SPEAKERS CONTENTS INSERTS
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REFORMING ASSET FORFEITURE LAWS
SUBCOMMITTEE ON CRIME
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SEPTEMBER 18, 1997
Serial No. 112
Page 2 PREV PAGE TOP OF DOCPrinted for the use of the Committee on the Judiciary
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
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JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director
Subcommittee on Crime
BILL McCOLLUM, Florida, Chairman
STEVEN SCHIFF, New Mexico
STEPHEN E. BUYER, Indiana
Page 4 PREV PAGE TOP OF DOCSTEVE CHABOT, Ohio
BOB BARR, Georgia
ASA HUTCHINSON, Arkansas
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
CHARLES E. SCHUMER, New York
SHEILA JACKSON LEE, Texas
MARTIN T. MEEHAN, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
PAUL J. MCNULTY, Chief Counsel
GLENN R. SCHMITT, Counsel
DANIEL J. BRYANT, Counsel
NICOLE R. NASON, Counsel
DAVID YASSKY, Minority Counsel
C O N T E N T S
September 18, 1997
TEXT OF BILL
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McCollum, Hon. Bill, a Representative in Congress from the State of Florida, and chairman, Subcommittee on Crime
Blanton, Jan P., Director, Treasury Executive Office for Asset Forfeiture
Cassella, Stefan D., Assistant Chief, Asset Forfeiture and Money Laundering Section, Department of Justice
Edwards, E.E. (Bo), Senior Partner, E.E. Edwards and Associates, National Association of Criminal Defense Lawyers
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Blanton, Jan P., Director, Treasury Executive Office for Asset Forfeiture: Prepared statement
Cassella, Stefan D., Assistant Chief, Asset Forfeiture and Money Laundering Section, Department of Justice: Prepared statement
Edwards, E.E. (Bo), Senior Partner, E.E. Edwards and Associates, National Association of Criminal Defense Lawyers: Prepared statement
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Appendix 1.Letter from Americans For Tax Reform
Appendix 2.Material submitted by J. David Pobjecky, P.A., Winter Haven, FL
REFORMING ASSET FORFEITURE LAWS
THURSDAY, SEPTEMBER 18, 1997
House of Representatives,
Subcommittee on Crime,
Committee on Judiciary,
The subcommittee met, pursuant to call, at 10:07 a.m. in Room 2237, Rayburn House Office Building, Hon. Bill McCollum [Chairman of the Subcommittee] presiding.
Present: Representatives Bill McCollum, Steven Schiff, Stephen E. Buyer, Steve Chabot, Bob Barr, Asa Hutchinson, George W. Gekas, Howard Coble, Charles E. Schumer, Sheila Jackson-Lee, Martin T. Meehan, Robert Wexler, Steven R. Rothman.
Staff Present: Paul McNulty, Chief Counsel; Nicole Nason, Counsel; Kara Norris, Staff Assistant; David Yassky, Minority Counsel.
OPENING STATEMENT OF CHAIRMAN MCCOLLUM
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Mr. MCCOLLUM. This hearing is called to order. I want to welcome our witnesses today. We have a very important hearing on criminal asset forfeiture. There have been some proposed legislative changes to the criminal asset forfeiture issue that we want to address, and hopefully will be addressed by our witnesses today. Some of the legislation includes the Criminal Asset Forfeiture Act of 1997 and the criminal forfeiture provisions in H.R. 1745, the Forfeiture Act of 1997.
[Bill H.R. 1745 follows.]
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Mr. MCCOLLUM. Modern forfeiture statutes can be traced back to the 18th century English common law in which we had forfeitures of estates or in personam forfeitures. In 1970, Congress resurrected that concept of in personam asset forfeiture, although in a far more restricted way, when it enacted the Racketeer Influenced and Corrupt Organizations Act, known as RICO. RICO was created to address the problem of the infiltration of organized crime into legitimate businesses.
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In 1984, Congress continued the trend by passing the Crime Control Act of 1984, which contained new criminal forfeiture provisions and fortified those already in existence. In the Anti-Drug Abuse Act of 1986 Congress enacted criminal forfeiture for money laundering offenses, following asset forfeiture for child pornography and obscenity in 1998. In 1990, in the wake of the savings and loan scandals, Congress enacted both civil and criminal forfeiture for fraud affecting financial institutions.
Since then, Congress has authorized criminal forfeiture for carjacking, food stamp fraud, and most recently, health care fraud. This patchwork of forfeiture legislation developed slowly. Over the past three decades, it has led to numerous difficulties and inconsistent court decisions. The Federal circuits have split over their interpretations of several significant aspects of the forfeiture laws, and inconsistent application has led to needless litigation and a waste of judicial resources.
The procedural protections given to defendants and third parties vary greatly, and there are still many offenses for which the government cannot forfeit assets at all. For example, the government has no authority to criminally forfeit assets for gambling or smuggling offenses.
Of course, there are some fundamental differences between criminal and civil forfeiture. The differences lie in the nature of the forfeiture itself. We are here today to discuss the criminal asset forfeiture issue. However, I am sure there will be some discussion of how it relates to civil asset forfeiture.
Page 20 PREV PAGE TOP OF DOC The Department of Justice has proposed legislation which would amend the criminal asset forfeiture laws to provide for uniform standards and procedures. With regard to the expanded authorization of criminal forfeiturewhich the Administration is asking for in part, there are several areas of law in which the government does not have the authority to criminally seize the assets of the wrongdoer. Gambling and smuggling offenses only authorize civil asset forfeitures.
There are very significant areas of the law where forfeiture remains unavailable to prosecutors. Today we want to look at some of those areas, for example, crooked telemarketers who use the mail or telephone systems as tools of their activity.
The bottom line is that we want to hear from our witnesses today as to those matters that we ought to be expanding criminal forfeiture into as well as those matters which need to be polished off to make uniformity among the hodgepodge of current statutes.
Mr. MCCOLLUM. With that in mind, I would like to see if Mr. Gekas, my colleague, has any opening remarks.
Mr. GEKAS. I thank the Chair. Only to endorse what the Chairman has enunciated, namely that in this area of the law a patchwork seems to dominate on the basic issues of forfeiture. If this hearing and the work of this Committee that is yet to follow patches up the patchwork, then we will have gone a long way. I am anxious to hear the witnesses. Thank you.
Mr. MCCOLLUM. Thank you, Mr. Gekas. Mr. Coble, do you have any opening comments?
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Mr. COBLE. No
Mr. MCCOLLUM. Mr. Barr.
Mr. BARR. Just to thank you, Mr. Chairman, for convening these hearings. As everyone knows, we have had hearings going back not only since the beginning of this Congress but the last Congress also looking at the whole issue of asset forfeiture reform, and both the Full Committee as well as the Subcommittee, we have begun at long last to tackle this very thorny issue of the law, and which, perhaps, is more difficult than many others to reach that balance between the legitimate needs of law enforcement and going after the criminals where it indeed hurts them, perhaps, the most, and that is in their pocketbook, and balancing that against the civil liberty needs of our citizens, particularly those innocent who might get trapped up in these.
So I commend the Chairman for holding these hearings and I think we are doing a tremendous service, not only to law enforcement but to the civil liberties heritage of our country in looking at these issues and reforming both the criminal and the civil asset forfeiture statutes.
Mr. MCCOLLUM. Thank you, Mr. Barr. At this time I would like to welcome our first panel this morning. We are pleased to have with us two distinguished government officials with tremendous experience and expertise in the area of asset forfeiture.
From the Department of Justice we have Stefan Cassella, the Assistant Chief of the Asset Forfeiture and Money Laundering Section. Mr. Cassella has been a prosecutor since 1979. He joined the Department of Justice in 1985 and has been involved in forfeiture and money-laundering issues since 1989. He was formerly the Senior Counsel to the United States Senate Judiciary Committee from 1987 through 1989. Mr. Cassella received the Justice Department's John Marshall Award for his handling of the criminal forfeiture proceedings in the prosecution of the Bank of Credit and Commerce International. Welcome, Mr. Cassella.
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Mr. CASSELLA. Thank you.
Mr. MCCOLLUM. Our second witness this morning on behalf of the Department of the Treasury is Jan Blanton. Ms. Blanton was selected as the Director of the Executive Office for Asset Forfeiture in March 1994. As Director, she is responsible for the overall management of the Treasury Forfeiture Fund and for developing Treasury policies on asset forfeiture for its law enforcement agencies. Prior to being chosen as Director, Ms. Blanton was a Special Agent with the Internal Revenue Service Criminal Investigation Division for 22 years.
We welcome both of you and will, without objection, enter your complete statements into the record. So ordered.
Mr. Cassella, you may summarize your statement as you feel appropriate.
STATEMENT OF STEFAN D. CASSELLA, ASSISTANT CHIEF, ASSET FORFEITURE AND MONEY LAUNDERING SECTION, DEPARTMENT OF JUSTICE
Mr. CASSELLA. Thank you, Mr. Chairman. I appreciate the opportunity to present the views of the Department of Justice on this important legislation. We have reviewed the rough draft that you circulated this week and are happy to express our full and enthusiastic support.
If enacted, this bill will allow us to realize the full potential of criminal forfeiture as a law enforcement tool. We discussed the proposed bill in detail in our written testimony so let me just highlight a few points.
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First of all, criminal forfeiture is a very new law enforcement tool. There have been forfeiture statutes on the books since the first Congress convened in 1789, but for almost 200 years all of those were civil forfeiture statutes. The first criminal statute was not enacted until 1970, and there was not another until 1984. If you read the articles that appear in the press from time to time, you would get the impression that civil forfeiture is somehow new and experimental whereas criminal forfeiture is tried and true. It is actually the reverse. It is criminal forfeiture that is very much the new kid on the block.
Almost all of the criminal forfeiture statutes now in effect were enacted in just the last few years, four of them in the last 12 months alone. Since 1994 we have undertaken a full-scale program to train Federal prosecutors in how to make forfeiture part of their criminal cases, to the point where at least 50 percent of all contested forfeitures are now handled criminally.
What we are talking about today, what this bill is about, are problems that we have encountered in trying to make full use of the criminal forfeiture authority that Congress has given us. We recognize that criminal forfeiture is an inherently limited tool. It will never replace civil forfeiture. We will always need civil remedies to forfeit proceeds and instrumentalities of crime in some cases. To do criminal forfeiture you need a Federal conviction, so if the defendant is dead, or is a fugitive, or is convicted in state court, criminal forfeiture does not do you any good, and criminal forfeiture is limited to property owned by the defendant. You cannot use it to forfeit property that belongs to someone else, even if the defendant used it to commit the crime and even if the third party consented to it.
Page 24 PREV PAGE TOP OF DOC For example, if we catch someone smuggling drugs in an airplane and convict the pilot, we can forfeit the plane in the criminal case as long as the pilot owns it. But if the owner is not the pilot, but is a drug baron in South America or an offshore corporation, criminal forfeiture gets us nothing.
We understand these limitations. They are inherent in the concept of criminal forfeiture, but some of the obstacles we have encountered in trying to use the new statutes are not conceptually inherent. They are artificial impediments, often purely historical in origin, that can and should be removed to allow us to make full use of criminal forfeiture as Congress surely intended.
Our testimony details a number of problems with the existing statutes. They have led to unnecessary litigation, splits in authority among the Federal circuits, and situations where prosecutors are forced to use civil forfeiture because the criminal laws are inadequate.
Let me mention just three of those.
The first priority is simply to make criminal forfeiture available as an option whenever civil forfeiture is already available. For purely historical reasons, there are many types of property that we can forfeit civilly but not criminally, like gambling proceeds, firearms, vehicles used to smuggle illegal aliens and smuggled goods. That is something that Congress can easily correct, and we support the provision in the draft bill that does so.
Second, to be effective the criminal forfeiture statutes need to contain a set of procedures governing their use. Too many of the recently enacted laws contain only some of the necessary procedures or contain no procedures at all. For example, there are statutes that authorize criminal forfeiture for certain kinds of bank fraud, for carjacking, for food stamp fraud, but contain no proceduresno procedures for seizing or restraining property pre-trial, or forfeiting substitute assets, or recovering property that has been transferred to third parties, or for resolving third-party claims. We fully support the provision in the draft bill that would create uniform procedures and plug these gaps.
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Finally, there is a provision dealing with pre-trial restraint of substitute assets. One of the great claims to fame of criminal forfeiture is that it allows the court to order a defendant who has hidden the proceeds of his crime to forfeit something else in substitution. For example, if the defendant steals $100,000 from the victims in a fraud scheme but spends the money or hides it overseas before he is caught, we can make him forfeit something else of equal value in substitution and use that to reimburse the victims, but the power to forfeit substitute assets is meaningful only if the court has the authority to restrain the property pre-trial. Otherwise, by the time the trial is over, the substitute property will have disappeared just as the criminal proceeds did.
The courts are split over Congress' intended authority when it enacted the substitute asset law back in 1986. The result has been the lawyer's equivalent of trench warfare. My colleagues and I proceed across the country from court to court litigating this issue, winning in some places, losing in others. It keeps all of us fully employed, but we think it would be better for everyone if Congress would put the issue to rest and make the pre-trial restraint of substitute assets absolutely clear.
There are many other provisions of the bill, Mr. Chairman, that we fully support for similar reasons, but let me close with a few comments about Title II of the Draft Bill.
Title II contains provisions that are substantive, not procedural. That is, they expand the categories of property that are subject to criminal forfeiture. By far the most important is the provision that authorizes the forfeiture of the proceeds of most Federal crimes. Many people are surprised to learn that this authority does not already exist, but it is true.
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Because of the haphazard ways these laws are developed, a chart showing which crimes carry forfeiture as a penalty and which do not would look very much like a checkerboard. We can forfeit the proceeds of bank fraud but not the proceeds of consumer fraud. We can take the vessel used to smuggle illegal aliens but not the money paid to the smuggler. We can confiscate proceeds in a drug case but not the money paid to a hit man in a murder-for-hire case, or a terrorist, or to a corrupt public official.
Two things we firmly believe: no person has the right to retain the proceeds of any crime, and law enforcement should have the power to confiscate the proceeds of crime to make sure the defendant does not profit, and to recover it for the victims.
We support the other expansions of forfeiture authority as well, including the power to forfeit firearms used in crimes of violence and the instrumentalities of terrorism; but let me make one last point.
We are happy that the bill authorizes criminal forfeiture for these offenses, but we do not think it is enough to authorize criminal forfeiture without a civil counterpart. Any workable forfeiture program has to have both components. Eighty-five percent of all forfeitures are uncontested. If we have civil authority, we can forfeit that property administratively, but if we must do the forfeiture criminally we will have to clutter the courts with forfeiture pleadings in criminal cases even though no one is contesting the issue.
Also, we would not want to have to say to the victim in a fraud case, ''I am sorry, the money the bad guy stole from you is right here in the bank account but he is a fugitive so we cannot help you get it back until he turns himself in and we can convict him in a criminal case.''
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We need civil authority to recover property in those cases, just as we do in cases where the property belongs to a third party who allowed the defendant to use it to commit a crime. If chemicals, tools, and equipment are used by terrorists to construct a bomb, we should be able to forfeit that property whether the owner is the person who was convicted or the person who let him use the property knowing exactly what it was going to be used for, but who is not prosecuted for committing the crime herself.
Mr. Chairman, let me again thank you, and Mr. Schumer, and Mr. Conyers for the interest all of you have shown in legislation to expand and enhance the criminal forfeiture laws. We look forward to your questions and to working with you in the weeks ahead.
[The prepared statement of Mr. Cassella follows:]
PREPARED STATEMENT OF STEFAN D. CASSELLA, ASSISTANT CHIEF, ASSET FORFEITURE AND MONEY LAUNDERING SECTION, DEPARTMENT OF JUSTICE
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Mr. MCCOLLUM. Thank you very much, Mr. Cassella. Ms. Blanton, you may proceed.
STATEMENT OF JAN P. BLANTON DIRECTOR, EXECUTIVE OFFICE FOR ASSET FORFEITURE, DEPARTMENT OF THE TREASURY
Ms. BLANTON. Mr. Chairman and the members of the Subcommittee, good morning. I am the Director of the Department of the Treasury's Executive Office for Asset Forfeiture. Seated to my left is Bill Bradley, who is counsel to my office. It is my pleasure to appear before you today to offer some of Treasury's comments as you consider the Criminal Asset Forfeiture Act and its effort to improve criminal forfeiture.
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Perhaps because of its imposing power, forfeiture is, at times, the subject of adverse media coverage. We in the Federal law enforcement community have heard the critical commentaries, and in cases where Federal forfeiture has been involved, we have taken steps to ensure the fairness that merits the confidence of the public. Singular incidents, however, should not be permitted to obscure the many positive aspects of this formidable law enforcement mechanism.
Last June, we presented our views on Chairman Hyde's bill to reform civil asset forfeiture. In keeping with today's consideration of the draft Criminal Asset Forfeiture Act, I would like to reference a few key asset forfeiture cases and how they have benefitted the victims of crime, including American taxpayers, and even the disadvantaged and vulnerable in our communities.
Almost a decade ago, Ken Mizuno and his corporation intentionally and vigorously oversold memberships to a golf club under development in Japan. He took a good portion of the illegal proceeds from this fraud and used them to purchase real property, vehicles, and aircraft in Nevada, California, and Hawaii. Japanese authorities worked with the United States Customs Service and the Internal Revenue Service during the ensuing money laundering investigation here in the United States. By 1993, the corporation had pled guilty to a criminal information and had agreed to forfeit substantial assets to the United States, including the famous Indian Wells Golf and Country Club, which is a PGA tour stop. Proceeds from the sale of these criminally forfeited assets netted approximately $50 million, which, by agreement, was returned to the Japanese in 1995 to reimburse the victims of Mizuno's fraudulent scheme. This money was returned by the Treasury Forfeiture Fund.
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In another, more recent, civil forfeiture case out of Florida the victims were US taxpayers, and again forfeiture authority helped to make them whole. In this instance, the Criminal Investigation Division of the IRS along with investigators from the Department of Health and Human Services uncovered a Medicare fraud scheme. A Kissimmee man operating Bulldog Medical and MLC-Geriatric Health Services deliberately mischaracterized and marketed as medical devices items he knew did not qualify for Medicare reimbursement. Approximately $32 million was forfeited to the government, and the majority of these monies will be returned to the Medicare Trust Fund next fiscal year so that the true victims of this crime, the taxpayers of the United States, receive a degree of restitution.
Finally, Federal forfeiture has served disadvantaged constituencies in America through its ability to transfer real properties under the Weed and Seed Program. A good example of this was a recent criminal forfeiture case involving Radio Pantera in Tucson, Arizona. Radio Pantera was not only the largest Spanish-speaking station in the region but also a business that was used to hide profits from the illegal drug trade. The father and son owners of the station were trafficking marijuana from Mexico to Ohio, taking their cut and laundering it through investments in the station. A Customs and IRS investigation that began in 1992 led to the criminal forfeiture of the property to the government. The Treasury Forfeiture Fund then transferred to the Gateway organization last fall this property.
Gateway is a non-profit drug and alcohol treatment provider that has a quarter-century record of working with indigent substance abusers. Now, thanks to criminal forfeiture authority, it has a new $200,000 property to offer outpatient services, counseling, and another chance at life to its clients.
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These are just three examples of the positive impact of responsible forfeiture. We are doing our best through the development of policies and guidance to ensure a forfeiture program that reflects America's sense of fair play. We have stressed comprehensive training for all Treasury forfeiture personnel, from special agents and supervisors to seized-property managers. We have emphasized the importance of responsible seizures and the need for pre-seizure planning that makes these possible. We have highlighted quality in seized property management so that value, whether forfeited or returned, is never carelessly diminished; and knowing that justice delayed is often justice denied, we have directed Treasury law enforcement to keep on top of all forfeiture caseloads so that all who are affected will benefit from a timely adjudication.
We appreciate the intent of the Criminal Asset Forfeiture Act to improve criminal forfeiture. By creating a uniform procedure for all criminal forfeitures, it reduces complexity and confusion. By allowing for the criminal forfeiture of firearms used in violent crimes, it realizes a longstanding goal of Treasury enforcement. By permitting criminal forfeiture of the instrumentalities of certain crimes Treasury agents pursue each day, it helps us take down the organizations behind them.
Since we have had a limited time to assess the impact of the provisions of this bill and to discuss it fully with our Treasury law enforcement bureaus, we would welcome the opportunity to assist the Subcommittee and its staff with any additional work that needs to be done on this legislation. Specifically, we would like to confer on the language allowing for the criminal forfeiture of firearms associated with violent crimes and on a definition of gun running in connection with the criminal forfeiture of vehicles.
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Along with its civil counterpart, criminal forfeiture has become a vital tool in our daily efforts to counteract crime. Improvements on both the civil and criminal sides should progress accordingly. We value the aim of the Criminal Asset Forfeiture Act with respect to criminal forfeiture and we see it as a fitting complement to related efforts that we have supported before the Committee to refine and reform civil forfeiture.
This concludes my opening statement, Mr. Chairman. I will be pleased to answer any questions you or the other members of the Subcommittee might have.
[The prepared statement of Ms. Blanton follows:]
PREPARED STATEMENT OF JAN P. BLANTON, DIRECTOR, TREASURY EXECUTIVE OFFICE FOR ASSET FORFEITURE
Mr. Chairman, and to the members of the Subcommittee, good morning. My name is Jan Blanton and I am the Director ofthe Department ofthe Treasury's Executive Office for Asset Forfeiture. It is my pleasure to appear before you today to offer some of our comments as you consider H.R. XX and its effort to improve criminal forfeiture.
Perhaps because of its imposing powera power not simply to incarcerate criminals but to actually dismantle their organizationsforfeiture today is, at times, the subject of adverse media coverage. We have heard the critical commentaries, and in cases where federal forfeiture is involved, we have taken steps to ensure the fairness that merits the confidence of the public. Singular incidents, however, should not be permitted to obscure the many positive aspects of this formidable law enforcement mechanism.
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Last June, we presented our views on Chairman Hyde's bill to reform civil asset forfeiture. In keeping with today's consideration of H.R. XX I would like to reference a few key asset forfeiture cases and how they have benefited the victims of crime, including American taxpayers, and even the disadvantaged and vulnerable in our communities.
Almost a decade ago, Ken Mizuno and his corporation intentionally and vigorously oversold memberships to a golf club under development in Japan. He took a good portion of the illicit proceeds from this fraud and used it to purchase real property, vehicles and aircraft in Nevada, California and Hawaii. Japanese authorities worked with the U.S. Customs Service and the Internal Revenue Service during the ensuing money laundering investigation. By 1993, the corporation had pled guilty to a criminal information and had agreed to forfeit substantial assets to the United States, including the famous Indian Wells Golf and Country Club, a PGA tour stop. Proceeds from the sale of these criminally forfeited assets netted approximately $50 million, which by agreement, was returned to the Japanese to reimburse the victims of Mizuno's fraudulent scheme.
In another more recent civil forfeiture case out of Florida, the victims were U.S. taxpayers and again forfeiture authority helped to make them whole. In this instance, the Criminal Investigation Division of IRS along with investigators from the Department of Health and Human Services uncovered a Medicare fraud scheme. A Kissimmee man, operating Bulldog Medical and MLC-Geriatric Health Services, deliberately mischaracterized and marketed as medical devices, items he knew did not qualify for Medicare reimbursement. Approximately $32 million was forfeited and a significant amount of these monies will be returned to the Medicare Trust Fund so that the true victims of this crime, the taxpayers of the United States, receive a degree of restitution.
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Finally, federal forfeiture has served disadvantaged constituencies in America through its ability to transfer real properties under the Weed and Seed Program. A good example of this was a recent criminal forfeiture case involving Radio Pantera in Tucson, Arizona. At 1450 on the AM dial, Radio Pantera was not only the largest Spanish speaking station in the region but also a business that was used to hide profits from the illegal drug trade. The father and son owners of the station were trafficking marijuana from Mexico to Ohio, taking their cut and laundering it through investments in the station. A Customs and IRS investigation that began in 1992 led to the forfeiture of the property and its transfer to the Gateway organization last fall. Gateway is a non-profit drug and alcohol treatment provider that has a quarter century record of working with indigent substance abusers. Now, thanks to criminal forfeiture authority, it has a new $200,000 property to offer outpatient services, counseling and another chance at life to its clients.
These are just three examples of the positive impact of responsible forfeiture. We are doing our best through the development of policies and guidance to ensure a forfeiture program that reflects America's sense of fair play. We have stressed comprehensive training for all Treasury forfeiture personnelfrom special agents and supervisors to seized property managers. We have emphasized the importance of responsible seizures and the need for pre-seizure planning that makes these possible. We've highlighted quality in seized property management so that value, whether forfeited or returned, is never carelessly diminished. And knowing that justice delayed is often denied, we have directed Treasury law enforcement to keep on top of all forfeiture caseloads so that all who are affected will benefit from a timely adjudication.
Page 36 PREV PAGE TOP OF DOC We appreciate the intent of H.R. XX to improve criminal forfeiture. By creating a uniform procedure for all criminal forfeitures, it reduces complexity and confusion. By allowing for the criminal forfeiture of firearms used in violent crimes, it realizes a longstanding goal of Treasury enforcement. By permitting criminal forfeiture of the instrumentalities of certain crimes Treasury agents pursue each day, it helps us take down the organizations behind them.
Since we have had a limited time to assess the impact of the provisions of this bill and to discuss it with our Treasury law enforcement bureaus, we would welcome the opportunity to assist the Subcommittee and its staff with any additional work that needs to be done on this legislation. Specifically, we would like to confer on the language allowing for the criminal forfeiture of firearms associated with violent crimes and on a definition of gun running in connection with the criminal forfeiture of vehicles.
Along with its civil counterpart, criminal forfeiture has become a vital tool in our daily efforts to counteract crime. Improvements on both the civil and criminal sides should progress accordingly. We value the aim of H.R. XX with respect to criminal forfeiture and we see it as a fitting complement to related efforts that we have supported before the Committee to refine and reform civil forfeiture.
Mr. Chairman, this concludes my opening statement. I will be pleased to answer any questions you or the other members of the Subcommittee may have at this time. Thank you.
Mr. MCCOLLUM. Thank you very much, Ms. Blanton. I am going to recognize myself for 5 minutes followed by the other Members present.
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As you have discussed, the current criminal forfeiture laws are a hodgepodge,they are there for certain criminal offenses and not for others.
Mr. CASSELLA. That is right.
Mr. MCCOLLUM. It seems to me, civil asset forfeiture is there, for quite a few things that criminal forfeiture is not. Mr. Cassella and then Ms. Blanton, I would appreciate it if you would touch on the difficulties presented by this apparent incosistency. I know you told us in your testimony, Mr. Cassella, that you would like to see some uniformity with regard to procedures, but what about the fact that we have criminal forfeiture for some criminal offenses, but not all? And, in some instancies, there is even civil forfeiture for those offenses, maybe the ultimate question is should there be criminal forfeiture for absolutely every crime? Or is that going too far?
Mr. CASSELLA. There should be criminal forfeiture, Mr. Chairman, for the proceeds of every crime. I do not think anyone has the right to retain the proceeds of a crime, and if he is convicted in a criminal case he should be made to forfeit whatever ill-gotten gains he realized from having committed that offense.
The problem with the existing statutes is that they are a hodgepodge. They were enacted over time, each year or each session of Congress reacting to whatever the critical issue of the day might have been. The money laundering and drug criminal forfeiture statutes enacted in the late 1980's, the bank fraud statutes selected in the early 1990's, and so forth. Last year, in 1996, criminal forfeiture statutes were enacted for food stamp fraud, health care fraud, economic espionage, and alien smuggling.
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But we do not have forfeiture for some of the most critical crimes that we prosecute day in and day out. Consumer fraud is one that comes to mind readily. If someone defrauds citizens, elderly people, of their life savings through a telemarketing scheme or advanced-fee scheme of some kind, which are unfortunately all too prevalent, we cannot use the forfeiture laws to recover that property directly. If we can make a money laundering case against the defendant, there is forfeiture for money laundering, but in the ordinary course the proceeds of a mail fraud, or a wire fraud, or so many other of the white collar crimes that are in our code have no forfeiture provision.
It is simply an historical accident that there is forfeiture for some things and not for others, so we very much urge you to consider the across-the-board forfeiture proceeds provision that you do have in the bill.
Mr. MCCOLLUM. What about you, Ms. Blanton? Do you concur with that?
Ms. BLANTON. I totally concur. I do not think I could add anything to what Mr. Cassella said except that we, too, believe that proceeds of criminal activity, we should have the availability to civilly or criminally forfeit. I think Mr. Cassella said it very well.
Mr. MCCOLLUM. What percentage of forfeiture cases go uncontested, and what does that mean for the government, Ms. Blanton?
Page 39 PREV PAGE TOP OF DOC Ms. BLANTON. I do not have any specific figures right now to give you from Treasury as to the percent of forfeitures that go uncontested. I will tell you that it is the majority of the seizures that are made by Treasury law enforcement that go uncontested; that is, there is no one to step forward and contest our proceeding with forfeiture.
Mr. MCCOLLUM. How about youyes?
Ms. BLANTON. I do not have an exact percentage.
Mr. MCCOLLUM. Mr. Cassella, do you have a feel on that?
Mr. CASSELLA. For the FBI and DEA, Mr. Chairman, it is 85 percent are uncontested.
Mr. MCCOLLUM. What rights do you think, Mr. Cassella, a third party should have in criminal forfeiture proceedings? I am concerned about being fair to them, and I know there is a question of whether they should have to wait until after a case is completed. We have had a lot of questions raised. It does not seem to make much of a difference from an innocent owner's standpoint whether it is criminal or civil. How do we deal with it?
Mr. CASSELLA. The rights of third parties in criminal forfeiture cases is an extremely interesting issue, Mr. Chairman, and Congress has struggled with that, and so have the courts. We have been active in trying to make sure that third-party rights are protected.
Page 40 PREV PAGE TOP OF DOC Between 1970 and 1984, that is, the first 14 years when the RICO forfeiture statute was on the books, there was no protection for third-party owners. It is understood by everyone that only the criminal defendant's property can be forfeited in a criminal case. If someone uses a truck to smuggle illegal aliens into the country, we can forfeit it in a criminal case if it belongs to him. If it is his sister's truck, we cannot forfeit whether she is innocent or not.
It is not a question of innocent ownership in criminal cases; it is a question of ownership. Only the defendant's property can be forfeited. That is understood.
What we have not succeeded in doing, or what we did not succeed in doing until 1984, is having any statutory mechanism for protecting the third party's right. In that year, the ancillary proceeding provision was enacted, and it allows the third party, the sister in my example, to come in and say, ''Wait a minute. You cannot forfeit that truck. It does not belong to him. It belongs to me.''
But that statute needs to be refined and improved in many ways. There are no statutory guidelines for motions practice and discovery, or for motions for summary judgment in the ancillary proceeding. We need to have those things.
There are a lot of other things that are detailed in the bill that will improve the government's ability and the courts ability to protect third-party rights.
Ironically, there are many instances where the third party would be better off if the government proceeded civilly as opposed to criminally, because in the civil case we can litigate everyone's interest at the same time. In a criminal case, you necessarily focus on the conviction of the defendant. You do not have the third party sitting at a third table in the courtroom, and jumping up, and addressing the jury periodically saying, ''Wait a minute, I object to that because ultimately my property is going to be forfeited.''
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No, the third party has to wait; he takes a seat. The government proceeds against the defendant and after the defendant is convicted the third-party rights kick in; and so there are times when, to address third-party rights, we would rather proceed civilly.
But even in the criminal context, third-party rights are extremely important and the owners of the property who are not the defendant have to have an opportunity to assert that interest.
Mr. MCCOLLUM. Thank you very much, Mr. Cassella. Because we are going to have a vote in a minute, I want to get to my colleagues.
Mr. Barr, do you have questions?
Mr. BARR. Thank you, Mr. Chairman. Mr. Cassella, I think you mentioned that anyI think you used the word ''workable''criminal forfeiture reform or amendments must be coupled with civil. Did I quote you on that?
Mr. CASSELLA. Well, any expansion, substantive expansion, of forfeiture to a new category of property should have both a civil and a criminal counterpart, is what I meant to say.
Mr. BARR. Does that mean that the Administration would not support H.R. 1965 without additional
Page 42 PREV PAGE TOP OF DOC Mr. CASSELLA. Oh, no, we support H.R. 1965 without any conditions. We are not asking that this be made part of that bill. H.R. 1965 was a compromise bill dealing with civil forfeiture, which we fully support whether or not these additional matters are addressed.
Mr. BARR. Okay.
Mr. CASSELLA. We do believe that criminal forfeiture is a separate matter which does need to be addressed, and we are happy this Committee is focusing on it.
Mr. BARR. Okay. When you use the word ''compromise,'' what does that mean? Who did you compromise with?
Mr. CASSELLA. In H.R. 1965, there were originally two bills. Mr. Schumer introduced a bill, 1745, which the Justice Department drafted. Mr. Hyde introduced a bill, H.R. 1835, which he had drafted, and H.R. 1965 is the result of a blending of the provisions in those two bills.
Mr. BARR. Okay. You also used the term ''historical accident'' to describe the fact that we have some areas of criminal activity that are covered by asset forfeiture and others that are not. I am not sure what an historical accident is. How long has this historical accident, to use your term, been in existence? Quite a long time?
Mr. CASSELLA. Well, in the case of criminal forfeiture, since 1984. What has happened since 1984 is that in each session of Congress, as a particular issue has come to the fore whether it be drugs and money laundering in the 1980's, or the bank fraud issues during the savings and loan crisis of 1989 and 1990, or carjacking in 1992, or food stamp fraud last year, Congress has addressed that issue, passed the legislation, and included a criminal forfeiture provision.
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If the issue has not come to the fore in the last 13 years since criminal forfeiture statutes began to be enacted, then there is no criminal forfeiture authority. So there is not for mail and wire fraud, there is not for telemarketing fraud, there is not for public corruption, and so forth.
Mr. BARR. Where is theI mean, has there been any restraint on the Department of Justice seeking the authorities that we are discussing today?
Mr. CASSELLA. Oh, no, we have been asking
Mr. BARR. To rectify that so-called historical accident.
Mr. CASSELLA. We have been asking for this increased authority.
Mr. BARR. Okay, and why has it not been forthcoming?
Mr. CASSELLA. Well, here we are. We have reached the point where Congress
Mr. BARR. Turning overoh, if the Department has been concerned about this for at least 13 yearsI suspect it is somewhat longer than that but let us say for at least the last 13 yearswhat I am trying to get at is I am not sure that to say it is an historical accident. There have been a myriad for the Department to come forward under various administrations to seek to rectify what you have described as a problem area here, a patchwork, to use the Gentleman from Pennsylvania's word, and I think would you not concede that it might be more than just an accident that all of that power has not been granted to the government, and maybe there are some serious concerns that the people of this country have and that their representatives have in this area?
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Mr. CASSELLA. I am not aware, Congressman, of any instance where concerns were expressed with the idea of forfeiting the proceeds of a crime in a case where the defendant was convicted, and that is what we are here to talk about today, the
Mr. BARR. Okay, you are not aware, for example, of the position of the National Association of Criminal Defense Attorneys?
Mr. CASSELLA. Opposing the forfeiture of proceeds? I am not. Maybe I am not aware
Mr. BARR. Well, no, they are not opposing necessarily the general concept. If you pose the question in those terms, of course, it is very difficult for anybody to mount an effective argument against it. What we are talking about here, though, are a lot of nuances, a lot of specific procedures, and so forth, and the National Association of Criminal Defense Attorneys, just as one example, I think has come forward, not just on this one occasion but on other occasions as well, and I would suspect that the Department is aware of those, you know, positions.
I just think that it is more than historical accident, and there are some very serious concerns that a number of folks have, and I do not think those concerns are new, and if they are brand new to the Department, then I wonder what is going on, because I do not think they are new. They are very well thought-out and there are some legitimate issues of discussion here.
Page 45 PREV PAGE TOP OF DOC So I would not slough this off as an historical accident. It is something that does need to be addressed.
I have other questions, Mr. Chairman. Maybe we will have additional time.
Mr. MCCOLLUM. Yes, we will probably have a second round, but I would like to give Mr. Gekas time before we go to vote.
Mr. GEKAS. Yes.
Mr. MCCOLLUM [continuing]. You are recognized for 5 minutes.
Mr. GEKAS. Yes, I only have one question. Out of curiosity I want to ask Ms. Blanton, the reference that she made to that one forfeiture case in Florida in the Medicare fraud indicates $32 million was forfeited. Was that conversion of real estate and other assets into that cash or was this a cash cache?
Ms. BLANTON. I am pretty sure it was a little bit of both. Predominantly it was currency bank accounts that were forfeited. There were some properties, I believe, that were forfeited and have been since converted into cash.
Mr. GEKAS. Do you mean to tell me that this individual had that large amount of cash
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Ms. BLANTON. Yes.
Mr. GEKAS [continuing]. In deposits?
Ms. BLANTON. Yes. He, I believe
Mr. GEKAS. I am not surprised you caught him.
Ms. BLANTON. You are or you are not?
Mr. GEKAS. Am not.
Ms. BLANTON. Oh.
Mr. GEKAS. I mean, he was a little dumb.
Ms. BLANTON. Well.
Mr. GEKAS. But that is why I wanted to know. That would be unusual, would it not, to be able to seize cash
Ms. BLANTON. It is
Mr. GEKAS [continuing]. As a forfeiture?
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Ms. BLANTON. It is not at all unusual. We seizedthe overwhelming majority of the seizures of Treasury law enforcement are currency seizures.
Mr. GEKAS. In bank accounts, et cetera.
Ms. BLANTON. Bank accounts, et cetera. In the particular case, the Bulldog Medical case in Florida, I believe the total fraud he committed against Medicare was in the neighborhood of $44 million, and we were only able to identify the approximately $32 million that was seized and forfeited.
Mr. GEKAS. In the conduct of his business, did he need large amounts of cash on hand like
Ms. BLANTON. I do not believe he did. I believe what he was doing was defrauding the Medicare, and then he was taking all the money and using it for a very lavish personal lifestyle and to build up an array of assets.
Mr. GEKAS. Well, if he was, he was leaving large amounts behind.
Ms. BLANTON. Well
Mr. GEKAS. Millions of dollars is what you are saying you were able to seize in cash.
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Ms. BLANTON. Yes, sir. Criminals are not always
Mr. GEKAS. They are sort of dumb.
Ms. BLANTON [continuing]. Smart about how they hide their proceeds.
Mr. GEKAS. All right, I have no further questions.
Mr. MCCOLLUM. Thank you very much, Mr. Gekas. Before we go, Mr. Chabot, do you have any questions?
Mr. CHABOT. No, I do not, Mr. Chairman.
Mr. MCCOLLUM. All right, we will be in recess until after this vote and then we will come back and have a second round.
Mr. MCCOLLUM. The Subcommittee on Crime will come to order. When we recessed we had completed one round of questions. I am going to take the liberty of beginning the second round. A vote is still going on, so Members may wander back in. I will try to keep the questioning open for a little while simply to protect their interests. I am interested in asking a few questions that I have not yet asked Mr. Cassella and Ms. Blanton.
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The first one is about restitution. In his submitted statement, Mr. Edwardsa witness on the second panelexpresses a concern that I would share if it is indeed accurate. His concern is that under the proposed legislation the seized property of the defendant would go to the government's coffers instead of towards restitution for the victims. That often occurs now, he says.
Do you foresee that occurring under this proposed legislation?
Mr. CASSELLA. No, not at all, Mr. Chairman. We think that forfeiture is an excellent tool to achieve the purpose of getting the money back to the victim in restitution, in any case that involves victims. Now, not all forfeitures involve victims. Drug cases do not involve victimsbut in any case that involves victims, providing restitution to the victim is the first priority. We do not keep a nickel in the forfeiture fund if there are victims out there.
You mentioned in your opening statement, Mr. Chairman, that I have worked on the BCCI case. In that case we have recovered over $900 million in criminal forfeiture. All of it, except for the costs of the government's investigation which was less than 1 percent, has gone to the victims, to a liquidator to distribute pro rata to the victims, and that is the rule we apply.
We think that forfeiture is an excellent tool to recover the property to get it back to the victims. In a restitution case, if there were no forfeiture, in a restitution case you would come to the end of the trial, and the victim would appear at the sentencing, make his plea for restitution, and the court would basically say, ''Mr. Defendant, if you have been kind enough to have kept your proceeds in escrow for the benefit of the victims in case you were convicted, you must now pay restitution to the victims.'' There is no way to restrain the property to make sure it is still available, there is no way to get the marshals involved to liquidate the property, all the tools we have under the forfeiture laws.
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In a forfeiture case, we can restrain or seize the property pre-trial to preserve it, and then after the defendant is convicted and the rights of third parties are resolved, the forfeiture order is signed, and we can distribute the property to the victims if, indeed, there are any.
Also, in the legislation there is an option the government has to simply withdraw the order of forfeiture at the point of conviction, so that the court can then let the restitution process go forward, if that seems to be in the best interest of the victims at that point. At least we will have preserved the property under the forfeiture laws up to that time.
Mr. MCCOLLUM. What about the cost of the forfeiture that is deducted in here? Some are going to argue that restituion only comes after those costs are deducted. As a result, the restitution that otherwise would be there would diminish significantly under this legislation.
Can you give us any idea what the cost may be and to what extent it is likely to diminish the restitution?
Mr. CASSELLA. Sure. In a typical case, if we are dealing with cash there are not a lot of costs. If we are dealing, on the other hand, with the personal property that has to be stored and then liquidated at auction, we may have storage costs, the auctioneer's costs. If it is real property, we are going to have a broker's fee, the cost of fixing up the property to ready it for sale, all of that.
Page 51 PREV PAGE TOP OF DOC Basically, the government has exercised its power to preserve this property for the victims, and then it is just recovering for the taxpayers the cost of doing that before distributing the property to the victims.
In BCCI, I think the government's costs were 6 million out of the $900-and-some million.
Mr. MCCOLLUM. You do not charge, then, or count as costs the time that an attorney would charge if you were in
Mr. CASSELLA. We are not
Mr. MCCOLLUM [continuing]. Civil practice.
Mr. CASSELLA. Yeah, I wish I could. Many have suggested that if I had worked on commission in the BCCI case, I would be indeed a wealthy man today. No, we do not get a chance towe do not charge an hourly rate or deduct the costs of our time. We work for the government. We are going to be there anyway. It is the out-of-pocket expenses that we have to spend for special masters, for auctioneers, for storage costs for boats and airplanes.
Mr. MCCOLLUM. Okay. Ms. Blanton, why is pre-trial restraint of property so important and useful for prosecutors?
Ms. BLANTON. Well, I believe, as Mr. Cassella said earlier, we need the ability to preserve those properties. If we do not have that ability, the bad guys are just going to liquidate them, remove them from the court's jurisdiction, and we will not ever be able to get those properties.
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Just following along on the issue of costs, I might add the Mizuno case, which I mentioned, we did at the Treasury Forfeiture Fund, we did deduct our expenses. As I mentioned, Indian Wells Golf Course, several other significant multimillion dollar properties were seized by the government in that particular case, and we did deduct our expenses, which were basically the costs of maintaining that property. With these kinds of properties there are high maintenance costs, and I believe our expenses over about 2 1/2-year period were around $13 million, but a lot of that went right back into those properties to preserve their value.
Mr. MCCOLLUM. That is fair enough. I appreciate the fact that you took the chance to elaborate. I would like to finish just one train of thought on pre-trial restraint, then I will let Mr. Barr ask any questions he wants.
You have given us a reason for the pre-trial restraint of property being important, butI am curiousshould not the government have to make a showing, pre-trial, that the substitute assets it seeks are even subject to forfeiture in the first place, or at least that there is a risk that they will be concealed or transferred without the pre-trial restriction?
Mr. CASSELLA. We have to makewe have to show in order to get any pre-trial restraining order that, first of all, the property is subject to forfeiture. If it has been named in an indictment, a grand jury has established probable cause in returning the indictment, and the indictment serves as the instrument that establishes probable cause to believe that certain property is subject to forfeiture.
If we were simply talking about the directly forfeitable property, the proceeds, or the boat, or whatever it might be, we could then get the restraining order from the court, and if the court issued a restraining order, it would be subject to a post-restraint pre-trial hearing at which the defendant could come in and say, ''Wait a minute, there are the reasons why that property should not have been restrained. I need it to pay my attorneys' fees. That property could have been restrained in less burdensome way. Do you need to shut down my business? There are other ways to preserve the property.'' That hearing is provided for in this legislation as well.
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The same things would apply to the restraint of substitute assets.
Mr. MCCOLLUM. What is the justification for giving the government the right to cross-examination of the defendant, and all of the witnesses, at a pre-trial restraining order hearing? What is the rationale for that?
Mr. CASSELLA. Well, if a defendant comes forward after his property has been restrained and says, ''I need that property to hire a lawyer,'' several things kick in.
First the Supreme Court has held in Caplan and Drysdale that a defendant does not have the right to use criminally-derived property to hire a lawyer, and so if, in fact, the property is criminal proceeds that is not a reason to vacate the restraining order.
Also, the defendant only has a right to raise the issue if, in fact, he needs money to hire a lawyer. If he is a wealthy defendant, then there is no reason why the government's effort to restrain the property should be thwarted.
So there are two issues. If he files a motion to modify or vacate the restraining order on Sixth Amendment groundsi.e., that he needs the money to hire counsel, the first question is does he indeed need money to hire counsel. If he would put on evidence, we have a hearing; but a hearing is not a hearing unless both sides get to ask questions, and so the government would get a chance to ask questions in cross examination.
Page 54 PREV PAGE TOP OF DOC Second, if it was found that he did need the money, then we would move on to whether or not the property was subject to forfeiture. The indictment establishes that the crime occurred, or there is probable cause to believe the crime occurred, and then the remaining issue would be whether or not the property has the requisite nexus to that crime.
Mr. MCCOLLUM. And you need to ask questions of him and other witnesses to establish that fact, because I was curious as to why you would ask any questions other than is he indigent or not.
Mr. CASSELLA. Because, in our view, the court cannot make the necessary determination without a hearing, and a hearing is not a hearing unless both sides are asking questions.
Mr. MCCOLLUM. Okay. Mr. Barr, you are recognized for 5 minutes.
Mr. BARR. Thank you, Mr. Chairman. Just in leafing through this there are just so many questions that are raised in my mind, and it is not, just to make clear for the record, it is not that I am at all opposed to going after just as hard as possible the actual proceeds gained through illegal activity of any person convicted of that crime. That is notI do not even think it is an issue here among any of the current witnesses, or anybody up here, or any of the additional witnesses, but I do have a lot of concerns about the specific definitions and scope of these which go, I think, far beyond simply going after the proceeds.
For example, we have at on page 7 of the proposed bill amendments to Rule 32.2. It says, after guilt, ''the court must determine what property is subject to forfeiture because it is related to the offense.'' That is kind of odd wording, but.
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Then it goes on to say, ''The determination may be based on evidence already in the record, including any written plea agreement, or on evidence adduced at a post trial hearing.''
Mr. Cassella, are there any limitations whatsoever with regard to what evidence the government can use? There does not seem to be here. It just has a couple of illustrative areas that the governmentfrom which the government may derive evidence. Are there any limits at all?
Mr. CASSELLA. Well, maybe it would be helpful if I gave an example of how this would work. Let us assume the government
Mr. BARR. I justI mean, are theredoes this provision provide unlimited reach for the government to consider any evidence whatsoever in that post conviction of criminal forfeiture proceedings?
Mr. CASSELLA. Yes, but it is not the language of this rule that does it. It is the rule that at a sentencing hearing the government is entitled to put on certain categories of evidence. The post-trial hearing that this rule speaks of is a sentencing hearing.
Mr. BARR. You are also allowed to go outside of that.
Mr. CASSELLA. At a sentencing hearing, the government can put on hearsay and other kinds of evidence that would not be admissible in the case in chief, and whatever rules apply to a sentencing hearing would apply to this post-trial determination. It is a sentencing proceeding, as the Supreme Court has held.
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Mr. BARR. You would at least concede that its reach would be extremely broad.
Mr. CASSELLA. As broad as any other sentencing issue. When the sentencing guidelines are being applied, and the court has to determine what relevant conduct the defendant may have committed that is outside the scope of the indictment, it is as broad as those determinations.
Mr. BARR. What, if you could enlighten me, is the theory behind having these proceedings conducted by the court and not by a jury? Is it the government's position that there is no basis on which a person ought to have the right to a jury determination on these? Is that the government's position, or is it simply that this makes it easier?
Mr. CASSELLA. I am not sure that it makes it easier. I think it just makes more sense and it is consistent with the law. The Supreme Court has held that a criminal forfeiture order is part of the defendant's sentencing, and a determination of what to include in the criminal forfeiture order is part of the sentencing process.
Outside of capital cases, juries are not involved in sentencing the defendant. That is something the court does. The court determines what guideline level should apply, and in our view the court should determine what the forfeiture, what the scope and extent of the forfeiture, ought to be.
The only reason the jury is involved is because there is a rule, Criminal Procedure Rule 31(e), which says the jury is involved. That was promulgated back in 1970 and has not been amended since, and since that time
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Mr. BARR. It would be your position that there is no theory or basis on which the right to a jury trial before somebody's property is taken extends early in our history before that point?
Mr. CASSELLA. The Supreme Court held in Libretti v. United States in 1995 that the forfeiture is part of the sentencing, and that all the rules that apply tothe jury-right rule, which applies to the elements of the offensedo not apply to the criminal forfeiture, that is right.
Mr. BARR. So the government's position is there is no pre-existing body of law or political theory that holds, for example, in the writings of our founding fathers that that right to one's property not being taken away without a jury trial, that
Mr. CASSELLA. No, the defendant
Mr. BARR [continuing]. Does not exist.
Mr. CASSELLA [continuing]. Congressman, has had a jury trial. He has been convicted beyond a reasonable doubt of committing a crime at a jury trial, and the loss of the property only occurs following that proceeding, and it is only following that proceeding that we get to the sentencing. You cannot have a sentencing of someone who has not been convicted, and you cannot forfeit the property of anyone who was not a defendant in the criminal case. We are talking about criminal forfeiture here, so the due process rights and the jury rights, I think, are fully protected.
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Mr. BARR. Let me ask just if I could, Mr. Chairman, one specific question on this. There, I am sure, will be a lot of others as I read through this but there is a provision, Mr. Cassella, on page 14 of the draft bill, which is a portion of, it looks like, Section 106.
At the top of 14 there is a paragraph (E).
Mr. CASSELLA. Yes.
Mr. BARR. ''If the property restrained is subject to forfeiture as'' et cetera.
Whose expenses are we talking about there, the defendant's or the third party? Who does this paragraph apply to?
Mr. CASSELLA. This applies to the defendant. This codifies current Justice Department policy, which is that in those circuits where we are allowed to obtain an order restraining substitute assets pre-trial, we will accede to any request by the defendant to exempt money he needs for attorneys' fees, cost of living expenses, and the cost of maintaining his assets.
For example, I recently worked on a case in Baltimore where we restrained the assets of a defendant on trial for odometer fraud, odometer tampering, and we restrained substitute assets pre-trial, and the court held a hearing to determine how much of the property that was restrained as substitute assets had to be exempted so that he would be able to pay his counsel and maintain his automobiles.
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Mr. BARR. Okay, but those provisions apply to the defendant, not to a third party, the provisions that we are talking about.
Mr. CASSELLA. That is right because you are only restraining substitute assets that belong to the defendant. In a criminal case, only the defendant's property can be forfeited, and so only substitute assets that belong to the defendant can be restrained.
Mr. BARR. Well, but portions of it, the government is seeking power to go after portions of it; for example, a minority interest in a business, the gross receipt. There may be commingled in that monies that had nothing to dothat came in and had no connection whatsoever to any illegal activity, yet they would be subject to these provisions, too, correct?
Mr. CASSELLA. It is certainly the case that you could restrain property in a criminal trial that belonged to the defendant, and yet there were some third-party interests in that property. The defendant may live in a community property state and his wife may have a community interest in the property, and that interest would be restrained as well. You are absolutely correct, and that is what the ancillary proceeding is all about, post trial.
Mr. BARR. Would it also include, for example, if you had an owner of a firearms store.
Mr. CASSELLA. Right.
Page 60 PREV PAGE TOP OF DOC Mr. BARR. A legitimate business selling firearms, complying with everything. You have investors that own a portion of that business, and the person does not comply with, the defendant does not comply with, certain of the ATF forms or whatnot, and is prosecuted. What would happen toand it only, say, has to do with one or two sales out of many thousands.
Mr. CASSELLA. Right.
Mr. BARR. And would therefore represent at most a very, very small portion of the receipts coming into that business, and therefore a very small portion of the assets of all of the owners of that business, yet it would all be reachable under those
Mr. CASSELLA. We could restrain the proceeds pre-trial; we could restrain substitute assets in equal value to the proceeds pre-trial under this legislation. Whether that extended to the entire business or not, I do not know. It depends on how much money we are talking about but the bill providesand you are correct, to the extent of the restraint of the proceeds or the substitute assets, it would apply equally to the defendant's joint interest with third parties, but under the provisions of the bill the third parties, like the defendant, would have an opportunity to seek modification of the restraining order on the ground that it causes substantial hardship to the moving party and less intrusive means exist to preserve the party for forfeiture.
So there is a due process procedure here where whoever's ox is being gored can come in and say, ''Wait a minute, you have restrained this entire business. You have shut my business down. You only needed to restrain $50,000 in alleged proceeds. Is there not another way we could have done this without putting us out of business, without having the marshall or the Treasury contractor running through''
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Mr. BARR. Are there provisions to allow that third party to seek to free up sufficient assets for them to defend or for them to assert their position?
Mr. CASSELLA. I would have to answer yes because the provision says it is causing a substantial hardship to the moving party, meaning the defendant or the third party, to have this party restrained, and so they come in and assert whatever that substantial hardship is in that hearing.
Mr. BARR. And even if the court then determines against them, they could still receive enough of those assets back to pay for the costs of defending, or not defending but asserting their right.
Mr. CASSELLA. Well, if the court rules against them and holds that there is not a reason to modify the restraining order, the property would be restrained throughout the trial, and then in the ancillary proceeding the third party would have the right to come forward and say, ''Wait a minute, to the extent of my interests, the government cannot forfeit that property.''
Mr. MCCOLLUM. Mr. Barr, if I can piggyback on that, I am curious, Mr. Cassella and Ms. Blanton, why in Section 202 you think the definition of proceeds needs to be as broad as it is. It seems to be very, very broad.
Mr. CASSELLA. It is, Mr. Chairman, and we think that is necessary. We think that the law has to be made clear that when we say ''proceeds'' we mean gross proceeds and not net profits.
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The last six or seven criminal forfeiture statutes that have been enactedI am thinking in particular in terms of the statutes in 18 U.S.C. 982(a), having to do with carjacking, and food stamp fraud, and alien smugglingspeak in terms of gross proceeds or gross receipts, they use those terms.
That makes it absolutely clear we are talking about the gross amount of money the defendant realized without any deduction for his cost of doing business, but the older statutes used the word ''proceeds'' without any modification, and that has led some courts to assume that Congress must have meant something more limited when it used the term ''proceeds'' in lieu of ''gross proceeds,'' and there are cases out there where, for example, a heroin dealer was given credit for the cost of manufacturing the heroin, where someone who engaged in bank fraud and invested so many thousand dollars in a fraud scheme was allowed to deduct the cost of investing in the scheme and to forfeit only the net that he realized above that.
We think that is wrong. We think that the gross amount that someone realizes should be forfeited. Let me give you a quick example: someone defrauds elderly persons of $100,000 in a telemarketing scam, but he is not a very good fraud artist. He manages to lose the money in investing it, so that at the end of the day he does not make any profit. Well, the victims still lost $100,000.
Whether the defendant makes a profit or not does not matter. He took the $100,000 he took from these elderly people, and he invested it in the stock market, and while everybody else was making 30 percent a year on the stock market, lost it. He should not get credit for having invested the money and lost it. He took $100,000 from people and that is how much he should forfeit, and that is how much should be paid in restitution to the victim.
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So that is why we have asked that a definition be made consistent.
Mr. MCCOLLUM. Are there not cases like Mr. Barr is talking about where an innocent third party who has a legitimate business interest could be damaged by the broad definition of gross proceeds or do you think that is not a problem?
Mr. CASSELLA. I do not think so because we cannot forfeit the third party's interest. To the extent that property belongs both to the defendant and to the third party, the defendant forfeits his interest, the third party does not.
Now, query, whether a third party could ever have a legitimate interest in what we define as criminal proceeds. We have had cases where the defendant sells methamphetamine in California, makes $1 million, and then his wife comes in and says, ''I live in a community property state. I have an interest in one-half of the money my husband made selling methamphetamine.''
Happily the courts have rejected that claim on the ground that no one acquires a property interest under California law in criminal proceeds.
Mr. MCCOLLUM. Do you think that the definitions of proceeds that are in this bill would cover both instrumentalities used to commit a fraud as well as the ill-gotten gains?
Mr. CASSELLA. No, only the ill-gotten gains are covered by this legislation. You would need a separate provision authorizing the forfeiture of ''property used to facilitate, property involved in'' or language to that effect, or as in the RICO statute ''property acquired, or maintained, or affording a source of influence.'' Those are the phrases which are understood to mean facilitating property.
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Mr. MCCOLLUM. Do you think that we should do that with respect to fraud cases?
Mr. CASSELLA. I would like to see someday an opportunity to have broader forfeiture in fraud cases than just the proceeds. I appreciate the issues that are raised in that context. There is certainly an Eighth Amendment issue, an excessive fines issue, when you talk about facilitating property that would have to be addressed.
I certainly would like to see it. I am happy to go one step at a time and make sure we can at least forfeit the proceeds and then move on, if we get that far, to what property we may forfeit in the category of facilitating property.
Mr. MCCOLLUM. Ms. Blanton, I am going to conclude the panel, but you ought to have a chance at least to answer. Mr. Barr raised the question of ATF, really, in firearms transactions. Do you have any comments that you want to make about the proceeds question or about the issues that were raised here by the last few questions we peppered Mr. Cassella with?
Ms. BLANTON. I think Mr. Cassella answered remarkably well, and I would just ask my counsel on the firearms issue if he has anythingto add.
Mr. MCCOLLUM. Could you introduce your counsel?
Ms. BLANTON. Yes.
Page 65 PREV PAGE TOP OF DOC Mr. MCCOLLUM. He has been sitting there so quietly today and we did not introduce him.
Ms. BLANTON. He is kind of a quiet guy. This is Bill Bradley. He is part of the General Counsel Office at the Department of the Treasury, and he is assigned to my office as counsel for forfeiture issues.
Mr. MCCOLLUM. We are happy to have Mr. Bradley here. If you would like to comment on the firearms question Mr. Barr raised, please do.
Mr. BRADLEY. Thank you. Just briefly, the firearms question is kind of an anathema. Because Congress haswith respect to firearms, provided limited forfeiture authority. The only firearms we would probably able to forfeit in that instance would be the ones that were actually involved, that were illegally sold, that violated Title II or Title I. The proceeds would be different than the firearms, but we would not be able, probably except administratively for ATF. If the Federal firearms licensee had somehow violated the lawwe would be able to restrain perhaps or take some administrative action vis-a-vis their license to continue to transact in firearms, but we would not be able to forfeit the entire store or restrain the business as long as it was operating legitimately. We would only be able to forfeit the firearms that were actually involved in the crime.
Mr. MCCOLLUM. Just for clarification, administrative forfeiture is civil?
Mr. BRADLEY. Administrative forfeiture is civil but, excuse me, Mr. Chairman, I did not mean to indicate that we would administratively forfeit that business. We would take some administrative action, perhaps, if the Federal firearms licensee had done something to violate their license requirements. We would take some administrative action to revoke their license or impose some penalty.
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Mr. MCCOLLUM. Right.
Mr. BRADLEY. But not administratively forfeit the business based on the violation of one owner.
Mr. MCCOLLUM. I think you have clarified it. Mr. Barr, do you want to follow up?
Mr. BARR. If I could, Mr. Chairman. I am still a little concerned, Mr. Bradley, with looking at, just for example, the definition on pages 27 and 28, the definition of ''proceeds.''
Are you saying that in the hypothetical where you have a legitimate firearms business, a person sells firearms and ammunition, generally speaking above board. There are investors that have invested in that business. You have one of those persons who engages in a, let us say, a pattern of, not all the time but over a period of time, every 10th sale or whatnot they fudge on the ATF records or whatnot, and they do this over an extended period of time, for example.
Are you saying that notwithstanding the language here defining the proceeds very, very broadly, which would seem to encompass all the proceeds of that business, that the government would not proceed against any of the assets other than those that are directly traceable to the offending transactions themselves?
Page 67 PREV PAGE TOP OF DOC Mr. BRADLEY. Yes, as I read the statute it would apply to the proceeds derived from the sale, those 10, every 10th sale that was, in fact, an illegal sale. That would not necessarily be all the assets of that business. If we could quantify that, that is what we would seek or that amount is what the US Attorney would seek to restrain and make available for forfeiture.
It clearly would not reach the entire business if every 10th sale of one individual involved in the business were, in fact, forfeitable. So I do not think that we would seek to restrain the entire business even with this definition, as broad as it is, under those circumstances.
Mr. BARR. And would the government entertain an amendment to clarify this in that event?
Mr. BRADLEY. With respect to corporate interest and business interest?
Mr. BARR. Well, whatever interest. That was just one hypothetical.
Mr. BRADLEY. To the extent that it could be clarified, I think that it would. I would have to confer with my colleague, Mr. Cassella, and the other law enforcement bureaus to get a full understanding of it, but I think if it can be clarified I do not see why we would not seek to do that.
Page 68 PREV PAGE TOP OF DOC Mr. BARR. Okay, thank you.
Mr. MCCOLLUM. Thank you, Mr. Barr. I want to thank the panel for coming. It was very enlightening. Hopefully we can proceed to pass a bill that will help to remedy some of the problems you have discussed with us today. Thank you again for coming.
Mr. CASSELLA. Thank you, Mr. Chairman.
Mr. MCCOLLUM. Our second panel today consists of only one witness, but he has got a burden to carry here because we have used his comments rather liberally in questioning the first panel.
Mr. E.E. (Bo) Edwards is here on behalf of the National Association of Criminal Defense Lawyers. Mr. Edwards currently serves as a parliamentarian in NACDL and has long served as Co-Chair of its Forfeiture Abuse Task Force. He is currently Senior Partner to the litigation firm of E.E. Edwards and Associates, and is also a member of the Tennessee Supreme Court's Commission on Rules of Criminal Procedure. We thank you for coming this distance to be with us today. Your testimony, Mr. Edwards, will be admitted into the record.
Without objection? Hearing none it will be entered en toto, including the accompanying documents that you sent to us. You may proceed to summarize your testimony as you see fit.
STATEMENT OF E.E. (BO) EDWARDS, SENIOR PARTNER, E.E. EDWARDS AND ASSOCIATES, NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS
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Mr. EDWARDS. Mr. Chairman, thank you very much. I appreciate the opportunity to be here today. It may be just a few moments too late, but with the Chair's leave, I would like to do this anyway.
Stef Cassella and I have known each other for several years, and I respect him and like him very much. We appeared at a seminar on forfeiture at Notre Dame Law School a year or two ago, and I introduced his son who was in the audience, and I wish to introduce his daughter, Megan Cassella, this morning, but I am afraid that she left with her dad, but maybe not. If she is here
Mr. MCCOLLUM. Mr. Cassella is here. I do not know whether she is or not.
Mr. EDWARDS. Well, good.
Unidentified Speaker. He is still here.
Mr. MCCOLLUM. She is still here. I see her back there. Mr. EDWARDS. It was my great pleasure to meet Megan.
Mr. MCCOLLUM. I see her hiding back there; we appreciate your being here, young lady. That is pretty neat that you can have your child come with you Stef. We appreciate that.
Page 70 PREV PAGE TOP OF DOC Mr. EDWARDS. Mr. Cassella and I have some rather fundamental differences on the subject of forfeiture, but that does not keep me from having very high regard for him. Today, however, I have some serious problems because I was almost stunned to hear the spin, apparently, the Justice Department seems to be giving this draft legislation, that it will clear up a patchwork or a hodgepodge of forfeiture provisions scattered throughout the United States Code. I do not think that. While it may undertake in some part to do that, I believe that, in fact, this bill is something far more onerous.
I would suggest that this bill is nothing less than a direct frontal assault on two of the most basic and cherished institutions in our country, the private right of ownership and the right to a jury trial. Perhaps the most alarming aspect of all of this is that it is the Justice Department that is trying to tear down as basic and fundamental American a concept of American justice as the right to a jury trial.
Earlier this year, in June, I witnessed and was honored to testify before the Full Committee at the hearing of the bipartisan bill, H.R. 1835 sponsored originally by Chairman Hyde and Mr. Conyers, and now co-sponsored by several dozen other members of the House, which would provide much needed, long overdue reform of civil forfeiture provisions and procedures, which is still very badly needed. But now I hear that, at least from my perspective, the Justice Department just does not get it.
It seems to me that throughout Congress there is a broad recognition that there needs to be reform enacted in the area of civil forfeiture because of abuses that have been recognized and are still ongoing from coast to coast.
Page 71 PREV PAGE TOP OF DOC Forfeiture is almost like a narcotic to law enforcement agencies. Once they get a little money through forfeiture, they want more money, and once they have some authority to forfeit property, they want more authority to forfeit property. And I do not suggest that some forfeiture is not completely justified. The problem is the playing field of civil forfeiture and criminal forfeiture is anything but level. It is skewed in favor of the government so it is easy for the government to forfeit property, and it is very difficult for any but the most affluent citizens to fight the government when it seizes property.
But apparently even though there is broad bipartisan support within the Congress and outside the Congress for forfeiture reform, the Justice Department just does not get it; and they bring today a very poorly conceived bill that is an extraordinarily broad attack on these two basic institutions of our country. Somehow the DOJ seems to be blind to the abuses that are going on and that this Committee has recognized in numerous hearings, but I am confident that members of this Committee can see these abuses and recognize the need for change.
This bill is really asking this Committee to change over two centuries of American tradition, to change rights of jury trial that were, in fact, a fundamental cause of the American Revolution. And I would like to share a brief historical anecdote because it is so important that we not be ignorant of how we got where we are today as the freest and greatest country in the world.
There was a New England merchant and smuggler in the 18th century who had several run-ins with the officers of King George. He had had his sloop, which was named the Liberty, seized and forfeited because he did not pay some of the charges in the Navigation Acts. In 1764, I believe it was, the English Parliament made a basic amendment change in the Navigation Acts, the British law through which all commerce in and out of Britain and British colonies was controlled. This change provided that British citizens in Great Britain who had property that was allegedly used in violation of the Navigation Act and subject to forfeiture would have a jury trial as they had traditionally had for centuries in Great Britain.
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The trial occurred before a jury in the court of exchequer if it occurred in Great Britain, but under this amendment to the Navigation Act, in the colonies property owners would no longer receive jury trials in forfeiture cases. Apparently the crown felt that it had had some trouble with colonial juries in trying to forfeit the property of American colonials, so it provided that in the future, after this amendment, trials in the colonies of alleged violations of the Navigation Act would occur before vice admiralty courts without a jury.
Well, this particular New England merchant again ran afoul of King George and he hired a lawyer in Boston named Adams, who began to rail publicly and in court against the deprivation of jury trial of American colonials, and his writings were published all over the colonies and made a very deep impression on colonial Americans.
Well, it just turns out that a few years later in 1776 this same merchant-smuggler, whose name was John Hancock, turned out to be the President of the Constitutional Convention, and his signature adorns the Declaration of Independence. And Mr. Jefferson, when he drafted that declaration, in its middle portion where it recited grievances against the crown, it mentions deprivation of our citizens of the right to jury trial in many cases. He was talking about what happened because of the amendments Parliament imposed on colonists in the Navigation Act, and it so happened that his lawyer, Mr. Adams, turned out to be the second President of the United States.
So I tell that story to emphasize just how deep in American history the reverence that we have paid to the right of citizens to a jury trial before the government can take their privately-owned property away from them. And this bill is an enormous expansion of forfeiture procedure, would just simply do away with that. No longer in civil, or in criminal, or as I read it in civil forfeiture, would a citizen have a right to a jury trial.
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How do I derive that? Because there is a provision in this bill that says in any law of the United States where there is an alleged violation of the lawsand there is a provision for forfeiturethe government can add a forfeiture count to an indictment, and by doing so the procedures for criminal forfeiture trump any other applicable procedures.
So if you have an area of the law that proves for civil forfeiture, where citizens still under the Seventh Amendment have a right to a jury trial, under this provision that is trumped if a US Attorney decides to add a forfeiture count in the indictment; and once they do, under these proposals, that citizen would not have the right to have a jury decide whether the government could take his or her property away from them. And it would be part of a sentencing procedure, under which, as Mr. Cassella acknowledged, the rules of evidence would go out the window, the amount of protection that is afforded the accused, relative to the protections before a real jury trial, are extraordinarily reduced.
So I think it is very clear what the Justice Department is trying to do here. They are trying to make it very, very easy for them to forfeit vast amounts of property.
The bill attacks basic notions of the right of ownership of private property. There is an enormous expansion of the right of the government to seize property and hold it for ''safekeeping,'' if you will, before anyone is convicted of any crime. And I refer to the provisions that allow pre-trial restraint of, not only assets that the government claims are tainted because they are the instrumentality of crime or because it is ''involved in crime''one of the terms that is used in some forfeiture statutes. The government could go inand let me give you a typical example of how this could work and how it would work, from my experience how US Attorneys offices would use these provisions.
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And I say parenthetically it is an enormous, an enormous power on the part of the government to seize the property of an individual before that individual has a trial in which he is accused of committing a crime. If the government weakens the accused economically, and then charges him, and then places him on trial, his ability to defend himself against those charges is enormously reduced.
So here is what could and would happen under this bill:
Let us say a person is a small-time drug dealer who is arrested. The government, DEA agent, for example, goes to talk to him, and says, ''Man, you are in deep trouble. You are going away for a long time. You had better help us. If you help us, we will help you,'' knowing that he had just been caught with, let us say, half a kilo of cocaine, and he knows that they have got a locked case and he is in bad trouble. He says, ''Okay, I will help you.''
They say, ''Do you know anything about John Jones,'' the person, a businessman, let us say, in this hypothetical who has assets and who has savings. Let us say that the drug dealer knows nothing about John Jones, and the government simply suspects that John Jones may be doing some financing of drug dealing on the side. But this new arrestee is not stupid, and he knows the only way he can get out or get help with the charge of which he is guilty is to say, ''Yeah, I know him.'' Whether he does or not, he is going to say ''yeah, I know him.''
The government says, ''Well, we hear he is moving 10 kilos a month. Is there any truth to that?'' The guy says, ''Probably is.''
Page 75 PREV PAGE TOP OF DOC Well, under this bill, based on as sketchy information as the scenario I have just given, the government could go into a judge, into the judge's chambers, ex parte, in a secret opportunity or a secret interview, and present information to the judge that the government has an ''informer,'' and on the basis of information received from this informer, it believes that John Jones is not only a drug dealer but is moving hundreds of thousands, or even millions, of dollars of drugs, and they needon the basis of the substitute assets, the brand new provisions of this statutethey want to seize pre-trial $1 million worth of this accused's assets.
So they go out and seize his business, and seize his life savings, and then they indict him. It is true that if they have seized everything he owns, and only if they have seized everything he owns under this bill, he would be entitled to an adversary hearing to see if he could get some of the assets relieved or released so he could hire a lawyer, but it is also true under this bill the government could cross examine the accused in that hearing on the threshold issue of whether he could prove that he does not have any other assets the government has not taken yet.
I mean, I do not want to belabor this, but I hope you can understand the enormous advantage the government has when, by using ex parte secret proceedings, the government can get orders, restraining orders, from a Federal judge to seize enormous amounts of private assets, even assets that the government has no contention whatsoever were used in criminal activity. The consequences are just incredible.
It would appear that this bill would also expand the ATF's ability to use forfeiture to seize not just firearms, but conceivably vehicles, businesses, homes, farms, etcetera, on an allegation that they were ''involved in'' some illegal activity. And what the representatives from Treasury just said''Well, we would not just do that''defies what has happened.
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In the Shirk case in the middle district of Pennsylvania, the government tried to forfeit a $10 million wholesale firearm businesswhich I believe was one of, if not the, largest wholesale firearms business in the countryon the theory that there had been currency law violations. Under using the currency civil forfeiture statute, 981, they tried to forfeit the entire business.
I testified before the Full Committee in June, on H.R. 1835, about a country doctor in Alabama whose entire life savings of almost $3 million had been seized by the government because the doctor put $300,000 in cash that he had horded over 20 years of medical practice into a bank, and his local bank president, who knew this doctor well and knew he was obsessive about privacy, did not file a currency transaction report. And they seized not just the $300,000, but his entire 2.5 million account.
So the thrust of this bill gives the government the power to seize enormous amounts of propertywhich, understand, the government cannot now seizeby using a new substitute assets theory to seize property pre-trial in civil forfeiture cases, as well as in criminal cases. There are circuit court opinions including US v. Riley from the Eighth Circuit that have held even though the statute does not provide for it, the courts have held that due process requires an adversary hearing, and at which the accused has the right to confront witnesses and cross examine them before a criminal court can issue restraining orders to seize property prior to trial.
In the 48 hours I've had to review this draft bill, I cannot even spot all the enormous expansions of government power to take property from private citizens before they have convicted those citizens of a crime. I have just mentioned a couple today.
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So, in summary, by changing over two centuries of American history and not allowing citizens to have a jury to determine that property should be forfeited to the government, by writing a bill that sort of goes in the back door so the government can turn any civil forfeiture where there is now a right to a jury trial under the Seventh Amendment into a ''criminal'' forfeiture case where there is not one under the provisions of this billI mean, it just boggles the mind.
What I would propose, Mr. Chairman, is that this Committee and the Full Committee return to Chairman Hyde and Mr. Conyers' very carefully thought-out and well-drafted 1835; pass it out; level the playing field in civil forfeiture. And then I pledge to the Chairman that NACDL, and the ABA, and the bar at large, will be very happy to work with this Committee, and the Full Committee, and with Mr. Cassella in Justice, to try to work out reforms in the area of criminal forfeiture that are also needed. But this is not a reform bill. This is a draconian measure that destroys American principles.
[The prepared statement of Mr. Edwards follows:]
PREPARED STATEMENT OF E.E. (BO) EDWARDS, SENIOR PARTNER, E.E. EDWARDS AND ASSOCIATES, NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS
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Mr. MCCOLLUM. Thank you, Mr. Edwards. Let me ask you a question about this issue on jury trials. Do you think that the Supreme Court decision on criminal forfeiture with respect to the sentencing decision, the Libretti case, should be, in essence, reversed legislatively? Should we provide for jury trials in criminal forfeiture cases?
Mr. EDWARDS. Well, Mr. Chairman, the Libretti case did not involve a trial. It involved a plea agreement and a dispute regarding procedures that were used in the plea agreement.
I deeply regret some of the language that the Supreme Court used in the Libretti decision because it was so broadly written that it would appear to apply to criminal forfeiture across the board, not just to a case under the facts before the court.
The fact is, not on the basis of Constitutional right but on the basis of statute, criminal forfeiture is only invoked by a jury after the jury, based on proof beyond a reasonable doubt, has found an accused guilty. And then in the same trial the same jury determines whether to forfeit property and to what extent property should be forfeited to the extent of the defendant's interest in that property.
Page 83 PREV PAGE TOP OF DOC That is the way it is now under present law and that is the way it should continue to be; but this bill would, of course, do away with that.
Mr. MCCOLLUM. Let me ask you something. I am not a student of history on this subject to the degree you obviously are. In the John Hancock-Liberty case, was the violation of the Navigation Tax Act that you were referring to criminal or civil at that time?
Mr. EDWARDS. Mostno, it was civil. Most of the statutory forfeiture proceedingswell, let me back up a step. There were three types of forfeiture, historically, in Great Britain, going back to the reign of Edward the First.
There was the forfeiture of estates, and for many centuries in Great Britain any person convicted of almost any felony forfeited their entire estate. As you know, our Constitution prohibits that.
Mr. MCCOLLUM. Right.
Mr. EDWARDS. There was the concept of the law de addende, the concept that if an instrumentality caused the death of a person, that instrument, whether it was a horse, or an ox team, a mill run, whatever, would be, it or its value, would be forfeited to the crown.
Again, the United States did not adopt the law de addende, and it was eventually repealed; after a century of industrial revolution in Great Britain, it was repealed. What was maintained was the concept of statutory forfeiture.
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The Navigation Acts in Great Britain were used as a vehicle under the theory of mercantile economics that evolved after the Renaissance and in the beginning of the Industrial Revolution. Nations in that time believed that the way to grow the economy, to use a current word, was to control the ingress and exit of goods and services. So under the Navigation Acts as originally passed by the British Parliament, in order for any ship to bring any goods into Great Britain or into any British colony, they either had to be British goods or they had to originate in a port licensed by the king. And much of the crown's revenues derived from the customs duties imposed on these goods.
So literally, if a product was made on the Continent, was made in France, or Spain, or Denmark, those products could not be brought into England unless they went through a port that was licensed by the king and allowed in. Otherwise, the goods and the ship they came on were both seized. If the seizure occurred in Great Britain as opposed to on the high seas, the trial was a civil proceeding before the court of exchequer, which is one of the three great common law courts, and the English jury discerned whether the goods should be forfeited or not. And that tradition was carried over into this country because, as you know, for the first century or more of our country's existence, 80 percent or more of the Federal Government's income came from customs duties
Mr. MCCOLLUM. Right.
Mr. EDWARDS [continuing]. And without the ability to make seizures in rem of ships and their cargo, a fledgling new nation could not have protected its revenue.
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Mr. MCCOLLUM. I appreciate your laying that out because it does put everything in historical perspective and saves me from doing a lot of reading. One of the arguments that could be made with regard to the forfeiture that we are dealing with here today, is that it is criminal forfeiture. You have been convicted, so you have lost some rights you otherwise would have. In the sentencing, a judge is going to decide the very liberty of an individual. So the argument would be that since you are already a convicted criminal, there is nothing wrong with the judge only deciding a criminal forfeiture case at that stage. I would suspect that would be the argument. How do you respond to that?
Mr. EDWARDS. I think the other side of that argument is the fundamental concept is it was not the judge that made that decision. It was a jury of the accused's peers that made the decision that the defendant had been guilty of criminal conduct.
Mr. MCCOLLUM. And they would also decide, then, so, if they decided he is guilty, then they should also decide what happens to his property?
Mr. EDWARDS. That is exactly right, and I can assure you in many, many cases, even cases where the proof of guilt is overwhelming and even in cases where the accused has blatantly defied and violated the law, it is very often a very different matter what property, if any, had been involved in the criminal conduct so as to make it subject to forfeiture, and when for 4 or 5 years now the American public has seen stories over and over againon TV programs, on ''60 Minutes,'' ''20/20,'' on the ''Investigative Reports'' on A&E, in the newspaper series'about law enforcement agencies taking property from innocent people, well, it seems to me that the inevitable result of that is to diminish the confidence, and respect, and trust that citizens have in their government. When they see that happening to their neighbors, deep down inside they realize it could happen to others.
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Mr. MCCOLLUM. If we were to impose on all criminal forfeiture proceedings the jury trial concept, would that remedy a lot of the other problems in this bill? In other words, you would not object as seriously to bringing as much under this legislation as you would otherwise, is that not true?
Mr. EDWARDS. That would remedy one very large aspect of my many problems with this bill. But another very large aspect is pre-trial seizure and restraint of assets, because of the extraordinary impact that it has on the ability of an accused to defend himself or herself.
This bill proposes enormous expansions of pre-trial restraint.
Mr. MCCOLLUM. I will let Mr. Barr ask you questions about that.
Mr. EDWARDS. Okay.
Mr. MCCOLLUM. I have consumed more time than I should here. Mr. Barr?
Mr. BARR. Thank you, Mr. Chairman. I had some discussions, as you know, with the previous witnesses focusing both on the proposed rule, 32.2, as well as then on the definition of ''proceeds'' found later in the bill, and I think we need to look at both of them in sort of looking for answers to questions that we have posed to the other panel.
Page 87 PREV PAGE TOP OF DOC Focusing, Mr. Edwards, for a moment on page 7 and 8 of the proposed bill, which relates to Proposed Rule 32.2, criminal forfeiture
Mr. EDWARDS. Yes, sir.
Mr. BARR [continuing]. Subsection B, I find the language that is used very, almost, unartful in some respects but there would be a great deal of confusion out of that. Give me your thoughts, please. I am looking at the sentence that begins on line 20, ''If the property is subject to forfeiture, the court must enter a preliminary order directing the forfeiture of whatever interest each defendant may have in the property.'' That raises the question in my mind what if we are only talking about one defendant. Does that obviate even the need for this, each interest, each defendant ''may have in the property'' without determining what that interest is?
Then it goes on to say that, ''deciding the extent of each defendant's interest''if we only have one defendant, then I guess that would mean that defendant's interest''is deferred until any third party claiming an interest in the property has petitioned the court to consider the claim. If no such petition is timely filed and the court finds that a defendant had a possessory''I guess that would mean any possessoryor any ''legal interest, the property is forfeited in its entirety.''
I would conclude from that that the only way that a defendant can avoid having his entire business or whatever the asset is, whatever the proceeds are of whatever, so long as the government can prove that there was one criminal act that may have used that business, such as somebody coming in and filling out a form improperly or whatnot, that the only way that the defendant, a defendant, can avoid having the entire property forfeited, regardless of the extent to which his criminal activity may have relied on the property, is if a third party comes in. If no third party comes in, then the court is not even empowered to take these steps to determine what, if anything, less than the entire property would be forfeited. Do you read it the same way?
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Mr. EDWARDS. I read it the same way, yes, and that is a significant change from the current law. I mean, the jury has to determine to what extent property is involved and how much, if any, should be forfeited now, and that is something that should be held onto with tenacity.
Mr. BARR. But it even goes beyond that. I mean, is that what the government is trying to get at here? Like I say, it strikes me as sort of odd the way this is worded. This whole last portion of that sub-paragraph seems to imply that these provisions only apply if there is more than one defendant, but if there, indeed, is only one defendant, which would be, I presume, in a lot of different cases, then this additional finding that the court would be required to makein other words, what, if anything, less than the entire property ought to be forfeitedthe court would not even get to that issue, would they?
Mr. EDWARDS. As I understand it, that is correct. I think it would all go no matter. The only defense that could be raised under that circumstance that occurs to me at the moment is that, let us say, forfeiting a $1 million business for a relatively minor infraction of the law, would constitute an excessive fine under the Eighth Amendment, and other than that I think it would be gone.
Mr. BARR. Would you be comfortable of your client's chances for success in basing your whole argument on that?
Mr. EDWARDS. No, I would not. No, I would not, because obviously courts are very cautious and reluctant to use Constitutional defenses when not prescribed by statute. Sometimes they do but they are very cautious in doing so.
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There is another provision in this bill that would make it appear that hardship grounds are the only grounds that a third party could raise against the seizure and restraint of property. But they simpl could not raise the fact that the property was not subject to forfeiture. Some of the language in here is so extraordinarily draconian as just to defy belief. I mean, in reading this I have repeatedly thought to myself, ''This could not possibly mean what it seems to mean. It could not possibly be that the Justice Department is really seeking this broad an authority,'' but apparently they are.
Mr. BARR. Well, they could just be drafting errors. [Laughter.]
Mr. EDWARDS. I do not think so. I do not think so.
Mr. BARR. I appreciate, Mr. Edwards, your being here and also some of the written material that you have provided, not only on this short notice that you have had about this matter but with regard to Chairman Hyde's bill as well. And I would hope, and I presumeI do not want to speak for the Chairmanbut I think that probably all of us would appreciate on more careful reflection any additional comments and background, since you obviously have a great deal in this area, that you could provide to us. I know I would appreciate receiving that.
Mr. EDWARDS. It would be my pleasure to do so. David Smith, my co-chair of the Forfeiture Task Force of NACDL, is here today with me, and both of us will be working on just such a more detailed response. For example, we have not even talked about third party claimants' problems in either this bill or existing criminal forfeiture law, and it is a very serious problem.
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Mr. MCCOLLUM. Mr. Edwards, we would appreciate it. You mentioned earlier you had hoped that we would go forward with the Chairman's bill, Chairman Hyde's bill, on civil forfeiture first and then get to this legislation; however, we are going to dual track this. I do not know what his schedule is going to be. I think there are perhaps problems with that bill, and althouogh he has chosen, with all due respect, to take the civil asset forfeiture aspect, we still have jurisdiction over the criminal aspect.
Mr. EDWARDS. Yes, sir.
Mr. MCCOLLUM. And while I do not anticipate moving a bill before the end of this session, we will certainly want to early next year in February or March or so. If over the next 2 or 3 months you could come up with a good analysis of this proposed legislation, it would be very helpful to us.
Mr. EDWARDS. I am sure
Mr. MCCOLLUM. Yes, you think you can complete such an analysis over that time?
Mr. EDWARDS. I believe we can, and we will strive to do so. There are certainly areas of criminal forfeiture that Justice has not mentioned needing some reform
Mr. EDWARDS [continuing]. Nevertheless do.
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Mr. MCCOLLUM. We would also like you to look at what crimes you would or would not be opposed to. Maybe the earlier suggestion that we ought to apply some uniformity to this and say if something is a crime and there are ill-gotten gains from it, then we ought to be able to forfeit those ill-gotten gains. If you could give us your thoughts on that subject, that would be helpful.
Also, I would like to address the issue of the trial jury deciding the forfeiture involved in criminal cases. You implied, maybe you did not intend to, that it was acceptable to you for there to be a judge only deciding the forfeiture of a case where there had been a plea bargain, and there was an agreement. There was no trial, no jury deciding as to one's guilt or innocence of the crime. Is that acceptable or would you still insist that with regard to criminal forfeiture there should be a jury deciding the forfeiture?
Mr. EDWARDS. Well, the right to jury trial is one that can be waived. If a defendant does not feel it is in his or her interest to go before a jury, then I have no problem with the district judge handling it.
Mr. MCCOLLUM. But it would require separate waiver for that as opposed to
Mr. EDWARDS. Absolutely.
Mr. MCCOLLUM [continuing]. Simply saying, ''I am guilty of the crime.'' One could not automatically go in and say, ''The judge can decide it.'' That is your point?
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Mr. EDWARDS. That is exactly right. That is right.
Mr. MCCOLLUM. Mr. Conyers, do you have some questions? I know I have caught you with your soup, but you are welcome to ask anything you wish.
Mr. CONYERS. I cannot ask anything I wish, Mr. Edwards, because we are in a public setting. So I wanted to greet you and
Mr. EDWARDS. Thank you very much.
Mr. CONYERS [continuing]. I wanted to be here for the discussion, and I will be reading, studying, working with you and your organization on both the civil and the criminal aspects of asset forfeiture.
Mr. EDWARDS. Mr. Conyers, you probably recall this, but I recall it very well. You were the first Member of Congress that invited me to address a committee of this body on the subject of forfeiture, and that was beforethat was in Government Operations several years agoand so I deeply appreciate your concern.
I should point out, Mr. Chairman, that one thing that the Libretti decision did not address is the fact that criminal forfeiture, like civil forfeiture, has a history of being before juries, being tried before juries, in this country and in Great Britain, going back for centuries. So there is a lot to be discussed about the notion of taking juries out of the process when the government is taking property, whether it is under a criminal case or under a civil case.
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Mr. MCCOLLUM. I thank you very much. Your points have been made extremely well. We look forward to your more detailed analysis in the coming weeks.
Mr. EDWARDS. Thank you all.
Mr. MCCOLLUM. Thank you. This hearing is adjourned.
[Whereupon, at 12:18 p.m. the Subcommittee adjourned.]
A P P E N D I X E S
SEPTEMBER 18, 1997
Appendix 1.Letter from Americans For Tax Reform
Appendix 2.Material submitted by J. David Pobjecky, P.A., Winter Haven, FL
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