SPEAKERS CONTENTS INSERTS Tables
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CIVIL ASSET FORFEITURE REFORM ACT
WEDNESDAY, JUNE 11, 1997
House of Representatives,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 10:20 a.m., in room 2141, Rayburn House Office Building, Hon. Henry J. Hyde (chairman of the committee) presiding.
Present: Representatives Henry J. Hyde, Bill McCollum, George W. Gekas, Howard Coble, Lamar Smith, Elton Gallegly, Charles T. Canady, Bob Inglis, Bob Goodlatte, Stephen Buyer, Sonny Bono, Ed Bryant, Steve Chabot, Bob Barr, William L. Jenkins, Asa Hutchinson, Edward A. Pease, John Conyers, Jr., Jerrold Nadler, Robert C. Scott, Melvin L. Watt, Zoe Lofgren, Sheila Jackson Lee, Martin T. Meehan, William D. Delahunt, and Steven R. Rothman.
Also present: Thomas E. Mooney, chief of staff/general counsel; Rick Filkins, counsel; Daniel M. Freeman, counsel/parliamentarian; Samuel F. Stratman, press secretary; Michelle H. Pelletier, executive assistant to staff director/counsel; George Fishman, counsel; and Cindy Blackston, clerk.
OPENING STATEMENT OF CHAIRMAN HYDE
Mr. HYDE. The committee will come to order. Good morning, everyone. I appreciate your coming to this very important hearing.
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Our musty civil asset forfeiture laws enacted at the dawn of our Republic to protect the Nation's customs revenues from the depredations of smugglers, have been recruited in the war against drugs. This I find wholly proper. The Federal Government is taking in hundreds of millions of dollars a year in cash intended for drug buys from the sale of cars and boats and homes used by drug traffickers in their business dealings and in the proceedings of drug sales. This money is being plowed back into law enforcement. It is a delicious irony that as former Attorney General Dick Thornburgh said, ''it is now possible for a drug dealer to serve time in a forfeiture-financed prison after being arrested by agents driving a forfeiture-provided automobile, while working in a forfeiture-funded sting operation.''
Unfortunately, I think I can say that our civil asset seizure laws are being used in terribly unjust ways, and are depriving innocent citizens of their property with nothing that can be called due process. This is wrong and it must be changed.
Please enter with me the Kafkaesque world of civil asset forfeiture. I advise you never to buy an airplane ticket at an airport with cash. This behavior may cause the ticket agent to alert police that you are a possible drug dealer. You will be searched. If you are carrying large amounts of cash, it will be confiscated. Unfortunately for you, you fit a drug profile.
But say you are not carrying drugs. The money was to be used at an auction of antique cars, where business is done in cash only. It doesn't matter. Agents can seize your money based on probable cause that it is intended to be used in a drug transaction. Don't worry, you probably won't be arrested. You will likely be courteously sent on your way, but sans your cash. If you want to get it back, your troubles have just begun.
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Civil asset forfeiture is a relic of a medieval English practice whereby an object responsible for an accidental death was forfeited to the king, who would provide the proceeds for masses to be said for the good of the dead man's soul. It is the inanimate object itself that is guilty of wrongdoing. Thus, you never have to be convicted of a crime to lose your property. You never had to be charged with any crime. In fact, even if you are acquitted by a jury of criminal charges, your property can be forfeited.
In attempting to get your property back, you have available few of the procedural safeguards of the criminal law. All the Government need show to justify a seizure is probable cause that the property is subject to forfeiture. Then you must prove the property is innocent. What are some of the other roadblocks you will face in getting your property back? You are not entitled to an attorney if you are indigent. You must provide a 10-percent bond for the privilege of contesting the Government seizure. You have quite a short period of time to file a claim. Unlike some forfeiture statutes, property can be forfeited even if the property owner is completely innocent and either did not know of others' illegal use of his property or call the police to try to put a stop to it. Even if you somehow prevail, the Government is not liable for any damage caused by its negligent storage of your property. If your property is your livelihood, you might be bankrupt by the time you get it back.
This is terribly unjust. In a democracy, means can be as important as ends. If more money is needed for the war on drugs, Congress should appropriate it. I am certainly prepared to. However, we can't continue to unjustly take assets from property owners unlucky enough to be caught up in civil forfeiture proceedings. Nothing less than the sanctity of private property is at stake here. The current situation is unjust. It's abusive, and it must be addressed.
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The Civil Asset Forfeiture Reform Act proposes seven changes in current asset seizure laws. It puts the burden of proof where it belongs, with the Government. It allows for the appointment of counsel for indigents. It makes clear that property owners who take reasonable steps to prevent others from using their property for illegal purposes can't lose their property. It eliminates the cost bond requirement. It gives a property owner a reasonable time period to file a claim contesting the forfeiture. It allows property owners to sue the Federal Government for negligence in its handling or storage of the property, and it allows the property to be returned to the owner, pending final disposition of a case if substantial hardship would otherwise result.
I look forward to today's hearings and to the compelling stories of forfeiture abuse we will hear.
[The bill, H.R. 1835, follows:]
INSERT OFFSET RING FOLIOS 1 TO 15 HERE
Mr. HYDE. I am now pleased to recognize the ranking minority member, Mr. Conyers, for an opening statement.
Mr. CONYERS. Good morning, Chairman Hyde and members. This is one of the kinds of hearings where we have so much cooperation it's staggering. I just want to caution F. Lee Bailey, it doesn't always go down like this. We can't agree on how to handle disaster relief. We've got a tax bill that goodness knows where it could take us. We are still trying to resolve the budget, which is several months overdue. But on civil asset forfeiture, there is a remarkable joining of minds in the Judiciary Committee on this subject.
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I am not quite sure where the Department of Justice is yet, so we would invite all of you witnesses in the first panel to stay behind and hear it for yourself. It's an important subject. It is not the most earth-shaking. But again, it's an example of what justice is all about. I mean how we operate, those words found on the walls of justice, carved in granite out there. The great statements that tell us what America represents. Those words do not support the way we take people's property and then force them to prove that they are innocent, particularly if they cannot get a lawyer or if they don't happen to have the money, or if a lot of other things. We're happy to have you all here to inform our discretion.
I want to associate myself with Chairman Hyde's statement. This is about the third year we have been working on this together. We hope that we can have a meeting of the minds to get this law changed in the year 1997.
I want to make welcome F. Lee Bailey. Nobody knows how long he has been practicing law, it's that long. I just want to say that we are happy and privileged to have one of the most distinguished members of this Nation's bar with us this morning.
Thank you, Mr. Chairman. I will ask that my statement be put in the record.
Mr. HYDE. Without objection, so ordered.
[The prepared statement of Mr. Conyers follows:]
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PREPARED STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
I'm afraid the government's principal concern when it comes to seizing money and assets is best summed up in an expression from a recent popular movie: ''Show Me the Money.''
When Chairman Hyde and I complained that it should matter that the government is taking money from innocent persons, the government answered us, in part, that they were concerned about losing money—if they provided these safeguards. Is that the only line they know: ''Show Me the Money.''
When we told the government we wanted them to pay for counsel for the innocent owner who couldn't afford counsel, and to pay this out of their asset forfeiture funds, the government didn't want to hear it because, it appears, all the government can think of is: ''Show Me the Money.''
Well that's wrong and for years I have been speaking out about——
how wrong it is to seize property from innocent owners,
how wrong it is to force individuals to prove their innocence, and
how wrong it is for innocent persons to have to go through this to recover their own property.
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Chairman Hyde and I have agreed and made our views known to the public and, more importantly, to the Department of Justice. But the Department doesn't seem to hear us. After all, you know what's on their mind.
So the abuses persist. We'll hear testimony about some of the abuses today. We introduced a Bill yesterday with 29 co-sponsors and whatever form the Bill takes from this point on, it must provide:
(1) reasonable notice to the property owners,
(2) an end to the government delays,
(3) appointment of counsel for those who can't afford it,
(4) a shift to and an increase in the burden of proof the government must shoulder,
(5) a definition of what it means for a property owner to be innocent of the misconduct that prompted seizure,
(6) a release of seized property pending civil asset forfeiture proceedings when, to do otherwise, would cause the claimant a ''substantial hardship,'' and
(7) an award of damages and interest to claimants entitled to recover their seized property.
We want to give innocent owners a chance to get their property back. Despite what Justice may want, we want to show the innocent owners their money.
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We feel this legislative reform is necessary because the Department of Justice hasn't done this on its own.
Let me say in conclusion, we are prepared to discuss revisions and modifications to this Bill with the Department of Justice and with anyone else. But we are not going to dress the Bill up with additional provisions the Justice Department wants that make matters worse.
Mr. HYDE. Are there any further opening statements? Mr. Coble.
Mr. COBLE. Mr. Chairman, I just want to extend a cordial welcome to our panelists today. I have no formal opening statement.
Mr. HYDE. I thank the gentleman. Ms. Lofgren. Mr. Meehan. Mr. Delahunt.
Mr. DELAHUNT. I just simply want to extend a very warm welcome to that preeminent defense attorney, and, I should add, a supporter of my candidacy for district attorney, as well as Congress, Lee Bailey. Lee, it's great to have you here.
Mr. HYDE. Thank you. Mr. Canady. Mr. Bryant.
Mr. BRYANT. Just very quickly, Mr. Chairman. I want to welcome my friend from Nashville, Mr. Bo Edwards, and all the other very distinguished members of this panel, but it's certainly good to have Bo up here, and I look forward to hearing his testimony. Thank you.
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Mr. HYDE. Mr. Barr.
Mr. BARR. Thank you, Mr. Chairman. Mr. Chairman, I will be sort of in and out of the hearing this morning. We have some other matters in government reform. I will spend as much time as I can here, certainly. This is very important legislation for which I am a proud cosponsor on your bill, Mr. Chairman.
I do want to acknowledge the presence of Chief Moody from Marietta, which is in the Seventh District of Georgia with the International Association of Chiefs of Police. I certainly hope to be here to hear his testimony.
I commend you, Mr. Chairman, for putting together a bill as well as these hearings today to ensure that those deficiencies in our civil asset forfeiture laws, with which I am very familiar having been a former U.S. attorney, are rectified, but yet not at the expense of maintaining very strong asset forfeiture laws that are such an important tool for law enforcement at all levels of government. I look forward to these hearings and hopefully to enactment and signing into law this important legislation that I think does strike the proper balance between civil liberties and the needs of our law enforcement.
Mr. HYDE. Thank you very much, Mr. Barr. Mr. Hutchinson.
Mr. HUTCHINSON. Mr. Chairman, I want to greet the panel. I look forward to their testimony. In order to hear them, I will waive any further statement at this time.
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Mr. HYDE. Thank you. Mr. Gekas, do you have an opening statement as you approach your place?
Mr. GEKAS. I join the chairman in welcoming the witnesses and look forward to a productive hearing.
Mr. HYDE. Thank you. That is one of your better statements. [Laughter.]
We begin our testimony with individuals who have had first hand experience with civil asset forfeiture. First, Billy Munnerlynn, the owner of a once successful air charter service, will talk about his struggle to recover one of his airplanes seized by the Drug Enforcement Administration. Next we will hear from E.E. ''Bo'' Edwards III, who represented Richard T. Lowe, M.D., in his suit to recover more than $2.8 million of his life savings that had been improperly, though innocently deposited in a bank account he had established to benefit a private academy in his hometown. We will then hear from F. Lee Bailey, who needs no introduction, who will testify about his representation of a Florida couple whose business has been effectively shut down by a civil asset forfeiture action.
Susan Davis, a certified public accountant from Fort Lauderdale, will next tell the committee how she as the administrator of the estate of George Gerhardt successfully sued the Government to beat the forfeiture of his house seized on the flimsiest of evidence.
Finally, we will hear from Gerald Lefcourt, president-elect of the National Association of Criminal Defense Lawyers, who represented a group of Hasidic Jews in a forfeiture action in New York. Mr. Lefcourt will be arriving later in the morning. I anticipate he will testify with the last panel.
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Ladies and gentlemen, I request that you try and contain your oral presentations to 5 minutes. We won't be draconian in cutting you off, but we have several witnesses we would like to hear from. I assure you, the totality of your written statements will be inserted in the record in its entirety.
Mr. Munnerlynn.
STATEMENT OF WILLIAM MUNNERLYNN
Mr. MUNNERLYNN. Thank you, Chairman Hyde.
Mr. HYDE. Would you pull that mike a little closer to you?
Mr. MUNNERLYNN. Thank you, Chairman Hyde and members of the committee. Thanks for allowing me to tell my story here today. I operated my company's Lear jet operation for approximately 13 years in Las Vegas. My wife and I owned it. I was a pilot, airline transport pilot for over 25 years. We lived in Las Vegas 27 years. My wife and I were very active in our community activities. My wife earned a 5,000-hour certificate for volunteer work at the hospital. I have a lifetime membership with Angel Plane. I always made my airplanes, my jets, available to all the charities in Las Vegas. These facts are well known.
We worked very hard for what we had. It was devastating when they took my charter service and my way of life. We had many people come to Las Vegas. There were gamblers from foreign countries. A lot of times I couldn't even pronounce their names.
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In this particular incident, my wife agreed to the charter. The charter was from Little Rock, AR, to California. I was ecstatic about the charter. Normally I wouldn't have been on that particular charter, but because it came from Little Rock, where my family lives, I handled it. The Lear jet was so expensive to operate, I never could fly it down and show it to my brothers and relatives. So I took this charter, not knowing this passenger from Adam.
When I got to the airport, I had to find someone to show me who the person was. I picked this person up, flew him to Ontario, CA, and dropped him off. Apparently, the DEA had been chasing this fellow for several weeks, I didn't know that. I am told the DEA waited until he got on my jet and before they would arrest him. I dropped him off and was ready to depart back to Las Vegas. I was unable to fuel the aircraft for about 45 minutes. I later found out the DEA had delayed the plane so it could not leave.
Anyway, I was arrested, taken to the Cucamonga Prison. This was the first time I had ever been in jail in my life, first time I had ever been arrested. After 71 1/2 hours, I was released. They charged me under the RICO law, held me on $1 million bail, which I did not have the money. When I was released, I returned to Las Vegas to get my jet.
As I approached the airport, I saw the DEA agent in charge, and asked him what he was doing at the jet. I told him I had been released and this was all over. He told me, when I tried to recover my jet that I was trying to steal Government property, that the property belonged to the Government. With that, I called an attorney. That started 2 1/2 years of litigation trying to get my Lear jet back.
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While this Lear jet was in their possession, and I have documents to prove this, to add insult to injury because I hadn't broken any law, the DEA used my Lear jet. They flew it out of California to someplace in Texas. That is where I finally retrieved it at. The jet was quite noisy. I received citations because my jet broke the noise abatement laws while the DEA had the jet.
When I received the aircraft, the jet was trash. The maintenance was let go. The prosecuting attorney had tried to sell my jet before my first day in court, told the bank from the outset that the plane was wasting away. Yet I have heard statements before your committee, by the Government, that they maintained these aircrafts. That is simply not true. They said for $140,000 in repairs I could fly this Lear jet again. Not so.
I felt pretty confident that when I got to the civil trial this fellow, whoever he was, would testify on my behalf that he didn't know me. The truth was I didn't know him. We had no business affiliation whatsoever. I charged him the normal fee of $8,500 which is standard for that distance. I was appalled to find out from the district attorney that the person that was on my jet that day, was a known narcotic trafficker that was on parole, or probation, that he had broken all the laws in our land, was released for no reason, and that he had met with three associates while he was in Los Angeles.
After going to a civil trial, which is pretty tough, I used up most of my savings, I had to hire a criminal attorney in the early aspect. Once it went to civil, this first attorney couldn't handle it so I had to hire another attorney. It was a constant thing fighting them to keep my Lear jet and my property. I went to a jury trial, eight of my peers. They ruled in my favor twice, said I should get all my money back. The Government had taken all my money and my Lear jet. The judge reversed this favorable verdict, and ordered me to another trial. I was afraid that I could not retrieve this witness, the passenger who I thought was going to be held incarcerated for the crimes he had committed. I believed I needed his help to get my Lear jet back.
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After being convinced that I could not get this Lear jet back, at the last minute I settled with the Government in order to get the jet back. I can tell you that in Las Vegas, we fly many movie stars. I flew for the U.S. marshals. Back during the time the terrorists were active in this country, moving terrorists from one prison to another, very confidential flights. I can assure you that I was investigated more by them than I was by the DEA.
The DEA was bent on getting my Lear jet. It's one of the fastest Lear jets made in this country.
Mr. HYDE. Let me understand you. They let you go. They let the bad guys go, the drug dealers. The only thing they kept was your Lear jet?
Mr. MUNNERLYNN. No, sir. They kept the $3 million that I know nothing about.
Mr. HYDE. Well that wasn't yours?
Mr. MUNNERLYNN. No, sir.
Mr. HYDE. All right.
Mr. MUNNERLYNN. Anyway, I was forced to settle the thing. To even make it worse, later on I don't know why this all happened. You have to understand that in the years that I have been flying this airline, working as a transport pilot flying jets out of Salt Lake City, I flew for Majestic Airlines, for many airlines. All of a sudden I could not even get a job with these airlines. These airlines haul mail that's Federal. I was put on a list. I can't think of the name of it, but the DEA uses it to identify possible drug runners and gun runners and money launderers. I couldn't work anywhere. Basically, I was forced to sell the other prop airplanes that I had flying into the Grand Canyon. I had four prop planes, a Malibu a 210, and a training plane. I was forced to sell all these aircrafts to pay my attorney bills.
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Now that all these things are gone, all the money is gone. I filed for bankruptcy. We lost our home. We lost all our aircraft. I lost my airline certificate. The Federal Government told me they would wait to see the outcome of the forfeiture hearings. It wouldn't be right for them to destroy my certificate, I spent over $200,000 getting that certificate. My pilot license and Mr. Bailey, I believe, can confirm this, cost well over $80,000. The Lear jet cost $500,000.
I can assure this committee I have never ever given thought to ever breaking the law, much less flying money launderers, drug people. I am far removed from that. I would never ever risk what I had for that.
Mr. HYDE. Thank you very much, Mr. Munnerlynn. We have a vote on, so we are going to have to temporarily recess. We'll run over and vote and come right back. So if you will stay in place, we'll be back.
[Recess.]
Mr. HYDE. The committee will come to order. We have a missing person case here. Mr. Edwards. Well, absent Mr. Edwards, Mr. Bailey, would you proceed?
STATEMENT OF F. LEE BAILEY, ESQ.
Mr. BAILEY. Thank you, Mr. Chairman. Thank you, members of the committee. The talk so far has been about remedies that were fashioned to try to stifle the drug trade and its progeny. I have a case where that unfortunately has lapped over into another much less critical area. I would like to relate what happened.
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On May 9, of this year at 7:20 in the morning, a young couple aged 30 who were on a telemarketing business selling courses on how to find, buy, and sell at a profit distressed real estate, were awakened by a knock at the door. They saw more than 30 agents of various agencies with guns drawn and a battering ram at the ready, and were told that if the door didn't open immediately, it would be broken down.
The agents came in, they cleaned out the house of personal possessions, even taking the wedding ring of the wife which was 8 years old, while the business is 2 years old. They then went and closed down the operating company, all of this in greater Orlando. Put 380 employees on the street, many of them minorities. I arrived on the scene that day and tried to find out what was wrong. We had been working with the attorney general of Florida for 9 months, and it wasn't sufficient evidence to cause any restraint. I was told there was a sealed affidavit which obviously was hearsay, since the man involved had no personal knowledge, that we could not have access to it and that there wasn't any remedy.
We brought a motion for a hearing. The magistrate who issued these warrants, which seized every bank account, including bank accounts not subject to lawful seizure, trust funds that were due to be paid to those demanding refunds, those who had acquired the right to have financing provided for their real estate deals. The magistrate who signed the warrant decided to hear whether or not he had properly signed the warrant. For two days, we were forced to put on evidence without ever having seen what charges we were trying to meet.
The second day was yesterday. At the end of the 2 days, the magistrate says I'll give you another half day a month from now, but you haven't used your time productively. After promising us at least parts of the warrant, we have never seen it.
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At the same time, the Government went to the Cayman Islands and restrained certain funds by filing a petition under a treaty. That treaty requires that within 7 days a lawsuit be filed, a forfeiture lawsuit in the United States. They have filed a lawsuit. They have placed it under seal. We don't know what's in it and we can't counter it. I don't think that that's what the treaty contemplated, was a sealed lawsuit which the party is not allowed to meet or to rebut.
Now, I was taught in law school, as were all of us here who went to law school, that this country is grounded upon two very important rights. One is notice, and the other is a right to a hearing. If you are charged with something that is going to cause you loss, whether it's civil or criminal, you are entitled to know what you are accused of and have counsel if you can afford it and to be heard.
The Federal authorities are using this procedure to circumvent perfectly legitimate procedures such as bringing a restraining order. They are claiming that mail fraud and wire fraud was committed without letting us know how. Thus invoking 1956 and 1957, the money laundering statutes, and taking everything and closing the business.
When we'll get a notice and a hearing, they have suggested maybe within 2 years. These employees have no jobs. These people have no money. Their indebtedness will pile up. Their credit will go bad. They are ruined, and why? Because the United States of America sought successfully to attack people who have no involvement whatsoever with drugs, have never been involved with drugs, would be appalled at the thought of drugs, secretly with no notice and no hearing, they have won the case without ever going to bat.
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Mr. Chairman, I suggest several things are fundamentally wrong. No. 1, I don't think a magistrate ought to sign a warrant in a nondrug case. I think it should be a district judge. I think the rule should be very stringent and the emergency apparent.
Second, I don't think the person who signs an ex parte warrant ought to be the person adjudicating whether or not he was correct in doing so. I think there needs to be some revision here. I think it needs to be made clear that whereas there may be emergencies that justify this kind of procedure in organized crime, it has nothing to do with combating disputes about the way a business is run. The Government takes it all without having to prove a single thing, and then says we'll get to you someday, and by their delay defeat due process as effectively as if they simply said you don't get a trial at all. Changes certainly are needed here.
Mr. HYDE. Thank you very much, Mr. Bailey.
Now, Mr. Edwards.
STATEMENT OF E.E. (BO) EDWARDS III, ESQ., ON BEHALF OF THE NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS
Mr. EDWARDS. Chairman Hyde, Mr. Conyers, and members of the committee. It is gratifying to appear before this committee again. Perhaps the entire city should take notice of the bipartisan effort that has been made in the cause of civil forfeiture reform, and apply it in other areas. But it is wonderful to see that there are 30 sponsors on H.R. 1835 already. I hope that number will continue to grow.
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I am here to tell you a little about the real world of civil forfeiture, an area in which I have practiced extensively for several years, and how things really work. Except for the amount involved in the case I am about to tell you about, there is much that is typical about the case of Dr. Richard Lowe.
Dr. Lowe is something of a throwback. He is a country doctor, a family physician in the small northwestern town of Haleyville, AL. When this began, this ordeal began, he was in his late 60's. He is now 72. He still practices medicine. He charges $5 for a routine office visit in 1997. He drives a used car, lives in a very modest home. There are not too many doctors in America today that still work the way he does.
He can tell you to the penny when he was a child in the Depression, he lost $4.52 in savings when the local bank failed in his home town in rural Alabama. His parents lost all their savings when that bank collapsed. Because of that, I suppose, he has always hoarded cash. As long as he has practiced medicine, when he gets home in the evening, if he's got some cash in his pocket, he puts some of it in a box. When the box gets full, he puts it in the back of the closet and starts another box.
Well, this story began in 1988 when he consolidated his life savings in the First Bank of Roanoke, AL. The bank president of that bank was a long-time friend of his. Earlier in his life he had been a neighbor, when he practiced medicine near Roanoke. He had something in the neighborhood of $2.5 or $2.75 million, his life savings essentially, in First Bank. He had done that, Mr. Chairman, and this sort of lets the cat out of the bag—I was going to wait to tell you this last—but the reason he did that is because a small private school, kindergarten through 12th grade school, in his hometown was about to fail. Friends of his were on the board of the school. Two of his children had been educated there. In case you are curious, I'm sure the school was not multiracial when it was originally organized, but by the late 1980's, it was multiracial.
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But at any rate, he created this account in 1988, put all his savings in it, and had all the interest off of this money go to the school. By the time this case began in June 1991, he had given the school $908,000 in change, and was still contributing to the school. He saved it from collapse.
Well, his wife in the fall of 1990 was nagging him to do something about those boxes in the back of their closet. So he said OK, you count it and we'll put it in the school's account. So his wife counted it and it was $316,911 in 1's, 5's, 10's, and 20's. Some of the bills were as much as 20 years old, a few 50's. He took this money, gave it to the bank president to put in, to add to his account. Now this is the first cash that had ever gone in this account. All the other money had been transferred by check from other banks when CD's mature.
The bank president knew that the doctor was obsessive about anonymity; he didn't want to be known as a rich doctor. He was afraid that people would sue him if they thought he was a rich doctor. So, the bank president, instead of depositing the money to the account, he just put the money in the bank vault. He gave the doctor a written receipt for the deposit, but he just put the money in the vault. Then with some of the money over a period of 6 weeks, the bank president went to neighboring banks in the vicinity of Roanoke AL, and bought $6,000, $7,000, $8,000 cashier checks, and then credited it to the doctor's account. That, as you all know can be termed ''structuring.'' If you and I did that with even any amount over $10,000 in cash, that would be structuring.
Well, as you might guess, after a few weeks, some banks thought it was peculiar that the bank president from Roanoke was doing this and made a report. Some FBI agents came to call on the bank president. He told them exactly what he had done. He told them that it was his idea, not the doctor's idea and that as he understood the law, he had done nothing wrong.
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Well, the FBI and the local U.S. attorney didn't think so. So what did they do? Did they seize the $316,000 cash deposit? No. They seized the entire account, over $2.5 million. The bank president and his son, who was a vice president of the bank, were both indicted. The vice president had gotten one of these cashiers checks. The bank president later made a deal with the Government to plead guilty if they would drop the charge against his son.
Two years later, and the Government has all this money tied up now. I get in the case, and in 2 years after the June 1991 seizure, the doctor is indicted. I began researching the structuring laws and discovered, low and behold, it is not a crime for a bank to send cash to another domestic financial institution. That is outside the legal definition of structuring. In short, there was no structuring offense here. So I began to point out to the Government that not only did the doctor not know what the bank president had done, but there was no structuring violation, even though the bank president had pleaded guilty.
The Government should have withdrawn the criminal charge against the doctor. But instead, what they did, a week before trial, was to offer the doctor ''pretrial diversion.'' So essentially the doctor had to do nothing except stay out of trouble for a year and the case was dismissed with prejudice, which is what happened.
Thinking that our problems are over, I called the assistant U.S. attorney in Montgomery handling the forfeiture case. The criminal charges had been in Birmingham. But no, the assistant U.S. attorney said the burden of proof is on you in the civil forfeiture case. We're going to proceed against the money, even though the criminal charges have effectively been dropped. But the Government suddenly had to come up with a new theory because it was plain, as I had pointed out to them, there was no structuring violation.
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So they checked and found out that there had been no currency transaction report filed by the bank, a CTR, which was a violation by the bank, not by the doctor. But their theory became that the money should be forfeited because no CTR was filed. In 1994, the U.S. district judge in Montgomery entered a partial summary judgment ruling that there was nothing wrong whatsoever with the money that was in the account prior to this cash deposit being made, and ordered it returned to the doctor 3 years after its seizure. However, he denied the motion with respect to the cash deposit. We had a bench trial, a nonjury trial. The judge ruled against us. He ruled that the doctor must have exhorted the bank president, his words, not to file a CTR even though the government had not even noticed that a CTR hadn't been filed when the case was filed.
Well, we appealed to the 11th circuit. Last year, the 11th circuit reversed, holding that the proof from the record was clear above preponderance. The doctor did not know what the bank president was doing, something the bank president had said from the first day he was interviewed by the FBI. They reversed and as you probably know, it's very unusual for a court of appeals to reverse a case on the facts, but that's what they did in a nonpublished opinion, and ordered the money returned to the doctor. In the meantime, the stress on this got to the doctor so seriously, that he had to be hospitalized for stress and high blood pressure.
Obviously, when Congress passed the currency reporting laws, you did not have in mind a doctor that was trying to save a small private school in his hometown. You had someone with some more notorious intent in mind. But nevertheless, I think you can see that when the laws are on the books that allow government officers to make seizures like this and they find money, they want it and they take it. That's what happens.
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I think it is a valuable lesson to demonstrate the need for the burden of proof that is contained in the bill that has been introduced. If the burden of proof had been by clear and convincing evidence on the Government, I believe the district judge would have held in the doctor's favor a long time ago. The definition of innocent owner in the bill that is before you, is also very well thought out and well done. I noticed in the Government's response that they attacked that, especially with respect to allowing innocent owners who receive money by donation rather than by a bone fide commercial transaction. But that is in present law. The Government 2 years ago forfeited almost half a billion dollars using the provisions that this bill would not change. So I hope that you will resist the Justice Department's efforts to water that down.
Now if a transfer is a sham, if the person who receives the property can be shown to be a mere nominee, the Government can forfeit the property anyway. I have seen cases where that has happened. So I would submit that you don't need to water down the language in the bill in that respect.
There is such a strong tendency in the way that law enforcement agencies use civil forfeiture today, and the way they have been using it for a decade, to seize property when they find it and justify it later. That is especially true in cases where no criminal charges are brought against the owner of the property. Because of that, it is so important that you not follow suggestions from the Justice Department to water down this bill with respect to the requirement that the Government should still be required, as 19 U.S.C., section 1615 now requires, that the Government have probable cause at the initiation of the case.
In other words, in the doctor's example, when they began their lawsuit, they were claiming there had been a structuring. That was why the money was forfeitable. They decided that wouldn't work, that was not legally viable, so they changed their theories in midstream and began the theory of causing the bank to fail to file a CTR. Well, what the Government seeks is to seize money and then use the costly discovery provisions, the deposition provisions of civil procedure, to get evidence after the seizure to win their case, evidence that they didn't have or even know about when it began. I hope you will hold the line and not allow those provisions to be watered down.
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H.R. 1835 is a wonderful bill. I urge you to pass it as it's written. I thank you for allowing me to be here.
[The prepared statement of Mr. Edwards follows:]
PREPARED STATEMENT OF E.E. (Bo), Edwards III, on Behalf of the National Association of Criminal Defense Lawyers
Mr. Chairman, Mr. Conyers, Other Distinguished Members of the Committee, I am pleased to speak to you again on behalf of all the innocent property owners of our nation in urging favorable action of this important bi-partisan Civil Forfeiture Reform Act. I am here to urge you to hold the line and resist attempts by the Department of Justice ant the Department of Treasury to render the significant and much-needed reform provisions in this bill a mirage, an illusion promising protection to owners of private property, but not delivering. And I submit to you that all of truly meaningful reforms contained in this bill are sorely needed not just to afford a proper measure of protection to the concept of private ownership of property, which has contributed so much to the growth and strength of our nation throughout history, but also to help restore faith and respect in the government itself, and in its law enforcement institutions. To be sure, long-time abuse of innocent citizens and their rights to private property ownership through the forfeiture laws has engendered grave mistrust and disrespect for our system of justice. This should be of vital concern to us all.
At your hearing last July, you also heard from innocent victims of the broad-sweeping and unjust forfeiture statutes, including Willie Jones, a former client of mine, who was a victim of a so-called ''interdiction'' program at the Nashville International Airport. He simply fit the government's ''profile.'' That case is an example of the abusive application of forfeiture laws to citizens traveling through our airports and highways.
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Today, I want to tell you of another prime example of asset forfeiture injustice, this time involving the abuse of Treasury's ''currency transaction violation-forfeiture statute.'' 18 U.S.C. sec. 981. The victim is an elderly family doctor in a small town in Northwest Alabama, who almost lost his life savings due to the pressure placed on later enforcement to seize and forfeit property, and because current law affords too little protection to innocent property owners.
THE CASE OF UNITED STATES V. ACCOUNT NO. 50–2830–2, LOCATED AT FIRST BANK, ROANOKE, ALABAMA (857 F. SUPP. 1534 (M.D. Ala 1994)) (unpublished opinion, No. 95–6262 (11th Cir. 1996))
1. Events Preceding Filing of Complaint
Richard Lowe is an elderly medical doctor (now age 70) who graduated from medical school in 1955 and has mostly practiced medicine in rural Alabama towns since then. For almost 20 years he has maintained a family practice in the remote Northwest Alabama town of Haleyville. His dedication to his medical practice for the sake of healing is underscored by his office rates. In 1994 he still charged $5.00 for a routine office visit. The administrator of the small hospital in Haleyville described Dr. Lowe's practice this way: ''[He] typically works seven days a week and tends to see a very high volume of patients at his clinic. He has many elderly and indigent patients. In fact, many of his patients would undoubtedly not receive regular physician services but Dr. Lowe.... [F]or many years he delivered many babies, probably more during that time than any other doctor in the county, and many of those deliveries were without compensation. Overall, I would estimate that Dr. Lowe has performed at least three or four million dollars' worth of charity medical services since he came to Haleyville.''
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As his wife describes it, about fifteen years ago Dr. Lowe contracted cancer and was given less than one year to live. After several surgeries, be survived. His response was to return to work ''seven days a week, virtually fifty-two weeks a year.'' A second response was to examine ways in which he could do something for his hometown, Lafayette, Alabama.
In late 1987 Dr. Lowe settled on a plan. He learned from his lifelong friend in Lafayette, Alexander Walton, that Chambers Academy, a kindergarten through twelfth grade private school in Lafayette, was in serious financial trouble. Dr. Lowe had long been interested in education. His mother had been a teacher, and two of his stepchildren had attended Chambers Academy before he moved to Haleyville. He decided to do what he could to save the school.
In February 1988 he contacted Joseph Lett, an old friend and former neighbor who was, in 1988, president of First Bank, a bank with offices in Roanoke and Wadley, Alabama, both towns only a short distance from Lafayette. Dr. Lowe had Mr. Lett create an account in the Name of CCEF (Chambers County Educational Foundation, the non-profit organization which owned and operated the school), and he placed the proceeds of several certificates of deposit (CD's) in it. His initial deposit was roughly $1.3 million, but by 1990 Dr. Lowe had placed approximately $2.5 million on deposit in the CCEF account at First Bank. From the start, he had all interest earned by the account paid monthly to Chambers Academy. And from the start, Dr. Lowe expressed his wish that his name not be placed on the account in any way because he wished to remain anonymous.
From the account's inception to its seizure in June 1991, Dr. Lowe was responsible for $452,500 in interest being paid to Chambers Academy. In addition, in late 1990 and early 1991, Dr. Lowe began an effort to help the school retire its debt and, so the doctor hoped, become self-sustaining. With that aim in mind, Dr. Lowe contributed $456,000 of the principal from the account to the school in 1991. Thus, from February 1988 until June 1991, the school received a total of $908,539 in principal and interest. School officials agree that the school would not have survived without Dr. Lowe's benevolence.
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Dr. Lowe claimed no charitable contribution deductions on his income tax returns from 1988 through 1991. Tax benefits had nothing to do with his motivation. His purpose is clearly revealed in a letter which Dr. Lowe wrote to the CCEF Board in April 1990, many months before the events central to this case:
Without Chambers Academy being in the county, I fear that the future would look very bleak for Lafayette and the surrounding area. The children are the most important commodity that the community has, and it is so important that we do all we can to help them get off to a good start in life....
* * * * *
Most everyone I think would like to do something in life to help others, and I would like to be a part of what you are doing to help our children and our people.
2. The Currency Transaction
When Dr. Lowe was a child during the Greet Depression, a bank in Lafayette failed, and his parents lost their life savings. As a result, Dr. Lowe always harbored a mistrust of banks. From his very first job and throughout his years of medical practice, he regularly saved cash, keeping currency in boxes in his home. In 1992, Mrs. Lowe became concerned about the accumulation of cash in their home, due to the possibility of theft or fire. Although she did not know how much cash was stored in the boxes, she knew it was substantial. She began to urge her husband to move it to a safe place. Her prodding coincided with Dr. Lowe's efforts to extinguish the school's debt. So Dr. Lowe decided to deposit the cash in the CCEF account at First Bank.
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At her husbands request, Mrs. Lowe counted the money over a period of several days. Counting was a slow process because most of the currency was in denominations of $1, $5, and $10. Eventually, Mrs. Lowe came up with a total of $315,291. Meanwhile, Dr. Lowe called Joseph Lett and told him he had some cash to add to the account, first estimating the amount to be about $60,000. In a later call Dr. Lowe told Mr. Lett it was a hundred thousand or more. After the counting, the Lowes realized it was actually over $300,000.
Dr. Lowe invited Joseph Lett and his wife to visit them in Haleyville and pick up the cash deposit, but Mr. Lett's schedule prevented the trip. Finally, Dr. Lowe called Mr. Lett to say that he (Dr. Lowe) and his wife were going to be driving to Lafayette and they would bring the money to First Bank. On November 14, 1990, Dr. Lowe, his wife and daughter loaded the trunk of their car with the boxes of money and started out for Lafayette and Roanoke (about 20 miles further down the road). They developed car trouble and were after dark getting to Roanoke. Since the bank was closed, they obtained directions and drove to Joseph Letts home, arriving about 8:00 p.m. As the district court found, Dr. Lowe transferred the cash to Mr. Lett for deposit to the CCEF account, and Mr. Lett issued Dr. Lowe a typewritten receipt for the deposit. The receipt stated: November 14, 1990. Received of R.T. Lowe $315,291.00 for deposit for the benefit of Chambers County Education Foundation. /s/ Joseph C. Lett, First Bank.
The Lowes then borrowed a car from the Letts and drove back to Haleyville that night.
3. First Bank's Handling of the Funds
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This cash transaction was the only time Dr. Lowe ever deposited currency in any First Bank amount. All other deposits were by bank or cashier's check. When he transferred the currency to First Bank president Joseph Lett on November 14, 1990, he fully ''expected that it would be deposited in the CCEF account.''
Joseph Lett sat up with the money for most of the night after the Lowes departed. He considered that the currency was the property of First Bank once he received it and issued the deposit receipt, and he was responsible for it. The next morning when the time lock opened the vault, he put the currency in the bank vault.
Over the ensuing six weeks or so, Mr. Lett took $205,300 of the total $316,911, went to area banks, and purchased various bank and cashier's checks payable to CCEF in amounts of less than $10,000. He then credited the checks to the CCEF account. The balance of the cash deposit was credited to the CCEF account through internal First Bank transactions and one $40,000 transaction when another bank was running short of currency.
Before this forfeiture action was commenced and throughout its history. Joseph Lett repeatedly and consistently insisted that he decided, independently ant without Richard Lowe's counsel or even his knowledge, to undertake the piecemeal internal and interbank transactions rather than crediting the CCEF account with the entire deposit at once. His first statement was to federal agents on March 6, 1991, roughly three months before the complaint was filed. Mr. Lett told the agents that Dr. Lowe ''never directed him to purchase cashiers checks with the cash he gave him.'' Mr. Lett also told the agents that ''he [Lett] made the decision to try to buy cashiers checks in order to retain Lowe's anonymity.''
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In his deposition, Mr. Lett explained when he decided to buy cashiers checks:
Q. Did you say anything to Richard Lowe about what you planned to do with the money in terms of ... going any place and ... changing money into cashiers checks?
A. No.
Q. When did you decide to do that?
A. Either sometime during the night when I was babysitting the money or the next day.
Q. Did you tell Dr. Lowe what you were doing during the ensuing weeks while you were doing it?
A. No. I didn't talk to him during those weeks.
Mr. Lett explained that he was trying to maintain Dr. Lowe's confidentiality. In a supplemental affidavit he elaborated:
7. After I received the currency and the Lowes had returned to Haleyville, I decided that I would credit the funds to the CCEF account piecemeal, through a series of small transactions within First Bank and with other banks and that First Bank would not file a CTR on the full amount of currency received. In determining to use this procedure, I thought at the time that no statute or regulation would be violated and no CTR would be required. I did not discuss this decision with Dr. Lowe or anyone else. I was not pressured, threatened, or coerced to follow this procedure and not file a CTR by Dr. Lowe or anyone. I decided on this procedure voluntarily and independently.
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8. At the time I determined that the bank would follow this procedure of crediting the CCEF account in small increments through a intra-bank and inter-bank transactions, and thereby not be required to file a CTR, I considered Dr. Lowe's desire to remain anonymous. He had emphasized that desire to me from the time in late 1987 or early 1988 when he first discussed establishing a fund to aid the school. I believe then and still believe that Dr. Lowe was sincere in his wish for anonymity and that he had no ulterior motive other than a desire for privacy. I had asked him about any tax problem relating to the money. He had said there was none, and I believed him. I had known Dr. Lowe for many years, and he had been a good customer at whatever bank I was with for years. I simply wanted to do what I could to maintain his anonymity. At the time I convinced myself that I could handled the money as I did and in so doing, there would be no requirement of filing a CTR. I recognize now that a CTR should have been filed for the initial transaction when I received the currency for deposit on November 14, 1990. At the time, however no one else caused First Bank not to file a CTR. The procedure I used simply resulted in my belief that a CTR was not necessary.
Mr. Lett explained that his concern was that several employees in the bank would have seen the documents relating to the transaction, and despite cautioning employees about confidentiality, in a small town, someone would have discussed it. ''[C]ertainly a transaction of that size, yes, sir, it would have gotten out at the beauty shop or somewhere else.''
4. The Government's Charge of Structuring
On June 20, 1991, the government filed its complaint for forfeiture in rem, and on the next day, armed with a Warrant of Seizure, seized the entire CCEF account, then containing $2,381,356.92. The complaint alleged a theory of forfeiture based upon the structuring of currency transactions in violation of 31 U.S.C. 5324(a)(3). It alleged that ''at least $308,300.00'' in currency was given by Dr. Lowe to Joseph Lett for deposit into the CCEF account. And it alleged that Joseph Lett, as First Bank President, and his son, Michael Lett, as First Bank Vice President, purchased 38 checks of less than $10,000 from various banks using the funds from Dr. Lowe's deposit. This, the government contended, constituted structuring.
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The government further pursued a theory that there was ''probable cause to believe that all monies in [the defendant] Account were 'structured' to avoid financial reporting requirements'' because over $300,000 in ''structured'' cash had been placed is the account. Thus, the government sought forfeiture of the entire $2.38 million account In granting partial summary judgment, the district court rejected this latter theory.
3. Criminal Charges
In August 1991 a stay was orderer by the district court. A year and a half later, in December 1992, Joseph Lett and his son Michael were indicted on structuring charges. Mr. Lett entered a guilty plea and was placed on two years probation.
In August 1993 Dr. Lowe was also indicted but the government opted not to go to trial, and in November 1993 notified the court that it had entered into a Pre-Trial diversion Agreement with Dr. Lowe. One year later, the indictment was dismissed with prejudice on the government's motion. (Order of Dismissal. United States v. Lowe, No. 93–H–217-J (N.D. Ala, Nov. 21, 1994).)
6. Partial Summary Judgment
Dr. Lowe moved for judgment on the pleadings and for summary judgment in April 1994. He contended (1) that the facts alleged in the complaint did not state a basis for any forfeiture because, by definition, transactions between banks such as described in the complaint are exempt front the Currency Transaction Report [CTR] requirement, 31 C.F.R. 103.22(b)(1)(ii), and Dr. Lowe's one-time transfer of his cash to a bank official for deposit was perfectly legal and gave rise to a reporting duty on the bank, not the depositor. 31 C.F.R. 103.22; (2) that no structuring occurred as a matter of law, and, therefore, no forfeiture would lie under 18 U.S.C. 981; and (3) that the funds in the defendant account not related to a cash transaction were not forfeitable under any legal theory.
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On June 23, 1994, the district court granted summary judgment as to all funds in the CCEF account with the exception of $316,911 plus accrued interest (United States v. Account No. 50–2830–2, 857 F.Supp. 1534 (M.D. Ala. 1994). The court found that ''there is no evidence in the present case that the money was obtained through illegal means,'' Id. at 1540, and ''because structuring is the only legal violation upon which forfeiture of the entire account was sought,'' the bulk of the account, which was not part of any alleged structuring, could not be forfeited. Id.
The court denied summary judgment as to the $316,911 not based on any conclusion that the actions of Joseph Lett in buying cashier checks constituted illegal structuring as alleged in the complaint, but based on a new theory raised by the court. The court reasoned that Dr. Lowe's concern about anonymity and his queries to Mr. Lett about the bank's reporting requirements constituted ''sufficient facts from which a jury could find that because of his desire to remain anonymous, Dr. Lowe influenced Mr. Lett not to file a CTR on the $316,911 cash deposit and in doing so, possibly violated 5324(a)(1) ....'' Id. at 1539.
The district court acknowledged, but never directly addressed Dr. Lowe's contention that Mr. Lett's purchasing cashier's checks were interbank transactions not required CTR's. Id. at 1538. The court did recognize, however, that Dr. Lowe's transfer of the $316,911 in cash was a deposit ''trigger[ing] a duty for the bank to file a CTR.'' Id. Implicitly, therefore, the court necessarily concluded that the subsequent handling of the currency was a combination of internal First Bank transactions and interbank transactions, neither of which gave rise to a duty to file a CTR. 31 C.F.R. 103.22(b)(1)(ii). Had the court's reasoning been otherwise, for example, it would have granted summary judgment with respect to an additional $65,000 because two transaction using the cash from Dr. Lowe involved $40,000 and $25,000 respectively, and thus by definition do not constitute structuring.
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7. The Bench Trial
The case visas tried without a jury on September 19, 1994. The evidence generally consisted of relevant documents plus depositions and affidavits of Dr. Lowe, Mr. Lett, school officials, ant other witnesses. The court suggested, and the government agreed, that the government was contending that the cash deposit ''was actually a contraband.''
The Court: What you are saying in effect is the currency is the contraband itself.
AUSA Harmon: It's the contraband per se at this point
The government also contended at trial that Dr. Lowe had an ''ulterior motive'' in regard to the currency transaction, namely to evade the payment of taxes. Dr. Lowe contented that his motivation regarding the First Bank account in all respects, including his cash deposit, was purely eleemosynary—i.e., to benefit Chambers Academy and its students.
To establish that the tax issue was entirely fallacious, Dr. Lowe called Grant McDonald, a Birmingham C.P.A., who represented Dr. Lowe when the I.R.S. audited his tax returns for the period 1987 through 1991. McDonald explained that a closing agreement had been reached between Dr. Lowe and the I.R.S. for that period, and the I.R.S. had agreed that there was a net over-reporting of his professional income by Dr. Lowe for that five years of ''about 23 thousand dollars.'' Thus, there was no ''valid claim that Dr. Lowe owed any tax on the $316,911 for the years '87 through '91.'' I.R.S. group manager David Warren also conceded in his testimony that the I.R.S. does not contend that any tax was owed on the $316,911 for '87 through '91.
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Mr. McDonald described Dr. Lowe's tax circumstances at the time he made the cash deposit in November 1990. In 1989 the I.R.S. had completed an audit of Dr. Lowe's returns for 1983 through 1986. Dr. Lowe had met with I.R.S. officials without any professional assistance, either legal or accounting. According to I.R.S. work papers, the I.R.S. found that Dr. Lowe was not knowledgeable on tax matter and kept poor records. Using its own estimation, the I.R.S. determined that Dr. Lowe owed an additional $57,000 in taxes for the four years. In addition, the I.R.S. assessed $59,000 in penalties and interest. Dr. Lowe paid the full amount immediately without question. Mr. McDonald expressed the opinion that much of the penalty could have been avoided with proper professional assistance. For example, in the 1987 through 1991 audit with Mr. McDonald, no penalty was assessed for 1988, 1989, 1990 or 1991.
In 1989 an accountant, Alexander Walton, Jr. of Lafayette, prepared both Dr. Lowe's tax return and that for Chambers Academy (or CCEF). The accountant reported all interest paid on the defendant account by First Bank as income to the school and included it on the school's return. He did not include the income on Dr. Lowe's return or claim any charitable contribution deduction. The 1989 tax return was the last one filed prior to the cash deposit at First Bank. Thus, with the accountant's treatment of the interest and the I.R.S. paid in full for its audit a year earlier, there was no reason in November 1990 for Dr. Lowe to believe the I.R.S. would ever claim that any tax was due on the $316,911 which Dr. Lowe deposited.
To further discredit the government's effort to find some tax motive, Mr. McDonald explained that, in early 1991 when Dr. Lowe was making contributions to Chambers Academy of $296,000 in principal from the First Bank account (plus the interest payments) in order to retire the school's debt, the school asked for an additional contribution to be used to pay the income tax which the school anticipated owing. Dr. Lowe responded by sending the school an additional $160,000. The school then paid $125,000 of that to the I.R.S. as an estimated tax payment. Later, the I.R.S. notified the school that it did not owe the tax, the $125,000 was refunded, but the school then used it internally. Dr. Lowe never received any of it back.
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The claimant contended that the government could not properly rely on any tax-related issue to establish probable cause that the defendant account was subject to forfeiture. In this respect, Mr. McDonald testified that, from his review of I.R.S. work papers and statements to him by I.R.S. agents, the U.S. Attorney's Office in Montgomery had no information regarding Dr. Lowe's tax states until July 1991 (a month or so after this case was commenced), and the I.R.S. knew nothing of tile pending forfeiture case until then. Counsel for the government conceded that evidence concerning tax matter ''has no effect at all on the probable cause question.''
8. The District Court's Opinion
On February 28, 1995, the district court issued a memorandum opinion and order holding that (1) The government had probable cause to seize ''the defendant currency'' because the ''claimant requested to remain anonymous and First Bank failed to file the requisite CTR,''; (2) the innocent owner defense of 18 U.S.C. 981 (a)(2) was not applicable to the claimant because ''Dr. Lowe was cognizant of the CTR requirement'' and by inference, ''the failure to file the required CTR was induced by Claimant's exhortation,''; and (3) the Excessive Fines Clause of the Eighth Amendment does not apply to a forfeiture under 981 when a CTR is not filed ''so long as the amount forfeited is no more than the defendant currency.'' According, the court held $316,911, plus accrued interest thereon, forfeit.
9. Where The District Court Went Wrong
The government did not establish probable cause for to forfeiture. The record is insufficient in three significant ways. First, the government's complaint alleged but one basis for forfeiture under 981, i.e., that the defendant property was involved in structuring violations by First Bank president Joseph Lett and his son, bank vice president Michael Lett. But the defendant $316,911 was deposited in a single, lump sum deposit which did not violate federal law, and the Treasury regulations applicable here expressly exempt transactions between domestic banks from reporting requirements. Thus, no CTR was required for the several less than $10,000 cashier's checks obtained by the Letts, and no structuring occurred.
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Second, the district court did not find probable cause based on structuring, but on the bank's failure to file a CTR, a basis for forfeiture not alleged by the government in its complaint. Additionally, the government was not aware of the evidence relating to the bank's failure to file until after the case had been instituted. 19 U.S.C. 1615 requires probable cause to be shown for the institution of the action which many courts, including district courts in this circuit, have held to limit probable cause to facts known as of the filing of the complaint. Thus, the district court's finding of probable cause does not satisfy the standard of 1615.
Third, the district court based its finding of probable cause upon the claimant's having requested anonymity in establishing the defendant account to aide Chambers Academy, a small private school in his hometown. The court found that the banker was influenced by that request. But the duty to file a CTR is on the bank, not the depositor. The cash deposit is not contraband, and the offense is the withholding of the information by the institution bearing the duty to report, not the possession of currency or legally depositing it. Claimant's desire for anonymity was made long before the cash deposit in reference to his eleemosynary activities. There is nothing actionable about such a request. A request for anonymity, or an inquiry about requirements, cannot be said to ''cause'' a bank to fail a CTR. Causation includes an element of foreseeability, and Dr. Lowe could not reasonably foresee that Mr. Lett would decide, after the cash deposit, not to file a CTR.
The forfeiture should also have been dismissed because the innocent owner defense of 981(a)(2) is applicable. Dr. Lowe did not know that the bank would not file a CTR. The record is clear that Mr. Lett did not tell him what the bank was doing—or omitting. Indeed, Lett did not decide to omit the CTR until after the deposit was made. And the district court did not find that Dr. Lowe knew, but instead used a factual basis for rejecting the defense not provided in 981.
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The Excessive Fines Clause of the Eighth Amendment also bars a forfeiture in this case. Although the district court did not apply this court's holding in United States v. One Single Family Residence Located at 18755 North Bay Road, 13 F.3d 1493 (11th Cir. 1994), that case is controlling. It requires a proportionality analysis which strongly favors the claimants position. The claimant did nothing illegal. He used untainted funds for a highly laudatory purpose, saving a small school from financial ruin. Although the claimant was indicted, the government placed him on pretrial diversion, and the charge has now been dismissed. Cash was deposited only once, and although the bank did not file a CTR, the purpose of 31 U.S.C. 5313 and 5324 is to identify money laundering activities of organized crime and drug lords, not rural doctors using life savings to save a small school. The cash itself was involved only indirectly, in that it triggered a reporting duty on the bank.
10. The Court of Appeals' Opinion
On July 31, 1996, in an unpublished opinion, the United States Court of Appeals for the Eleventh Circuit reversed to forfeiture judgment and remanded the case for the entry of judgment in favor of Dr. Richard Lowe. The court held that the proof in the case had not demonstrated ''any substantial connection between anything [Dr.] Lowe knew and the bank's failure to file a CTR on the cash deposit.'' In what is an excellent example of how a standard of proof higher than a preponderance affords a needed additional layer of protection to innocent property owners, the Court of Appeals stated: ''[W]e are left with the definite and firm conviction that a mistake was committed when the district court found that a preponderance of the evidence did not support the conclusion that Lowe lacked knowledge that [bank president] Lett would break up the cash deposit in an attempt to avoid federal currency reporting requirements.'' The court concluded that the proof established that Dr. Lowe did not have actual knowledge that the bank would not file a CTR, and therefore, Dr. Lowe was an ''innocent owner'' under 18 U.S.C. 981(a)(2).
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In the end, Dr. Lowe regained all of his savings, but the battle for the restoration of his assets ran from June 1991 until the last of the funds were returned earlier this year (February 1997). This case offers many valuable lessons regarding the reform of forfeiture laws.
TEACHINGS FROM THE LOWE CASE
1. The Burden of Proof
From the standpoint of a private citizen undertaking a project which is not only innocent in itself, but is worthy of considerable praise, it is shocking to learn that the government has the authority and the desire to seize and forfeit your assets. But it is more than shocking—it is contemptible—that such a citizen stands to lose the case on the merit's once all the facts are revealed. The district court was able to find a basis in these laudable facts to grant judgment, albeit erroneously, for the government. The citizen then suffers great expense and untold anxiety (at one point in the pendency of his case, Dr. Lowe was hospitalized due to the stress of the litigation) in having to further endure an appeal.
Almost certainly, with the facts as they were in this case, Dr. Lowe would have prevailed in district court had the government the burden of proof by clear and convincing evidence. Any less burden will inevitably result in factually close cases being decided against the property owner.
Ultimately the choice must be made between affording meaningful protection to the innocent property owner against wrongful takings by the government and the possibility that the government will not succeed in some cases it has heretofore won. It is submitted that such a price is small indeed in a free society which should strive to foster a belief among its people that their government will be fair and just. The present forfeiture laws are sending a powerful message to the contrary to all who look and listen.
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2. Seize Now, Justify Later
Current law allows—indeed, promotes—law enforcement agencies to seize property without cause, and then undertake an investigation, including the use of discovery and depositions from claimants, to locate evidence which can be used to forfeit the property. So long as the burden of proof remains on the property owner, such a greedy, strong-armed approach is encouraged. A sizable portion of civil forfeitures occur against property owners who are never charged with any criminal offense. In Dr. Lowe's case, he was charged, but then the charge was effectively withdrawn.
Revising the burden of proof is critically important in this reform bill, but it alone will not cure the problem of seizures without probable cause, essentially because law enforcement officers want the property. Institutional greed is inevitable when the law allows the initial seizure with so few safeguards.
19 U.S.C. 1615, which applies to all drug ( 881) and currency violation ( 981) forfeitures, provides that ''probable cause shall be first shown for the institution of such suit or action....'' Some courts have read this language to mean what it says. That is, the government must demonstrate on the day the forfeiture case is filed in district court that it possessed proof establishing probable cause to believe the property in question is subject to forfeiture. (See, e.g., United States v. $91,960.00, 897 F.2d 1457, 1462 (8th Cir. 1990); United States v. Monkey, 725 F.2d 1007, 1011 (5th Cir. 1984)). The government should not be allowed to use depositions and discovery to make a case when it had no case at the outset.
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In Dr. Lowe's case, the investigating agents and the prosecuting attorney did not learn that no CTR had been filed until months after the case was began. When they became convinced that their theory of ''structuring'' violations was legally without merit, they simply changed theories in mid-stream.
In addition, some courts have correctly asserted that the Federal Rules of Evidence is applicable to the governments effort to establish probable cause for the case to go forward (and therefore, in cases of personal property, for the government to maintain possession of the property). I urge you to resist any attempt to weaken this bill by adding an exemption from the Rules of Evidence. No exemption is now in the law. That should not change.
It is reasonable to require the government to have an actual case based on competent evidence showing probable cause before it is justified in holding private property under its control while it undertakes to forfeit it. To allow otherwise is to encourage seizure-spawned witch hunts such as both the Willie Jones case and the case of Dr. Richard Lowe are shameful examples.
3. The Definition of Innocent Owner
The provisions of the reform bill contain a carefully crafted definition of ''innocent owner'' which has been long needed to resolve the disparate interpretations of innocent owner among courts across the country. The proposed definition is well thought out and simple to apply. We urge the committee to hold firm to this definition and resist any efforts either to weaken it or to load it down with complexity.
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One of the serious problems with present forfeiture is that its procedures are so complex and arcane that many lawyers are intimidated by them. It might even be suggested that some courts are uneasy with its unique process. The reform bill makes significant strides at providing procedures and legal standards which are simpler to apply and have more in common with standard civil cases. This goal should be kept in mind throughout the making up of the bill.
Thank you, Mr. Chairman, for hearing me. And thank you to all the members from both sides of the aisle who have joined in this effort to bring fairness and justice to forfeiture.
Mr. HYDE. Thank you very much, Mr. Edwards.
Ms. Davis.
STATEMENT OF SUSAN DAVIS, C.P.A., McMILLAN, UNRUH & DAVIS, P.A., FORT LAUDERDALE, FL
Ms. DAVIS. Chairman Hyde, Ranking Member Conyers, and other distinguished members of the committee, my name is Susan Davis. I am a partner in a small C.P.A. firm in Fort Lauderdale, FL. I thank you for inviting me to testify today. I have never done this before and I am not an attorney or used to public speaking, but I appreciate being invited here to tell you about my experience with these unfair asset forfeiture laws.
I am here because in June 1990, I was named personal representative for the estate of one of our clients who had died of cancer. The estate had a value of approximately $900,000, with the main assets being securities and two pieces of real estate, a house in New York State, and a house in Fort Lauderdale.
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Several months later, in the fall of 1990, I received a call from one of the beneficiaries who had been staying at the house. He had returned home to find that the house had been seized by Federal marshals. Upon inquiry, we were informed that some confidential informant who was in prison, had stated that the decedent had told him that he had received $10,000 for allowing a boat to unload drugs at the Fort Lauderdale property in 1988. In short, an unnamed person in prison told an unnamed government agent that an unnamed vessel used by unnamed persons to offload cocaine at the home of the decedent, George Gerhardt, on an unspecified date in December 1988. It was also claimed he had received $10,000 from an unnamed person for the use of his property. Based on these facts alone, the house had been seized.
We were at that time referred to Marc Gold, a local attorney who is now a judge, who had prior experience with this type of case. He explained to us that we could choose to forfeit the house or to file and pursue a case against the Government. But he explained that under the unusual laws in this area of asset forfeiture, the cards had always been stacked in favor of the Government, no matter how innocent the claimant. Accordingly, he counseled that if we chose to file and pursue a case, we and not the Government, would have to prove that the Government's charge was wrong. He warned that our chances of doing this would be slim.
Since none of us could see just abandoning a $300,000 house, when we felt the Government had no good grounds whatsoever for taking it, we proceeded with the case. We found ourselves being required to prove a negative. That the now deceased Mr. Gerhardt had not known anything about drugs being offloaded at his property. The Government on the other hand, did not have to prove anything. Not that their unnamed informant had in fact been told what he said he had been told, nor that any drugs had ever been off-loaded on the property.
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The case took close to 3 years before it went to court. During this time, the Government possessed the property and collected rent on the property. When the case finally went to court, after a 1-day nonjury trial, U.S. District Court Judge James C. Paine agreed that there was no reason to think that Mr. Gerhardt knew of any crime being committed on his property.
More specifically, as discovery went forward, we found the Government refusing to provide any relevant information to us until they were finally placed under threat of judicial sanctions by the court. It did not matter to the Government that Mr. Gerhardt was dead and obviously could not defend himself. It did not matter that he was out of the country on vacation during a time when an acquaintance, unbeknownst to him, illegally used the property. It did not matter that every testifying witness listed by the Government said that Mr. Gerhardt in fact had no knowledge of the incident. In fact, that any information regarding it was specifically and deliberately kept from him. Finally, it did not matter that all of his heirs were indisputably innocent and without any knowledge of the wrongdoing.
All this wrongful havoc wreaked by the Government was on what basis? At the trial, the Government did not present one speck of hard evidence in support of the allegations contained in the complaint. Yet as the judge said on the record after our long awaited 1-day nonjury trial, the law is slanted very heavy in favor of the Government in forfeiture cases. It seems to me that the people against whom their property is being forfeited are at a tremendous disadvantage.
I wonder about the constitutionality of these laws. They have been held to be constitutional by appellate courts. I must say I find it very hard to find for the Government in this case on the character of the evidence that has been put before us here. On the other hand, the statute is so strong for the Government, it is hard not to find for them as well.
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Fortunately, Judge Paine found the Government seized the property of the estate on such a lack of cause that he could rule in our favor, even under the current law as so tremendously disadvantaging to the property owner and of doubtful constitutionality.
Had Mr. Gerhardt been alive, he would have been evicted from his house, as his beneficiary later was. He would have been forced to face costs of new housing and litigation just in order to fight the battle against the Government to get his home back unless he simply gave up and gave the house to the Government. Few people can afford to do this. I have discovered that very few actually have done it.
In this case, we were lucky enough to have the cash available backed by the estate to engage in the necessary long unfair fight against the Government's unsubstantiated claim. This fight eventually cost the estate more than $40,000 in legal fees and costs. In addition, we had to hold back distributions from the beneficiaries to pay other costs associated with the trial, pay several years back real estate taxes plus penalties and interest, as the Government had not paid any of these. In addition, we had to pay insurance for the time the Government held the house as the Government would not insure it.
Finally, when we won our case in court and the house was returned to the estate, the person to whom the Government had rented the house for $2,000 a month refused to leave and refused to pay us any rent. We then had to hire another attorney and use additional time and money to have the Government's wrongful worthless tenant evicted.
I feel we were very fortunate to get the property back in this case and fortunate to have the means to withstand the fight to get it back. But it does not seem right to me that the Government should have the right to confiscate an innocent person's property based on nothing more than the hearsay claim of an unnamed person in prison on criminal charges. Sure in the knowledge that laws, time and money advantages are almost always so in the Government's favor, that most people will be unable to even start contesting the taking, let alone do it successfully.
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I am not a lawyer, but after reading this bill, I can see that the reform bill would make several important improvements to these laws. It would put the burden of proof on the Government, where I think it should be. It would make the Government prove its burden by a clear and convincing legal standard. The bill says it would ensure an innocent owner's interest in property can not be forfeited by the Government under any forfeiture law. It also states there would be important court supervision of the property during a contest with the Government. That a property owner could not be left homeless or rendered unable to make a living with his or her business during the time the Government has seized the property.
Mr. HYDE. Ms. Davis, your time has expired. Could you wind it up by any chance?
Ms. DAVIS. Yes. I think that's basically it.
[The prepared statement of Ms. Davis follows:]
PREPARED STATEMENT OF SUSAN DAVIS, C.P.A., MCMILLAN, UNRUH & Davis, P.A., Fort Lauderdale, FL
Chairman Hyde, Ranking Member Conyers, other distinguished members of the committee, my name is Susan Davis. I'm a partner in a small CPA firm in Fort Lauderdale, Florida.
Thank you for inviting me to testify today. I have never done this before. I am not a lawyer, or used to public speaking. But I very much appreciate being invited here today to tell you about my unexpected experience with these unfair asset forfeiture laws you do need to reform.
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I. WHY ME?
In June of 1990, I was named personal representative for the estate of one of our clients who had died of cancer. The estate had a value of approximately $900,000, the main assets being securities and two pieces of real estate—a house in New York state and one in Fort Lauderdale.
In the Fall of 1990, I received a call from one of the beneficiaries who was staying at the house in Florida. He said he had returned home to find that the house had been seized by Federal Marshals.
Upon inquiry, we were informed that some ''confidential informant'' who was in prison, had stated that the decedent had told him that he had received $10,000 for allowing a boat to unload drugs at the Fort Lauderdale property in 1988. In short, an unnamed person in prison told an unnamed government agent that an unnamed vessel was used by unnamed persons to offload cocaine at the home of the decedent, George Gerhardt, on an unspecified date in December 1988. It was also claimed that he had received $10,000 from an unnamed person for the use of his property. On these vaguest of ''facts'' alone the house had been ''seized.''
II. MEETING ASSET FORFEITURE
We were referred to Marc Gold, a local attorney (now a judge) who had prior experience with this type of case. He explained to me and the beneficiaries that we could choose to forfeit the house or to file and pursue a case against the government. But he explained that under the unusual laws in this area known as ''asset forfeiture'': ''the cards have always been stacked in favor of the government, no matter how innocent the claimant.'' Accordingly he counseled us that if we chose to file and pursue a case, we—not the government—would have to prove that the government's charge was wrong. And our chances of doing so would be slim.
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But none of us could see just abandoning a $300,000 house when we knew the government had no good grounds whatsoever for taking it. Indeed, George Gerhardt was very much anti-drugs. He hated drugs. So, we decided to try to get the house back.
III. WILL AND ABILITY TO FIGHT BACK?
We found ourselves being required to prove the negative, that the now-dead Mr. Gerhardt had not known anything about drugs being off-loaded at his property. The government, on the other hand, did not have to prove anything: not that their unnamed informant had in fact been told what he said he had been told; not that any drugs had ever been off-loaded at the property.
It took close to three years—during which the government possesses and collected rent on the property it had taken—before the case went to court. When it finally did, after a one-day non-jury trial, U.S. District Court Judge James C. Paine agreed that there was no reason to think that Mr. Gerhardt knew of any crime being committed on his property.
IV. THROUGH THE LOOKING GLASS
More specific, as discovery went forward, we found the government refusing to provide any relevant information until they were finally placed under threat judicial sanctions by the court. It did not matter to the government that Mr. Gerhardt was dead and, obviously, could not defend himself. It did not matter that he was out of the country on vacation during a time when an acquaintance, unbeknownst to him, illegally used the property. It did not matter that every testifying witness listed by the government said that Mr. Gerhardt in fact had no knowledge of the incident; indeed, that any information regarding it was specifically and deliberately kept from him. Finally, it did not matter that all of his heirs were indisputably innocent and without knowledge of any wrongdoing.
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It is impossible for me to adequately describe the full magnitude of government arrogance in this matter. But I want to at least note some of the low-lights of out three year travail with the government, left so unrestrained under existing laws:
Our case was filed in September 1990 and was finally resolved in a court in August 1993. During this time, in addition to the costs and energies expended in waging the uphill, unfair legal fight against the government, a beneficiary of Mr. Gerhardt's will had been thrown out of the house by the Marshal Service Seizors, and the government collected thousands upon thousands of dollars in rent from various tenants obtained by the government.
Even after the entry of the Final Judgment by U.S. District Court Judge Paine, the conduct of the government remained abusive. It took us an unreasonably long time to actually get the house back from the government. Indeed, the Court had to take the unusual step of imposing sanctions against the government in the amount of $5,690,000.
V. WHY AND WHAT FOR?
All of this wrongful havoc wreaked by the government, and on what basis? At trial, the government did not present one speck of hard evidence in support of the allegations contained in the complaint. And yet, as the Judge said on the record after our long-awaited one-day, non-jury trial:
The law is slanted very heavy in favor of the Government [in forfeiture cases], ant it seems to me that the people against whom their property is being forfeited are at a tremendous disadvantage. I wonder about the constitutionality of these laws. They have been held to be constitutional by appellate Courts. I must say that I find it very hard to find for the Government in this case on the character of the evidence that has been put before us here. On the other hand, the statute is so strong for the Government, it is hard not to find for them as well.(see footnote 1)
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Fortunately, Judge Paine found the government seizes the property of the Estate on such a lack of cause that he could rule in our favor, even under the current laws so ''tremendously disadvantaging'' the proper owner, and of doubtful constitutionality.
VI. ... BUT FOR THE GRACE OF GOD....
Had Mr. Gerhardt been alive, he would have been evicted from his home, as his beneficiary later was. He would have been forced to face the costs of new housing and litigation just in order to fight the disadvantaged battle against the government to get his home back (that is, unless he simply bent to the arbitrary will and power of the government). Few people can afford to do this. And I have since discovered very few actually have done it.
In this case, we were lucky enough to have the cash available, backed by the Estate, to engage in the necessary long, unfair fight against the government's unsubstantiated claim. This protracted fight eventually cost the Estate more than $40,000 in legal fees. In addition, we had to: hold back distributions from the beneficiaries; pay other costs associated with the trial; pay several years back real estate taxes—left unpaid for three years by the government seizors—once we did get the house back; as well as pay insurance for the time that the government held the house, as the government had not insured it. Further, when we finally won our case in court and the house was resumed to the Estate, the person to whom the government had rented the house for $2,000 per month refused to leave and refused to pay rent. We had to hire still another attorney and use additional time and money to have the government's wrongful, worthless tenant evicted.
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VII. CONCLUSION: VERY IMPORTANT REFORM BILL
I feel that we were very fortunate to get the property back in this case and fortunate to have the means and the intestinal fortitude to withstand the long hard fight to get it back But it does not seem right to me that the government should have the right to confiscate an innocent person's property based on nothing more than the hearsay claim of some unnamed person in prison on criminal charges, sure in the knowledge that the laws, time and money advantages are almost always so in the government's favor that most people will be unable to even start contesting the taking, let alone do so successfully.
I am not a lawyer. But I got a quick education in the abuses of these current laws as an unsuspecting CPA entrusted by a deceased client to take care of his Estate.
With that experience and with a CPA's training in reading the technical, I can see that the reform bill before this Committee would make several important improvements to the laws:
It would put the burden of proof on the government, where I think Americans rightly expect it to be, and where it should be.
It would make the government prove its burden by a ''clear and convincing'' legal standard—a standard that certainly strikes me as appropriately commensurate with the gravity of the government's action, the taking of a citizen's property, even one's home or life savings.
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The bill says it would ensure that an innocent owner's interest in property cannot be forfeited by the government under any forfeiture law. This is important, so that in all cases (no matter which specific forfeiture law is invoked by the government), as in our case, a property owner who did not know of alleged conduct that would make a property subject to forfeiture will be protected under the law.
This bill states that there would be important court supervision of the property during a contest with the government, so that a property owner would not be left homeless or rendered unable to make a living with his or her business, during the time tile government has seized the property for whatever period of time before a final decision may be rendered by a court. Had Mr. Gerhardt been alive at the time of the government's actions in our case, he would have been left without his home (as his beneficiary actually was), for three years.
The time it took for our battle raises another point. I understand this bill would ensure that courts make the government adhere to a reasonable timetable for commencing its litigation over seized property. That way, the government would no longer be allowed to drag these cases out for many months, or years—all the while holding the house or other critical property of the individual so as to cripple the person's ability to live, let alone contest the government's perhaps wrongful actions.
Finally—and I think this is extremely important—I understand the bill to provide for the appointment of an attorney for those who would otherwise not have the financial ability to hire one to help them in the complex fight against the government in one of these cases. We were extremely fortunate to have had the cash available to fight the long, unfair legal fight against the government in our case.
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Thank you again Mr. Chairman for allowing me to speak to you and the Committee today. And I thank you and the other co-sponsors of this import bill. I do hope you get it passed into law as soon an possible.
Mr. HYDE. If I may suggest, your difficulty is that you have never lived in the Soviet Union. You would be used to these things if you lived over there. [Laughter.]
All right. Thank you, Ms. Davis. Now we will have questions.
The Chair recognizes Mr. Conyers, the ranking Democrat.
Mr. CONYERS. Thank you, Chairman Hyde. I thank the witnesses.
We have got a couple of problems here that we would like to get comments from everybody on. One is the problem about the need of the Government to subpoena documents and witnesses before there is a case. There is a procedure in here, Mr. Bailey and Mr. Edwards, that blows my mind, this so-called civil investigative demand. Then we have the fugitive provision, I think you lose all your property rights, under ''fugitive disentitlement.''
We have got to be nice to the Department of Justice today. We are trying to work this thing out. So no beating up on them, guys. The negotiations, and this have been going on for some time. I had hearings in Government Operations, what, 3 or 4 years ago on this. This is taking an awfully long time. We can't go to the Attorney General every time we stub our toe in Judiciary. But these two provisions seem to be the hangup. What I am trying to do is get the bill through this year, you know, 1997. This has gone on long enough. I don't even want to call for a review of all the asset forfeiture cases that have gone on in the Government if we can get this through. In other words, I am being nice. This is real nice nice stuff here.
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So tell me, if you will, gentlemen, how we may be able to work out these provisions? Mr. Edwards, why don't you start it off?
Mr. EDWARDS. I'll be very pleased to, Mr. Conyers. However, you have sort of pushed one of my buttons with respect to civil investigative demands. It is hard to talk about that and not beat up on the Justice Department. It's my feeling that the Justice Department should be ashamed of itself for even asking the Congress to consider what they propose for civil investigative demands, much less fighting to get it.
What they would propose to do is to make every U.S. attorney's office in this country a star chamber, and make every assistant U.S. attorney in this country a grand inquisitor. Sure, there will be many assistant U.S. attorneys who find that kind of power alarming and even scary and wouldn't use it. But there will be many who, if it's on the books, they will see that they should use whatever power Congress gives them. The idea that a Federal prosecutor in our Nation can demand the appearance of any citizen of our country in their office to answer their questions and to produce papers and documents at their request when there is no pending litigation between the Government and the target of their demand is—I mean, that reminds me of people in the 1930's and 1940's in another continent. It does not remind me of American traditions, and it's scary. I mean it's scary just because Justice would ask for it.
On page 33 of the Justice Department's submission, I was reading last night, they don't mention the phrase ''civil investigative demand,'' but they say they want to allow their attorneys to issue subpoenas for evidence in civil forfeiture cases in the same way that they are issued in health care cases, antitrust cases. But wait a minute. We're not talking about commercial regulation. This is not the FTC and it's not the SEC regulating securities. We are talking about allowing the U.S. attorney to get any person in this country into his office to question him without any judicial supervision. I mean it makes my skin crawl. I'm sorry I have run on about that.
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Now the disentitlement doctrine is really not that big a matter. The Supreme Court ruled I believe a year ago in a case that when a person is a fugitive from justice, you can't automatically forfeit their property just because they are gone. Now that doesn't mean—just let me give you an example.
Suppose somebody is indicted for a crime today and tomorrow some of his property is seized in a civil forfeiture case. The Government still has all the rights that they have always had to take depositions, to get discovery, to prepare that civil forfeiture case for trial. If it's set for trial and the person has absconded from the criminal case, then he can't be there to offer testimony. He is going to lose that case. So it's no great blow to the Government that just the fact that he has become AWOL the criminal charge shouldn't be a default in the civil case. The Government can continue to prosecute the civil case and ultimately win if he doesn't come back and defend his property. So I just don't think that should be a serious problem at all.
I would mention one other thing. The Government is proposing to water down the time limits that are proposed in this bill: the 60 days to file a notice, to send the property owner a notice; and the 90 days after a claim has been filed to get the case into court. Well, let me suggest as every trial lawyer in this room knows, if you have got a deadline, you are going to get the job done a lot faster than if you don't have a deadline. The proposed bill allows for a government attorney to go to court and get an extension. Any time my back gets to the wall and I can't get something done on time, I ask for an extension and I invariably get one because most of the judges who have seen me know that I am conscientious and I wouldn't ask for it if I didn't need it.
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This bill allows for justice or for local Federal prosecutors to get extensions. There is no need to water down the bill as the Justice Department wants to. Basically what they want to do is say well, if we don't meet our deadlines, we'll give the property back without prejudice. Then we can go ahead and do what we want to do and reseize it. In other words, we can give you the property back this morning and reseize it this afternoon and the clock starts running again. That's no requirement at all.
So I would urge you to keep it the way you have it written, because you got it right the first time.
Mr. HYDE. Mr. Coble.
Mr. COBLE. Thank you, Mr. Chairman. Mr. Chairman, until today I have not cosponsored your bill, but I will sign on. This legislation just evaded me. I have heard some of these stories today. If I had any questions about this bill, I think they have been answered. I believe your bill addresses the innocent owner and inserts some sort of fairness of equity into this process. The shifting of the burden of proof is a good idea.
My friend from Michigan said let's not beat up too badly on the Justice Department. I don't intend to do that. Mr. Edwards, I can see that you felt very strongly about your testimony, as did my friend from Nevada. I am not bashing law enforcement, folks, but I get fed up when I hear about the FBI, DEA, OSHA, and EPA. They come onto your property, they heavyhandedly throw their weight around, and it annoys the devil out of me. I suspect it annoys you all.
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I don't mean for these agencies to not do their jobs. If they are out there arresting a no-good thug, that would be one thing. But when you are out here talking to someone who is not a known thug, I think he deserves a little better standard of care.
Having said all that, Mr. Munnerlynn, I take it from the tenor of your testimony that the DEA may well have been heavyhanded. Were they in the handling of your Lear jet?
Mr. MUNNERLYNN. Well, sir, I have never been arrested before but I have a brother that's been on a sheriff's department for many years. Several of my relatives are in police work. I explained to him what had happened and he couldn't believe it. The first thing I knew was I am sitting in the waiting room trying to get my fuel to go back home and the next thing I know, I am laying on the ground with a number nine boot on top of my head.
Mr. COBLE. You did nothing to provoke this response?
Mr. MUNNERLYNN. No, sir. Absolutely not. I am not that big of a fellow.
Mr. COBLE. Mr. Chairman and Mr. Conyers, this is the sort of thing that bothers me. I think that maybe we can direct attention to that sort of conduct through your bill, Mr. Chairman. I am happy to be a cosponsor.
Good to have you all with us today, folks.
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Mr. HYDE. Thank you, Mr. Coble. The gentleman from New York, Mr. Nadler.
Mr. NADLER. Thank you. I'm not sure I have a question for the panel. Let me say I want to commend the chairman and the ranking member. I have long been wondering about the constitutionality—never mind the constitutionality—the civilized aspect of civil forfeiture law. The fact that we turn everything on its head, that the burden of proof is on the person in the dock instead of on the Government, that you are presumed guilty, that you have to prove nonguilt. You have to prove a negative, which I was always taught in logic courses was an impossibility. That the Government can seize your assets and prevent your use of your assets to hire the lawyer to defend yourself, that except for in the most rudimentary way that the courts have imposed, there's no proportionality requirement. That the victim can be victimized if someone misused his property, even upon specific instructions not to and he had no way of stopping that. And the total lack of due process in this whole thing.
Frankly, I think this is a fine example of the way, in the name of the war on drugs especially, we have been surrendering our civil liberties wholesale. So I hope that this bill will go someway toward remedying that.
The civil investigative demand being in a sense an extrajudicial way for a prosecutor to take the roll of a judge in issuing subpoenas is—the fact that we can even talk about it as part of a quid pro quo for remedying some of these obviously improper, I won't say unconstitutional because they haven't been ruled unconstitutional, though I would think them unconstitutional. But certainly improper practices that have been used to victimize our citizens the fact that that can be advanced to quid pro quo is a symptom of how far we have come from a proper understanding of civil liberties. The Justice Department, whose main job should be to protect citizens both from criminals and from unconstitutional actions infringing their liberties, should do some rethinking. They should not ask for such powers.
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Mr. HYDE. I thank the gentleman.
The gentleman from Virginia, Mr. Goodlatte. The gentleman from Virginia, Mr. Scott.
Mr. SCOTT. Thank you, Mr. Chairman. I want to thank the witnesses for their testimony and just ask a couple of questions kind of more procedural kind of questions. I guess this is for Mr. Edwards and Mr. Bailey.
If someone were to come into your office and say that their assets had been seized, how do you charge to handle the case? Is it like any other normal criminal case, that they would have to come up with some money to be able to get their own property back?
Mr. BAILEY. If it were not a longstanding client, most lawyers would require some money to be paid before they got involved. In my case, I had represented the people for some time, so I didn't have to go looking for a retainer before flying to the scene. But the average person is left out in the cold.
The very purpose that the Government has in seizing assets in these cases is to disable the target from being able to hire adequate legal counsel, and then if he does, to disable that counsel from getting due process, a word for which many of us went out and fought.
Mr. SCOTT. Are you suggesting that often they will seize the cash assets to totally or essentially make the target insolvent so that they can not hire attorneys?
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Mr. BAILEY. In my case, they did exactly that, and restrained accounts that would have otherwise been available for the payment of legal fees, and warned the attorneys that if they took any fees they would come and get it back, which would discourage many otherwise able attorneys from taking the risk.
Mr. SCOTT. The retainer would be an asset that could be seized?
Mr. BAILEY. The Government handed me a certificate of probable cause saying that a magistrate based on a secret warrant and secret evidence had determined that the property might be forfeitable and I would take it at my risk. Many lawyers, not this one, wouldn't take that risk.
Mr. EDWARDS. Mr. Scott, where a property owner is also a criminal defendant, that is, has been charged with a crime rather than just having property seized only, then I would probably handle the case much as any routine criminal case and I would require a fee paid in advance, or at least part of the fee paid in advance.
However, in many civil forfeiture cases I have handled, there were no criminal charges. Very often the amount involved, the value of the property involved, unlike Dr. Lowe or Mr. Bailey's case, is not millions of dollars. In fact, one DEA study indicated that in only 17 percent of all forfeiture cases was the property valued at more than $50,000. So what very often happens, if the client is able to pay a small retainer up front, I ask for it, but most often I take forfeiture cases on a contingency, a percentage of the property, the value of the property we get back.
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Mr. SCOTT. After the Government takes their property and it's ascertained that it was wrongfully taken, are the attorney's fees collectable from the Government?
Mr. EDWARDS. No. If you will remember the Willie Jones case, the former client of mine from Nashville, the African–American landscaper who had $9,000 seized from him at the National Airport and testified before this committee last year, 2 years later we were successful in getting the money returned, but that's all he got back. And, for some legal quirks, the Justice Department wouldn't waive the cost bond, so we had to wind up suing the Justice Department to get into court.
Effectively, I would have been working pro bono because he couldn't afford to pay me. That was all right because Willie Jones is a good person and shouldn't have had his money taken. I was willing to do that. But as it turned out, the court awarded attorney's fees. The court could not have done that in the normal civil forfeiture case. In any civil forfeiture case under present law, the property owner has to pay his own counsel fees unless the court can find that there is ''no substantial justification'' for the seizure. Most courts interpret that to mean if there was no probable cause, and they almost never find that.
Mr. SCOTT. Is there any interest? Did he get any interest on his money?
Mr. EDWARDS. No, sir.
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Mr. HYDE. The gentleman's time is about to expire.
Mr. SCOTT. Let me get in another real quick question, if I could.
Mr. HYDE. All right.
Mr. SCOTT. If an innocent person has his property taken and does not have an alibi and can't prove his innocence and the Government can't prove his guilt either, does the Government get to keep his property?
Mr. EDWARDS. Under present law, he loses.
Mr. SCOTT. Thank you, Mr. Chairman.
Mr. HYDE. Thank you. The gentleman from Tennessee, Mr. Bryant.
Mr. BRYANT. Thank you, Mr. Chairman. I very much appreciate your stepping forward to bring this issue to the forefront.
While I agree with Mr. Conyers this is not earth-shaking in the big picture, it is very important to those involved in the process. As Mr. Conyers very well points out, it's very significant when we talk about the rights of people that we discuss this situation.
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A moment ago, we had Mr. Barr here and Mr. Hutchinson. The three of us are former U.S. attorneys and we have had, while not direct dealings, some discussions about the Jones case, and certainly we have different perspectives on that. I have found that many of the examples, and there are examples out there, of bad cases come from the State system, not the Federal system. But certainly each of you point out difficult situations from the Federal jurisdiction also, things that I think can be addressed.
I do again commend the chairman for this bill. But in reviewing the Department of Justice's comments on this, I can't say that I don't disagree with them. I think while this bill does make efforts to bring this system maybe into a little better balance, I am concerned that perhaps it does go too far in terms of just the realities of the forfeiture law.
I don't think there is any question that the forfeiture law is in theory a good law. We need that. We need to take the contraband, the profits out of crime. We can convert these over to help catch more criminals and to use them for good projects. I know the Department of Justice is here today and will talk about a number or at least certainly site a number of examples in their report of the good things that they have done with these converted funds. It serves as an effective deterrent to people.
Again, I very strongly support the concept of forfeiture of assets. At this point, I agree with what the Department of Justice says in terms of these efforts to change the law, and I feel like we can reach a compromise at some point on these issues. But I think again, they point out the realities of having to deal with people, innocent owners, when they give their property to their children or their family and so forth. To me that's just skirting the law.
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On the other issue of returning property to people, if you start returning cash to drug dealers, you are never going to see that again. I agree that perhaps the burden of proof can be shifted, but to hold the Government to a higher standard, I mean it's a civil case and civil cases are generally preponderance of the evidence. To make them go beyond that to clear and convincing proof I would not like to see. But again, these are issues that I think we can work on together and come to a resolution.
I certainly have sympathy for the victims of these matters and certainly for Mr. Edwards, who is a long-time friend of mine, who is out there working and leading the charge. Again, there are times when we disagree on things, but I am honored to be a part of this committee, and again thank the chairman for moving this bill along so that we can begin to resolve these kinds of issues.
With that, I will yield back my time.
Mr. HYDE. I thank the gentleman. I am trying to not intrude into the questioning, but I just want to say to my friend, Mr. Bryant, who is one of the most valuable members of this committee, and I say that not pro forma, that I earnestly—I am going to have some earnest talks with you.
I think the burden of proof on the victim who is not charged, not convicted, does not belong in our jurisprudence. It just doesn't. To have to prove a negative with respect to property the Government has seized—for you to prove you're innocent and it's innocent—is just turning justice—fundamental justice—on its head. I think you need notice. I think you need an adequate time to file a claim. I don't think you should have to post a bond if i