Tag Archives: Civil Asset Forfeiture

He Beat the IRS in Court, But They Still Won’t Make Him Whole

By George Leef

One of the most abhorrent current government practices is civil asset forfeiture. Turning the usual rules of due process upside-down, civil asset forfeiture enables local, state, or federal authorities to confiscate money and property from individuals merely on suspicion that the property was somehow involved in a criminal activity.

Once the property has been taken, it is necessary for the owner to go to court and prove his property’s innocence — or else lose it forever.

Only by enduring often protracted and costly legal proceedings can the person recover the seized property. Many innocent people just can’t fight the system and lose out entirely; others settle with the government, getting back a fraction of what was taken from them.

These seizures are highly lucrative for government bodies. Many police forces pad their budgets considerably with the proceeds from asset forfeitures.

In one of its worst decisions of the last century (tough competition!), the Supreme Court gave its blessing to civil asset forfeiture in Bennis v. Michigan. Former FEE president Don Boudreaux and law professor Adam Pritchard give a sharp analysis of this appalling 1996 decision here.

Several years after Bennis, Congress passed the Civil Asset Forfeiture Reform Act of 2000. Recognizing that these seizures were often wrongful and imposed unjust costs on people, the law provides for recovery of fees, costs, and interest by the “prevailing party.” Despite the clear intention to make people who have been harmed by unjustified seizures whole, the authorities often try to avoid paying people the rather small amounts of money they are entitled.

This churlish attitude is displayed in the ongoing case of Lyndon McLellan, the owner of a small convenience store in rural North Carolina.

In July 2014, IRS agents seized Mr. McLellan’s entire bank account, with $107,702.66 in it. The reason for the seizure? The feds thought that his frequent bank transactions involving cash amounts of just under $10,000 looked suspicious; he might be “structuring” his transactions to avoid the requirement of reporting transactions of $10,000.

That was enough for the IRS and, without any effort to find out why McLellan made these transactions or how he derived the funds, it took his money.

Lyndon was not about to just wave goodbye to his life savings, however. He retained an attorney and paid an accountant to try to prove that he had done nothing wrong and should get his money back.

With their help and an enormous pro bono assist from the Institute for Justice, the government has agreed to return all of his money to him. (For more about this outrageous case, see my Forbes article.)

But the government is still trying to avoid making McLellan whole under CAFRA. When the US attorney handling the case offered to return the money, he also tried to get him to sign a document waiving his rights to pursue full recompense — his lost interest and expenses for legal and accounting help. Lyndon declined to sign that document.

So the next day, the US attorney entered a motion in court to dismiss the case (officially named United States of America v. $107,702.66 in United States Currency Seized from Lumbee Guaranty Bank Account No. 82002495) “without prejudice.”

When a case is dismissed without prejudice by a court, the government is reserving the right to re-open it at a future time. In other words, it isn’t really conceding defeat but declaring that the case is still technically open. Asking that the case be dismissed without prejudice might seem strange here because the government’s change in policy last year — the IRS has officially abandoned the policy of seizing bank accounts unless it has evidence of criminal activity — forecloses any re-opening of it.

Ah, but there is a method in this madness. In a number of similar cases, the government has argued that because the seizure case was dismissed without prejudice, the plaintiff does not count as the “prevailing party” under CAFRA and therefore is not entitled to full recompense.

In his response to the government’s motion, Institute for Justice attorney Rob Johnson hit the nail on the head, writing, “The government’s gambit to evade its statutory obligations should not be rewarded. Having dragged Claimants into ten months of costly and unnecessary legal proceedings, the government should be required to make Claimants whole.” (That motion, incidentally, contains a wealth of further detail about the government’s ugly behavior throughout.)

This is not a new gambit, by the way. Sometimes judges have actually bought the argument, but in others, they have seen through the tactic. A good example is United States v. Ito, a 2012 decision by the Ninth Circuit.

The government tried its dismissal without prejudice trick and the district judge went along, but on appeal, the Ninth Circuit vacated that ruling on the grounds that such a dismissal would mean legal prejudice against the claimants who would lose their ability to seek attorney’s fees. The district court was instructed to dismiss with prejudice.

Lyndon McLellan’s case should similarly be dismissed with prejudice. Let us hope the judge so rules, foiling the government’s devious tactic.

The bigger question, though, is why the government, which every second wastes more money than is at stake here — the lost interest on the money plus professional fees McLellan incurred amount to around $15,000 — refuses to just pay for the damage it caused an innocent American.




Reprinted from FEE with permission under Creative Commons Attribution License

Audit Reveals Oklahoma State Officials Using Seized Property, Funds For Personal Use

Oklahoma state audits from 2009 to 2014 have revealed that while some property and funds seized by law enforcement agencies have gone missing, others have been used by Oklahoma state officials for personal and other improper uses.

Oklahoma Watch, a nonprofit, nonpartisan journalism organization, reported that the list of violations included “using seized money to pay on a prosecutor’s student loans” and “allowing a prosecutor to live rent-free in a confiscated house for years.”

Republican State Sen. Kyle Loveless, who is sponsoring a bill that intends to curb the abuses of civil asset forfeiture by law enforcement, told Oklahoma Watch that the more he learns about the practice, the more upset and outraged he becomes.

“Your property is considered guilty until proven innocent,” Loveless said. “It is up to the individual to petition the government after they’ve seized it to prove that it is innocent. To me, that, on its face, is un-American.”

Under the current law, once police seize either property of funds from a suspect, a judge is asked to grant forfeiture on those assets and they are transferred to the District Attorney’s office, where the proceeds are supposed to be used for the enforcement of drug laws.

Loveless’ bill, Senate Bill 838, would create the Personal Asset Protection Act, and would not allow seized assets to be forfeited unless the suspect is convicted.

The bill was called the “single worst, most damning piece of legislation” for drug enforcement by Sheriff Randall Edwards, who said that it if passed, it would “set the war on drugs back twenty years and will literally allow drug traffic to go unchecked in Oklahoma.”

Oklahoma Watch reported that in one case, a 2009 audit revealed that after a house was seized in 2004, and a judge ordered to have it sold at an auction, a Beaver County assistant district attorney lived in it rent-free until 2009, paid for all utility bills and repairs with his supervision fee account and did not report the benefit as income for tax purposes.

In another case, a 2014 audit found that $5,000 in forfeiture funds had been used to pay for an assistant district attorney’s student loans, and after the payments were revealed, the Oklahoma District Attorneys Council returned the money using funds from its own student-loan program.

Oklahoma Watch also noted that according to the audits, “many district attorneys’ districts did not have written formal policies governing seized property,” and in many cases, “local law enforcement agencies did not keep an inventory of seized items.” 

The audit reports found cases where seized money was spent before it was forfeited in court, some forfeiture cases were never reported, seized money was used to pay for a retirement party, seized assets such as guns, money and vehicles could not be accounted for, and money from forfeitures was spent on court costs.

TN Officer Charged With Theft After Taking $6,000 Using Civil Asset Forfeiture

According to a state Comptroller’s report in Tennessee, a former police officer failed to deposit cash he collected for the return of seized vehicles totaling $6,000.

“During 2014 and 2015, former police Sgt. Michael Hurt failed to turn over cash totaling at least $6,000 for deposit. Sgt. Hurt was responsible for returning to owners or lienholders vehicles seized by the police department,” read the report. “In at least one instance, Sgt. Hurt acknowledged that he ‘renegotiated’ and reduced the cash settlement ordered by the Department of Safety from $5,000 down to $1,500. Mr. Hurt altered records, failed to record or receipt the majority of the cash, and made a false entry in police department records in an apparent attempt to conceal his activities.”

Hurt was ordered by the Tennessee Department of Safety to hand the vehicles over back to their original owners.

“We have this system going on around the country where people are having their property taken and it’s going into the bank accounts of police departments. It’s not that great a logical leap to hear of something like this,” Bates said of the Morristown audit.

Hurt was later indicted on two counts of theft over $1,000, one count of theft under $500, and one count of official misconduct.

As reported previously by Truth In Media, some states are making reforms to protect citizens and curtail corrupt police departments. But stories like the one in Tennessee are becoming all too common.

Truth In Media’s Barry Donegan reported that the city of Richland, Mississippi “currently features a $4.1 million police station, a fleet of new Dodge Chargers, and a top-of-the-line law enforcement training complex paid for through civil asset forfeiture, a legal process through which police seize property from individuals suspected, but not convicted, of a crime.”

Donegan noted that the Cato Institute has referred to mechanisms that fund police agencies through civil asset forfeiture as “policing for profit.”

7,033-Person City Funds $4.1 Million Police Station Through Civil Asset Forfeiture

Civil asset forfeiture is a legal maneuver used by police agencies to seize property from individuals accused, but not necessarily convicted, of a crime. The Cato Institute has referred to mechanisms that fund police agencies through civil asset forfeiture abuse as “policing for profit.” Some civil liberties advocates feel that, when local police departments can raise funds by seizing cash from travelers on the highway on mere suspicion of criminal activity, there is a corrupting incentive for officers to, as an example, interpret a cash withdrawal that someone might make to buy a used car as evidence of drug dealing.

Mississippi Watchdog‘s Steve Wilson recently sounded the alarm on apparent civil asset forfeiture abuse taking place in Richland, MS. The 7,033-person city features a $4.1 million police station, a new fleet of Dodge Chargers, and a police training complex so advanced that it is also used by 22 other local law enforcement agencies.

Said Wilson in his report, “Since 2006, Richland’s four-officer interdiction team has racked up huge forfeiture numbers. In 2014, the team seized $506,400 in cash and property, helping boost the city’s civil forfeiture account to more than $2.3 million. For those keeping score at home, that’s $72 for every resident of Richland. The city also reported $400,000 in revenue from fines and court costs… Those numbers are actually down from past years. In 2013, the department seized more than $1.2 million in cash and property.”

Richland Mayor Mark Scarborough started having officers seize assets through a drug interdiction program back in 2005. His officers mainly target travelers headed in and out of Jackson, MS on I-20. “It’s great to be able to say that we built that [police station] and built it not only today, but built it for the future with funds that aren’t taxpayer dollars. That frees us up huge with the rest of the city. Every other department benefits from the drug seizure deal,” said Scarborough, defending his asset seizures.

Wilson’s report notes that Richland seizes far more property per capita than neighboring police agencies. Wilson wrote, “The city of Clinton, on Interstate 20 west of Jackson in neighboring Hinds County, declared only $10,000 in seized assets on the balance sheet of the city’s 2015 budget. In a 2014 audit of Brandon’s finances, the Rankin County city listed $567,510 in fines and forfeitures in 2013. In the city of Jackson’s most recent budget, the city listed more than $3.1 million in fines and forfeitures.”

Civil liberties law firm the Institute for Justice gave Mississippi a “D+” ranking for its civil asset forfeiture rules, noting that police only need a preponderance of evidence that property is related to a crime in order to seize it, that the burden of proof is on property owners to prove in civil court that the property was not used in a crime in order to get it back, and that police in the state are not required to report data on the items that they seize from individuals. The Institute for Justice calls the 80% rate at which Mississippi police agencies can keep the proceeds of their seizures a “corrupting incentive.”

City in Which Cop Smashed Woman’s Camera Has History of Asset Forfeiture Abuse

Earlier this week, BenSwann.com brought news of a US marshal who was caught on camera on Sunday and seen in the above-embedded video apparently grabbing, smashing, and kicking away a woman’s camera as she filmed police who were engaging in a multi-agency crackdown on the Mongols Motorcycle Club in South Gate, CA. After news of the incident broke, Scott Shackford at Reason noticed that the city in which the incident occurred recently appeared in an article he wrote about a Drug Policy Alliance report on how a few small California cities and towns appear to be abusing a federal civil asset forfeiture program and racking up disproportionately huge quantities of revenue dollars compared to larger cities in the state.

Civil asset forfeiture is a civil process through which the government seizes property from someone accused of a crime, sometimes even from individuals who are never actually convicted of or charged with said crime.

Shackford’s analysis paints a picture of South Gate, CA as a city that is purposely focusing its law enforcement strategy on tag-teaming with federal agencies to conduct drug raids in an effort to obtain cash through civil asset forfeiture. Shackford wrote, “Partnering with federal law enforcement allows South Gate’s police to turn to the Department of Justice’s Equitable Sharing Program for assistance in seizing and keeping assets from these raids… South Gate, situated just south of Los Angeles, has a population of less than 100,000 people, but has collected more than $7.6 million in revenue using the federal Equitable Sharing Fund between 2006 and 2013. They’re ranked sixth in the state in per capita forfeiture revenue. They’ve received more seized funds through the federal forfeiture system during that timeframe than San Francisco (population: 800,000).” By obtaining assets through the federal program rather than a state-level program, South Gate police can keep 80% of the value of the assets seized, rather than the 65% that California’s government allows.

Meanwhile, between 2009 and 2012, the South Gate Police Department slashed its force down from 144 officers to just 117 while also doubling the number of employees working on asset forfeiture related efforts, meaning taxpayers are getting less and less police protection from a force that is raking in millions of additional dollars by seizing citizens’ property. The Drug Policy Alliance report noted that a South Gate police official said that excessive drug use in the area dictates that police “dedicate an unusual amount of people to narcotics enforcement.” The report also noted the fact that the South Gate Police Department violates Department of Justice policies by planning its future budgets based on how much revenue officials expect the department will rack up through civil asset forfeiture actions in the future. This means that budgets could crash if police do not seize enough property.

California State Senator Holly Mitchell (D-Los Angeles) is attempting to address the problem of civil asset forfeiture abuse through her introduction of SB 443. The bill’s text states, “This bill would require a prosecuting agency to seek or obtain a criminal conviction for the unlawful manufacture or cultivation of any controlled substance or its precursors prior to an entry of judgment for recovery of expenses of seizing, eradicating, destroying, or taking remedial action with respect to any controlled substance. The bill would prohibit maintaining an action for recovery of expenses against a person who has been acquitted of the underlying criminal charges.”

Going further, SB 443 states, “The bill would prohibit state or local law enforcement agencies from transferring seized property to a federal agency seeking adoption by the federal agency of the seized property. The bill would also require that any property seized pursuant to any federal law that authorizes the sharing or transfer of forfeited property be distributed according to state law, thereby imposing a state-mandated local program. The bill would further prohibit state or local agencies from receiving specified seized property if a conviction for the underlying offenses is not obtained or if federal law prohibits distributing the proceeds or property received in accordance with state law.”

IRS Seizes Nearly $19K From Widow Who Deposited Late Husband’s Savings In Increments

Dubuque, IA- The IRS has seized almost $19,000 from an Iowa woman’s bank account because she was depositing her late husband’s savings in increments under $10,000. Janet Malone, 68, is also facing a criminal misdemeanor charge alleging that she knew the deposits were violating federal law.

The Bank Secrecy Act, passed in 1970 to combat money laundering, requires banks to file reports to the federal government when customers make cash deposits over $10,000. Individuals making cash deposits that are close to meeting the threshold in order to bypass this requirement are considered to be committing a crime called “structuring” whether or not that money was legally or illegally obtained.

Ronald Malone, Janet Malone’s husband, had been visited by IRS agent Jeff McGuire in 2011 to investigate possible structuring. At that time, Ronald Malone was dying of cancer. According to the Associated Press, Mr. Malone acknowledged that the small deposits amounting to $35,500 could be considered structuring and signed a form confirming that he’d been warned about the practice. Janet Malone was at the home for part of that meeting between McGuire and Mr. Malone, but had not signed anything.

Mrs. Malone was reportedly told by her husband shortly before his death in October 2011 about a briefcase containing $180,000 in cash from investment income, gambling winnings and income from his career as an publishing executive. Mrs. Malone then made deposits ranging between $5,800 and $9,000. Prosecutors charged Janet Malone last week with a criminal misdemeanor accusing her of knowingly making small cash deposits from her husband’s savings after he died.

According to an IRS affidavit, Mrs. Malone said that she didn’t remember the details of McGuire’s 2011 visit with her husband because “she was in a state of despair over her husband’s health.”

Last October, the IRS had announced that the agency “will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source’ structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations (D.F.O.) level.”  It is unclear if there are “exceptional circumstances” regarding Mrs. Malone’s deposits. Institute for Justice attorney Larry Salzman said that the government’s case against Mrs. Malone is “shocking because it demonstrates that prosecutors are not taking seriously the IRS’ alleged policy change not to prosecute legal source structuring.”

Restaurant owner Carole Hinders, also from Iowa, had nearly $33,000 seized in 2013 by the IRS for making frequent small cash deposits. Hinders maintained that she had been making small deposits from her cash-only restaurant at the same bank for decades and had never been warned by the bank that “I was making my deposits wrong.” The IRS later returned her money and dropped the case against her, but requested the authority to refile the case. Based on a plea agreement filed Monday, Janet Malone is expected to plead guilty next week and allow the government to keep the seized money. The charge is punishable by up to a year in jail and a $250,000 fine.

According to a review from the Institute for Justice, the IRS seized $242 million in 2,500 cases between 2005 and 2012. A third of those cases were simply cash transactions under $10,000. Nearly half was returned after challenges from owners disputing the seizures.

Prosecutors Drop Asset Seizure Case Against Iowa Restaurant Owner

Carole Hinders
Carole Hinders at her restaurant, Mrs. Lady’s. Photo: YouTube

Federal prosecutors have dropped their civil forfeiture case against Carole Hinders, a restaurant owner who was targeted by the IRS last year for making cash deposits that the agency considered suspicious.

Hinders, who has owned and operated Mrs. Lady’s for 38 years, had her bank account seized by the IRS simply because of her deposit amounts. Hinders, whose restaurant did not accept credit cards, frequently made cash deposits at her bank that amounted to just under $10,000. Federal law requires banks to report deposits over that amount, and Hinders was suspected of illegal activity because her deposit amounts were close to that $10,000 threshold. Hinders had been using the same bank for 30 years and said she had never been informed that “I was making my deposits wrong.”

Hinders had never actually been criminally charged with conducting any illegal activity, yet her money was taken because civil forfeiture explicitly allows the seizure of assets based solely on suspicion with no requirement of criminal charges. Civil forfeiture, while legal, places extraordinary burdens on businesses and individuals who have had their property or assets seized by the government to claim their innocence.

The Institute for Justice, an organization focused on challenging civil forfeiture, reported that the government will return the $33,000 that was taken from Hinders. “I actually wanted a trial, which would have cleared my name and helped to protect others, but it is good to get the money back. My fight is far from over, though. I am willing to tell my story to Congress to help change forfeiture laws so that no one else has to go through what I suffered,” said Hinders. The Institute for Justice has been helping Hinders fight to get her money back from the IRS.

Despite prosecutors dropping her case, Hinders still faces the possibility of the IRS reopening her case. According to the Institute for Justice, the IRS claimed that their case was “justified” and requested the right to be able to refile the case at another point in time. IJ attorney Wesley Hottot criticized this move, saying “Instead of simply returning the money with interest and an apology to Carole for the nightmare they put her through, the IRS is shamefully attempting to mask their retreat by insisting on the right to refile the case in the future.”

The Institute for Justice plans to ask the court to deny the request from the IRS and allow Hinders to receive interest on the money that was seized.

The story of Carole Hinders, profiled by The Institute for Justice, is shown below.

AG Nominee Loretta Lynch Boasts Having Seized $904 Million Through Asset Forfeitures in 2013 Alone

Civil asset forfeiture is a controversial policy in which the government seizes private property that it believes was either gained through the commission of a crime or used to commit one. However, the items being seized sometimes belong to someone who was never accused of a crime at all or people who later turn out to be completely innocent. Since a civil process is used to seize the items in question, individuals facing the loss of property do so without the benefit of the level of due process that would ordinarily be afforded a criminal defendant.

Through civil asset forfeiture, an innocent couple lost their home when their son was caught with drugs on the property. Many non-criminal motorists have had their cash seized by cops under the default suspicion that anyone carrying cash must be doing so to purchase drugs, even in obviously innocuous situations such as when driving to purchase a car. Politicos on both the left and right side of the political spectrum have characterized civil asset forfeiture as policing for profit, as police agencies often use the technique to obtain cash, cars, and other useful items, a conflict of interests that can lead to serious abuses.

The Washington Post notes that, under President Obama, civil asset forfeitures have doubled. Now, as Eric Holder steps aside as US Attorney General, his potential replacement, nominee and US Attorney for the Eastern District of New York Loretta Lynch, recently announced that her office seized over $904 million in asset forfeitures in 2013 alone.

According to a quote from The Wall Street Journal’s editorial page, “As a prosecutor Ms. Lynch has also been aggressive in pursuing civil asset forfeiture, which has become a form of policing for profit. She recently announced that her office had collected more than $904 million in criminal and civil actions in fiscal 2013, according to the Brooklyn Daily Eagle.” The editorial calls for senators to ask questions in an effort to clarify Lynch’s views on the controversial policy.

Eric Holder will step down from his position as Attorney General once a replacement has been approved by the Senate. Politico is reporting that Loretta Lynch’s confirmation vote will likely be held next year, as Senate Democrats are hesitant to take up the fight to confirm Lynch during the lame duck session.

Police Wish List Reportedly Being Used to Train Cops on What to Seize from Drug Suspects

Civil asset forfeiture is a legal construct under which governments seize property that is believed to have been used for or obtained through criminal activity. While the practice has been in place for quite some time throughout history, it has been ramped up as a feature of the War on Drugs. Under current rules, police often seize property like cash, cars, and homes from innocent family members of suspects, accused suspects who are eventually proven innocent, and other individuals who did not commit a crime. Since cops can seize any item that was believed to be involved in a crime, even from owners who themselves are innocent, without the same level of due process afforded to a criminal defendant, stories of abuses in which innocent people have had their property taken without recourse are starting to appear in the news with increasing frequency. The above-embedded video by the Institute for Justice demonstrates criticisms and examples of abuses that have been pointed out by opponents of civil asset forfeiture.

The fact that police departments can seize certain desired items and then put them to use has created an incentive for officers to seize property on the basis of the usefulness of the items in question, rather than on the basis of the insidiousness of the criminal activity being perpetrated. According to a report by The New York Times on civil asset forfeiture training seminars for police, officers have been instructed to watch for and seize big ticket items on police departments’ wish lists while patrolling the streets.

Allegedly, cops are being trained to focus on seizing items such as expensive cars, cash, and flat screen TVs which departments can put to use. The seizure of less useful items is discouraged. As an example, cops were told that computers are not worthwhile to seize as police agencies already have too many of them. Officers were also coached on how to argue against the complaints of innocent property owners who are facing property seizure under civil asset forfeiture despite not breaking any laws.

In fact, Las Cruces, New Mexico city attorney Harry S. Connelly Jr. was caught on tape back in September in videos leaked by the Institute for Justice coaching officers to be careful in how they seize property to make sure that it is eligible to be taken by describing a scenario in which officers were so excited to seize a luxury car that they failed to wait for the inebriated owner to take control of his vehicle before attempting to arrest him and seize it. Said Connelly, “And we always try to get, every once in a while, like, maybe a good car. There was a stakeout at a bar, and this guy drives up in a 2008 Mercedes, brand new, just so beautiful. I mean, the cops were undercover and it was like, ‘Ahh!’ And he gets out and he’s just reeking of alcohol. And it’s like, ‘Oh my goodness, we can hardly wait!’ So he goes in the place and they refuse to serve him because he’s drunk… and our police are just as excited as they can be, and he walks outside, and just as he’s about to touch the car, our police officer goes, whap, ‘You’re under arrest!’… [The suspect] didn’t have control of the vehicle. You don’t have to drive the vehicle in New Mexico to control it — sleep in it, lay on it, do whatever you want, and so we thought, damn, we got a 2008 Mercedes Benz… and lo and behold, we finally get the facts that he didn’t have control, and we have to like, gulp, back goes his car, cause… we didn’t wait… That’s just one of the little goodies that we got.”

Connelly was also caught admitting that he sometimes works with police to help them obtain items from suspects for their wish lists, saying, “If you want the car, and you really want to put it in your fleet, let me know — I’ll fight for it.”

Gary Bergman of the Prosecuting Attorneys’ Council of Georgia defended civil asset forfeiture in comments to The New York Times, saying, “All they hear is the woman was left on the side of the road and the police drove off with her car and her money, no connection to drugs. I’m not saying that that doesn’t happen — it does. It should not. But they never hear about all the people that get stopped with the drugs in their cars, in their houses, the manufacturing operations we see, all the useful things we do with the money, the equipment, vehicles. They don’t hear about that.”

Critics have complained that civil asset forfeiture, as it works under the War on Drugs, creates an incentive for police to take property from innocent people in an effort to equip their departments with wish list items. It is worth noting that, while civil asset forfeiture has a particular association with drug crime, it is also sometimes used to obtain property connected to other types of crime as well.