Liability– Full amount of restitution may be ordered for each defendant

– But, argue that it should be limited to what was forseeable

• Scope of Conspiracy or Scheme– Issue as to whether the scheme is an element of crime of conviction – i.e. acquitted

conduct United States v. Polichemi, 219 F. 3d 698, 714 (7th Cir. 2000)(defendant not ordered to pay restitution to victims harmed by conduct for which he was acquitted)

– Relevant Conduct – argue against inclusion of those amounts

Loss, Cont’d

– United States v. Hinojosa, 484 F. 3d 337, 343 (5th Cir. 2007)(no restitution

for victims of a different scheme); United States v. Inman, 411 F. 3d 591,

595 (5th Cir. 2005)(no restitution based upon transactions occurring the

time period of the indictment); United States v. Flaschberger, 408 F. 3d

941, 943 (7th Cir. 2005).

Procedure

18U.S.C.§3664• Plea or conviction

• Probation prepares report identifying each victim and loss

• Defendant must provide full financial disclosure

• PSR prepared – Defendant must make all objections

• If victim’s losses not ascertainable by 10 days prior to sentencing, government or probation officer must inform the court; court must set a date for final determination of losses, not to exceed 90 days after sentencing. §3664(d)(5)

• If victim discovers additional losses, victim has additional 60 days after discovery of those losses to petition for an amended restitution order, upon a showing of good cause for failure to include such losses in the initial claim. §3664(d)(5)

Restitution Issues are resolved by Preponderance of the Evidence

§3664(e)

Restitution Payments

• Restitution Order:

– Court must order restitution in full amount to each victim regardless of defendant’s ability to pay §3664(f)(1)(A)

• Amounts victim received from insurance may not be deducted §3664(f)(1)(B)

– Court may consider defendant’s assets and projected earnings

– But, court has discretion re. how to schedule repayments (18 U.S.C. § 3663(4)(f)(2)(A))

– Cannot impose unreasonable schedule of payments

– If Defendant has no money, court can order nominal payments (18 U.S.C. § 3664(f)(3)(B))

Process & Collection

• Statutory Lien by reason of Court Order

– Against real property in county in which defendant resides or property is located

– ERISA plans are exempt from restitution• 401(K) plans cannot reached

• SEP-IRA – possible for restitution unless qualified ERISA

– Restitution Lien remains for 20 years • Not clear whether restitution order abates at death!

– Supervised Release Period

– Defendants required to complete financial affidavits and supply W-2’s

• Wage garnishments are possible

• Government has access to all public databases and will search for assets

Process & Collection, cont’d

• Restitution Order may be reduced by amounts later received as

compensatory damages in litigation 18 U.S.C. §3664(j)(2)

• Amounts paid by insurance must be reimbursed to insurer

§3664(j)(1)

• Victims may use restitution order to secure lien against

property 18 U.S.C. §3664(m)(1)(B)

Effect of Default

• 18 U.S.C. § 3613A(a)(1) gives court the following options if Restitution not made:– Revoke or Modify supervised release

• Must be a definite condition of supervised release; see U.S. v. Bagdy, No. 13-2975 (3d Cir. Aug. 21, 2014)

– Resentence §3614

– Hold in contempt of court

– Enter a restraining order or injunction

– Order the sale of property

– Accept a performance bond

– Enter or adjust a payment schedule

– Take any other action necessary.

TWO JUDGMENTS

FORFEITURE & RESTITUTION

Legal Justification

• United States v. Blackman, 746 F. 3d 137, 143 (4th Cir. 2014)

• United States v. Tolliver, 730 F. 3d 1216 (10th Cir. 2013)

• United States v. Torres, 703 F. 3d 194, 203 (2d Cir. 2012)

• United States v. McGinty, 610 F. 3d 1242 (10th Cir. 2010)

Practice Points

• Discuss Issue During Plea Negotiations– Seek agreement that Forfeiture will be satisfied by

Restitution

– If not, agree to disagree, make argument to Court

– Seek agreement on amount of forfeiture and restitution

• Raise All Possible Offsets to Forfeiture &

Restitution (at trial and sentencing)

GOOD LUCK!