Money Laundering Forfeitures -- Landmark Structuring Case Provides Guidance.

Series: BJA
Published: June 1995
19 pages
59,197 bytes

BJA Bulletin: Asset Forfeiture Series


Donald C. Semesky, Jr., IRS; and Christine M. Taylor, Esq.

In Ratzlaf v. United States, 1994 WL 4189, 1994 U.S. Lexis 936
(U.S., January 11, 1994), the Supreme Court clarified the
elements of the Federal structuring offense, 31 U.S.C.  5324.
The opinion gives law enforcement officers useful direction
for targeting cases, gathering evidence, anticipating
defenses, and evaluating the likelihood of prevailing against
a claimant in seizure and forfeiture matters.

The Crime

Structuring means breaking transactions larger than $10,000
into smaller increments by making multiple deposits or
withdrawals or by buying cashiers' checks, money orders, or
other monetary instruments for the express purpose of evading
the reporting requirements. These reports, required by the
Bank Secrecy Act (BSA)1 and the Internal Revenue Code,2 must
be filed with the Internal Revenue Service every time a
transaction involving more than $10,000 in cash is carried out
with a financial institution.3

The Conviction

To be convicted of structuring, an individual must knowingly
and willfully transact below the $10,000 threshold level,
intending to evade the reporting requirements.4 This means the
Government must prove that the defendant knew that the
financial institution is required by law to file transaction
reports and knew that breaking transactions into multiples of
less than $10,000 to avoid triggering these reports is
unlawful.5

In Ratzlaf, the petitioners (who had been convicted of
structuring) went to several banks in and around Stateline,
Nevada, and South Lake Tahoe, California, using cash to
purchase, or attempt to purchase, cashiers' checks in amounts
of less than $10,000. They also gave three individuals cash
and asked them to purchase cashiers' checks in amounts of less
than $10,000 from two banks in Oregon. They did this to settle
a $160,000 gambling debt at a casino in Nevada with numerous
payments of less than $10,000 each so as to evade the banks'
and the casino's reporting requirements on cash transactions
involving more than $10,000 in currency.

Reversing the Ninth Circuit Court of Appeals, the Supreme
Court held that the Government must prove that the defendant
acted with knowledge that his or her conduct was unlawful.6 A
jury may convict a defendant of the crime of structuring if
the Government proves the defendant had actual knowledge that
structuring is a crime or that the defendant intentionally or
recklessly disregarded a legal duty (willful blindness).7

Although direct evidence of the defendant's knowledge that
structuring is a crime is certainly desirable for the
prosecution's case, it is not necessarily required.
Circumstantial evidence is entitled to the same weight as
direct evidence in determining whether there is sufficient
evidence to support a guilty verdict.8

In Ratzlaf, the Supreme Court cited cases to illustrate how a
properly instructed jury may find the requisite knowledge on
the defendant's part by drawing reasonable inferences from
evidence of the defendant's conduct.9 Perhaps most important,
the Court suggested that evidence that the structured funds
are proceeds of drug dealing or other criminal ventures could
support the inference of bad purpose to disobey or disregard
the law; establishing intent is required for a conviction.10

Reasoning by analogy to a U.S. Customs case, the Court
indicated that signs advising customers of the reporting
requirements posted conspicuously on the premises could
support the inference that the defendant knew that structuring
is illegal.11 Some banks provide circulars to customers
transacting with more than $10,000, advising them of currency
transaction report requirements. Although a form of this type
provides the requisite information to the $10,000+ bank
customer that structuring is illegal, it does not address the
so-called "smurf" who transacts at a bank or nonbank financial
institution with amounts of less than $10,000.

For investigators and prosecutors, it is critical to document
the target's knowledge that structuring to evade reporting
requirements is a crime. Documenting can be accomplished with
timely and indepth interviews with all financial institution
employees who have dealt with the target. Prior filings should
be followed up with interviews at the filing institution as
well as with any other parties who may be listed on the
currency transaction report.

Consensual monitorings, or even a direct interview of the
target, should be considered to document knowledge. In
undercover situations or whenever bank employees agree to act
as cooperating witnesses, the undercover officer or
cooperating witness should ensure that recorded conversations
with the target include statements to the effect that
structuring to evade filing of the currency transaction report
with the Internal Revenue Service is against the law.

The Civil Forfeiture Aspect of Structuring

Property involved in or traceable to a transaction in
violation of the anti-structuring laws is subject to
forfeiture to the U.S. Government12 and, depending on the
jurisdiction, perhaps under State law as well.13 This means
that all the structured cashiers' checks, money orders, etc.,
and the property they purchased are forfeitable.

Facilitation Theory

When structured funds not necessarily derived from an illegal
source can be traced to an account into which both legal and
illegal source funds have been deposited, courts have upheld
forfeiture of all of the money in the account because the
"clean" money facilitated the laundering offense.14

Investigators and prosecutors should consider seizure and
forfeiture of funds traced to accounts when there is evidence
of structured deposits in addition to evidence that the
account has been used to deposit proceeds of criminal
activity. Whenever the Government can demonstrate a
"substantial connection" between criminal activity and the
subject account, some portion of the account may be
forfeitable. In United States v. All Monies, 754 F. Supp.
1467, 1472 (D. Haw. 1991), the court held that transactions
involving tainted funds and a bank account, together with
noted instructions for subsequent disbursements and a
statement by the defendant that he controlled the account,
were enough to show a substantial connection between the
account and the illegal activity that made the entire account
forfeitable. This applied even though some money in the
account was not connected with illegal procedures. The
Government did not dispute the claimant's defense that he ran
a business in which most of the transactions were legitimate.
The court reasoned that legitimate money provided a cover for
drug proceeds, making it more difficult to trace the drug
proceeds.15

Source of the Funds

Property traceable to or involved in currency transaction
reporting violations is subject to forfeiture whether or not
it can be proven to have an illegal source.16 The standard of
proof imposed on the Government in civil forfeiture is
probable cause to believe the seized property was involved
with structured transactions in violation of the reporting
laws, and the reporting laws apply to all transactions in
excess of $10,000 without regard to the source of the funds.17

Nonetheless, investigators and prosecutors should be mindful
that Congress, in enacting the Bank Secrecy Act and the Money
Laundering Control Act, and State legislatures in enacting
similar legislation, were concerned with money laundering
related to narcotics trafficking, organized crime, and related
criminal activity.18 Forfeiture of proceeds of criminal
activity, and property involved in and traceable to such
activity, certainly advances this important social policy. In
addition, the Federal forfeiture laws accommodate forfeiture
of proceeds and property traceable to or involved in State
felony crimes of murder, kidnaping, gambling, arson, robbery,
bribery, extortion, and dealing in obscene matter, if they are
involved in a money-laundering transaction19 as well as
narcotics-related offenses.20

Courts in some circuits are reluctant to enforce the
forfeiture laws in cases involving structured funds that do
not appear to derive from, or be connected with, criminal
activity.21 The Supreme Court's opinion in Ratzlaf reinforces
this position. In reversing the conviction, the Court
expressly pointed out that the Government never asserted that
the defendant was laundering proceeds from drug sales or other
criminal ventures.22 The Court emphasized that antistructuring
laws were enacted to curb narcotics trafficking and other
organized crime.23 Other courts have declined to enforce the
forfeiture laws in cases involving legal-source funds,
emphasizing that forfeiture is a drastic remedy; that
"probable cause," which is the civil standard of proof, is
much easier for the Government to satisfy than the "beyond a
reasonable doubt" standard necessary for a criminal
conviction; and that innocent parties often assert equitable
claims to ownership rights that override Government
interests.24

The U.S. Department of the Treasury, as a matter of policy,
has approved mitigation guidelines for seizures and
forfeitures relating to currency transaction reporting and the
structuring offense.25 Under these guidelines, if the claimant
can demonstrate a legitimate source of the funds, if it is a
first offense, and if there is no criminal conviction, a
mitigated penalty may be levied, pursuant to a formula
weighing mitigating and aggravating factors.26 The mitigation
guidelines serve as useful models for State and local
investigators and prosecutors because they balance fundamental
ethical considerations with legitimate law enforcement
objectives.

Similar to the asset-sharing procedure regarding drug
forfeiture laws, equitable sharing with State and local
authorities is available for forfeitures pursuant to 18 U.S.C.
 981 related to Federal structuring crimes, based on currency
transaction report and money laundering violations through
joint investigative efforts or adoptive seizures.

Conclusion

Jurisdiction for the Federal structuring offenses, 31 U.S.C.
 5324 and 26 U.S.C.   6050I(f) and applicable forfeiture
laws, rests with the Criminal Investigation Division of the
Internal Revenue Service (IRS-CID).27 The U.S. Postal Service
has joint jurisdiction for structuring cases involving postal
money orders. State and local authorities conducting financial
investigations pursuant to State antistructuring laws should
consult local prosecutors for jurisdictional guidance. Money
laundering violations under 18 U.S.C.  1956, 1957, 1960
that involve structuring activity may be investigated by IRS-
CID or the Federal agency with investigative jurisdiction over
the crime that generated the funds involved in the structured
transaction(s).28

Investigators and prosecutors who discover structuring
activities during their investigations should contact their
local IRS-CID office for consultation and possible joint
investigation.

Legal Corner

ALABAMA--Conflict Between Forfeiture and Criminal Case

Taylor v. State, No. AV92000347, Ct. of Civ. App. Ala.
(7/23/93). The State sought and obtained a forfeiture of a
vehicle registered to the claimant, and the State alleged that
the vehicle was purchased by the claimant's brother with
proceeds from the sale of controlled substances. During the
same month the State filed a forfeiture, the claimant was
indicted in Federal court on the charge of money laundering,
and the claimant's attorney failed to contest the forfeiture
on the basis that her defense might jeopardize her Federal
criminal case. The State obtained a summary judgment of
forfeiture, and 3 weeks later the claimant was acquitted of
the Federal criminal charges. Seven months later, the claimant
filed a motion requesting that the default forfeiture be set
aside on the basis that her defending the forfeiture would
have prejudiced her pending Federal trial. A hearing was held
on the claimant's motion. The trial court summarily denied the
motion and, on appeal, the Appellate Court held that the
decision not to defend the forfeiture was a tactical decision
made by the claimant's attorney, and therefore, the trial
court did not abuse its discretion in denying the claimant's
motion to set aside the default judgment of forfeiture.

Editor's note: The proper procedure would have been for the
claimant's attorney to seek a continuance of the State
forfeiture case on the basis of the pending Federal charges.

ALABAMA--Plain View Search/Constitutional Issues

Agee v. State, No. 2910699, Ct. of Civ. App. Ala. (5/28/93).
While executing a search warrant for a residence, officers
asked the owner of the residence and the claimant to identify
themselves when they arrived in the claimant's vehicle. When
the claimant opened the vehicle's glove compartment, an
officer observed two bags of marijuana and arrested the
claimant. The trial court forfeited the claimant's vehicle. On
appeal, the claimant contended that the forfeiture was
predicated upon an illegal search and seizure and that the
Alabama forfeiture statute violated the equal-protection
clauses of the U.S. and Alabama Constitutions. The Appellate
Court affirmed the forfeiture of the trial court and agreed
that, although a search warrant for a premises does not permit
searches of persons who are not reasonably associated with the
premises, the search in this case falls within the "plain
view" exception to such searches. The Appellate Court
highlighted that the "plain view" doctrine authorizes
warrantless seizures of personal property when the initial
intrusion that affords the officer a plain view is lawful, the
discovery is inadvertent, and the incriminating nature of the
property is immediately apparent. The Appellate Court noted
that the claimant freely opened the glove compartment, thus
permitting the officer to see the contents that included the
marijuana upon which the forfeiture was based. The Court also
noted that the claimant freely testified at the trial that the
substance was marijuana and that he was the owner. The
Appellate Court proceeded to dispose of the claimant's
constitutional challenges by noting that he had failed to
serve the Alabama Attorney General on such a constitutional
challenge, which is required by Alabama statute; hence, the
trial court properly ruled it had no jurisdiction to decide
such constitutional issues.

ALABAMA--Vehicle Purchased With Drug Proceeds/Straw Owner

Stringer v. State, No. AV92000028, Ct. of Civ. App. Ala.
(6/18/93). The State obtained a forfeiture of the claimant's
vehicle, alleging that the vehicle was purchased by the
claimant's brother-in-law with proceeds derived from the sale
of controlled substances. In forfeiting the vehicle, the trial
court made certain factual findings, including the following:
(1) the claimant's brother-in-law (Mr. Lee) derived all of his
substantial income from the sale of cocaine; (2) Mr. Lee
purchased many vehicles and made it a practice to register
these vehicles in the names of other persons as a means of
concealing his interest and concealing the property from
forfeiture; (3) Mr. Lee told an associate to get some money
together so that he could buy the seized vehicle; (4) the
associate who gathered the money aided Mr. Lee in the
importation of cocaine; and (5) Mr. Lee obtained a cashier's
check with the money obtained from the associate and purchased
a vehicle in the name of the claimant. The Appellate Court
confirmed the forfeiture by the trial court and held that the
State had proven by sufficient evidence that the vehicle
registered to the claimant had been derived from proceeds from
the sale of controlled substances. The Appellate Court also
noted that the claimant had testified falsely concerning the
purchase of the vehicle and that the claimant had failed to
rebut the prima facie case established by the State. The
Appellate Court concluded that, although the claimant was the
title owner of the vehicle, such ownership had been
contradicted by other evidence.

ALASKA--City Transfer of Seized Money to DEA Ruled Conversion

Johnson v. City of Fairbanks, 849 P. 2d 1361, Sup. Ct. Alaska
(1993). On February 1, 1990, police officers responded to a
domestic violence call at the claimant's house; found evidence
of illegal narcotics activity; and subsequently obtained a
warrant to search the house, resulting in the seizure of 75
items, including $44,850 in cash. A criminal complaint based
on information in the search was filed against the claimant on
February 2; on the same date, a police officer contacted the
Drug Enforcement Administration (DEA) and was told that DEA
would adopt the seizure of the currency and proceed with a
Federal forfeiture. The next working day, the police officer
took the money to a bank, exchanged it for a cashier's check
made payable to the U.S. Marshal, and transferred custody of
the check to the U.S. Marshal. On February 7, a grand jury
returned a 14-count State indictment against the claimant
involving weapons, theft, and drug charges. On April 2, DEA
commenced administrative forfeiture proceedings; the claimant
was notified of the proceedings by a certified letter but took
no action to reclaim the money. Forfeiture of the money was
completed by DEA on May 17, and the City of Fairbanks received
$17,940 of the forfeited money from DEA for its participation
in the case. On April 5, the claimant moved the Superior Court
to suppress and return the evidence seized under the search
warrant, arguing that the police had no authority to search
his house after they arrested him. On May 7, the Superior
Court granted the claimant's motion to suppress, and the State
dismissed the criminal charges against the claimant. On July
3, the Superior Court ordered the State to return the money to
the claimant.

The claimant subsequently filed a conversion suit against the
city, and the trial court denied the claimant relief. A
summary judgment was entered for the city, after which the
claimant appealed. On appeal, the city contended that the
claimant's conversion claim is barred by the "relation back"
doctrine contained in 21 U.S.C.  881(h). The Appellate Court
reversed the holding by the trial court and held that the
application of the "relation back" doctrine in this case
ignored the fundamental problem that the city had transferred
the money to DEA without court approval, thereby violating
State law regarding the disposition of seized property. The
Appellate Court held that, at the time of the transfer, the
money was in the custody of the State court in connection with
a pending criminal proceeding; by the "return" required under
the search warrant, the seized currency had been placed under
the control of the State courts. The Court held that a search
warrant is more than just a means of establishing in personam
jurisdiction because it also enables a court to exercise
jurisdiction of the property seized; hence, the State court in
this case had jurisdiction over the money to the exclusion of
DEA as a result of the search warrant. The Court concluded
that the money "was never out of the legal control of the
State court, and thus, was never in possession of the Federal
Government," citing the Scarabin case, 966 F. 2d 989 (5th Cir.
1992). The Court concluded by stating that by transferring the
property without any authority and in contravention of State
statutes, the city committed a conversion; hence it is liable
for the full value of the conversion.

------------------------------------
New DOJ State and Local Asset Forfeiture Training Initiative

Terrence P. Farley, former director, National Drug Prosecution
Center, American Prosecutors' Research Institute

Asset forfeiture is one of the most powerful and effective law
enforcement tools we have to combat drug trafficking and other
forms of organized crime. If we are to achieve the maximum use
of our Federal and State forfeiture laws, then we need to
pursue forfeiture aggressively while protecting individual
rights. In short, we need consistent, enhanced, and increased
training for State and local law enforcement personnel.

To respond to this need, in the summer of 1993, Cary H.
Copeland, then director and chief counsel of the U.S.
Department of Justice (DOJ) former Executive Office for Asset
Forfeiture, initiated discussions with representatives of
major national, State, and local law enforcement associations
about asset forfeiture training. In August of that year, a
meeting was convened that led to the formation of the State
and Local Law Enforcement Asset Forfeiture Training Working
Group.

This Working Group consisted of representatives of the
following organizations: Fraternal Order of Police (FOP),
International Association of Chiefs of Police (IACP), National
Association of Attorneys General (NAAG), National Drug
Prosecution Center/American Prosecutors' Research Institute
(APRI), National District Attorney's Association (NDAA),
National Organization of Black Law Enforcement Executives
(NOBLE), National Sheriffs' Association (NSA), National
Troopers Coalition (NTC), and the Police Executive Research
Forum (PERF). The Working Group also included representatives
of the DOJ Bureau of Justice Assistance, Asset Forfeiture
Office of the Criminal Division, Executive Office for United
States Attorneys/Law Enforcement Coordinating Committee,
Executive Office for Asset Forfeiture, the Office of Public
Liaison and Intergovernmental Affairs, and the FBI Training
Academy in Quantico, Virginia.

Given the wide range and occasionally competing nature of the
interests and ideas of these varied groups, it was abundantly
clear that this would be no small undertaking. It is to the
credit of the staff of the former Executive Office for Asset
Forfeiture that the effort succeeded.

Initially the Working Group sought to determine whether the
development of an asset forfeiture curriculum was the correct
course to take. The group members agreed on basic asset
forfeiture policies, procedures, and regulations that every
prosecutor and law enforcement officer or investigator needs
to know to be able to work effectively in the asset forfeiture
field. The Working Group concluded that a core curriculum,
using the best instructional materials that had already been
developed and going beyond the courses already available, was
needed. The group agreed on the prime importance of teaching
ethics to forfeiture practitioners.

The group developed a mission statement to provide focus.* To
achieve its mission, the group developed three core
curriculums to be used and distributed at all State and local
law enforcement asset forfeiture trainings: a 6-hour program
for chiefs, executives, and prosecutors; a 2- to 3-day course
for supervisors/middle managers and mid-level prosecutors; and
a 2- to 3-day program for street-level officers,
investigators, and line prosecutors.

After developing the core curriculums, the Working Group
divided into subcommittees that developed modules, including
agendas, outlines, and resource materials for the topics to be
covered in each module. The Working Group believes that the
following eight modules make this the most complete civil
asset forfeiture course available:

o Introduction to Forfeiture: Contains an overview of asset
forfeiture, focusing on basic terminology, purposes, statutory
bases, procedures, and remedial benefits of asset forfeiture.

o Ethics: Contains the minimum ethical rules to guide the
asset forfeiture practitioner.

o Resource Allocation: Focuses on developing or improving an
asset forfeiture program by providing models of successful
programs.

o Investigative Techniques and Seizures: Focuses on locating
sources of documentary information; applying financial
investigative techniques; understanding probable cause to
seize; and learning preseizure planning, how to use preseizure
hearings and warrants, the seizure process, and postseizure
requirements.

o Constitutional Protections: Focuses on constitutional and
equitable protections afforded individuals and institutions in
forfeiture situations, including innocent owners, bona fide
purchasers, and lienholders.

o Custody, Maintenance, and Disposition: Focuses on the
procedures in the custody, management, and disposition of
seized or forfeited property.

o Equitable Sharing: Focuses on the equitable sharing process,
including how to participate in the sharing program, how to
apply for sharing, how to calculate sharing percentages, how
to complete the required forms, and how to coordinate with the
agencies involved in the forfeiture process.

o Legislation/Policies/Trends: Focuses on pending legislation
and Federal, State, and local asset forfeiture policies.

Like most groups involved in an undertaking of this magnitude,
the Working Group had to deal with new adverse rulings from
the Supreme Court, with legislative proposals being made in
Congress, and with the DOJ review of the entire Federal civil
asset forfeiture program. Other tasks included recommending
instructors for the various modules, selecting sites for
courses, obtaining P.O.S.T. and C.L.E. credits for the
courses, and obtaining funding for the training.

With these challenges met, the group developed a course that
it believes is the most up-to-date and comprehensive training
program available. The Working Group is also looking into (1)
obtaining State certification for the asset forfeiture
curriculum to make it a part of continuing law enforcement
education for police and prosecutors; (2) preparing a monthly
training bulletin to keep the State and local law enforcement
community apprised of current asset forfeiture case decisions,
policies, and legislation; and (3) devising training
videotapes to help State and local government officials and
the banking industry become more familiar with asset
forfeiture issues as they relate to these entities.

The group looks forward to working with agencies across the
United States in implementing this important initiative. In
December 1994, the DOJ Criminal Division assumed
responsibility for asset forfeiture training. For information
contact the Asset Forfeiture Office at 202-514-1263.

* "To provide standards for State and local asset forfeiture
training that parallel Federal standards by: (1) developing
and promoting an asset forfeiture core curriculum, which shall
include up-to-date information on asset forfeiture issues,
ethical standards expected of State and local law enforcement
officers and prosecutors, and goals of asset forfeiture as a
law enforcement tool; (2) setting the minimum standards
required for all asset forfeiture training programs; (3)
coordinating with State and local law enforcement agencies to
implement this mission; and (4) responding to the training
needs of State and local law enforcement officers, both police
and prosecutors."
------------------------------------

ARKANSAS--Notice to All Parties Required

Harris v. State, No. CA 92-762, Ct. of App. Ark. (6/2/93). The
State sought and obtained the forfeiture of 108 items of
personal property from a premises jointly occupied by a
husband and wife. On appeal, the wife contended that the State
failed to send her notice of the hearing in the trial court;
rather, notice of the trial was sent only to counsel for the
husband. The Appellate Court held that the trial court was in
error when it forfeited the interest of the wife because she
had failed to receive the required notice of the forfeiture
trial. The Appellate Court remanded the case to the trial
court regarding the forfeiture of the wife's interest in the
seized property but declined to review the contentions raised
by the husband regarding the adequacy of the search and the
nexus between the seized property and controlled substances.

CALIFORNIA--One-Year Limitation to File Forfeiture

People v. Ten $500 Barclay's Bank Visa Traveler's Checks, 20
Cal. Rptr. 2d 128 (1993). In April 1989, officers searched the
claimant's car and seized various drug-related items and 10
$500 VISA traveler's checks. The checks were seized as
potentially stolen property; approximately 2 years after the
checks were seized, the State sought forfeiture of the checks
as proceeds of drug sales or as being intended to facilitate
drug trafficking. The claimant contended in the trial court
that Section 11488.4 of the California Code requires that a
complaint for forfeiture be filed within 1 year of the seizure
of property; hence, the forfeiture in this case was barred by
this statute of limitations. The State argued that the statute
of limitations should not start to run at the time of seizure
but instead should begin to run only when the probable cause
develops to support the forfeiture. The trial court
characterized the construction of the statute as contended by
the State as untenable and denied the forfeiture. The
Appellate Court affirmed the decision of the trial court in
denying the forfeiture, holding that the language in the
limitations statute was clear and unambiguous and that nothing
in the language could be read as creating "the imprecise and
problematic" standard argued by the State.

GEORGIA--Jury Trial Not Required

Swails et al. v. State, 431 S.E. 2d 101, Sup. Ct. Ga. (1993).
The State filed a petition for forfeiture of property seized
from the claimant's place of business, and the claimant
requested a jury trial on the forfeiture. Following a hearing,
the trial court denied the claimant's request for a jury trial
on constitutional grounds, relying on the Georgia statute that
states that a forfeiture proceeding "must be held by the court
without a jury." The claimant appealed directly to the Supreme
Court of Georgia solely on the issue of whether a jury trial
was required in a forfeiture action under the Georgia
Constitution. The Supreme Court of Georgia reviewed the
Seventh Amendment to the U.S. Constitution, which provides
that "in Suits at common law . . . the right of trial by jury
shall be preserved." The Court concluded that a forfeiture
under the Georgia statute is not a suit under the "common law"
and that under the Georgia Constitution, there is no right to
a jury trial with respect to proceedings of statutory origin
unknown at the time the Georgia Constitution was adopted. The
Court concluded that because the Georgia forfeiture statute
created a statutory proceeding that was unknown when the
Georgia Constitution was enacted in 1798, it follows that the
General Assembly was authorized to provide for a bench trial
in forfeiture proceedings. Three justices dissented from the
majority opinion and noted in their dissent that the issue was
not a question of the breadth of the Georgia Constitution, but
rather a question of the parallel between statutory
proceedings known as common law and proceedings as they exist
today. The dissent noted that there was no common-sense
distinction between the underlying nature of forfeitures
before 1798 and the forfeitures under the current Georgia
statute.

Editor's note: The dissent appears correct in this case.

GEORGIA--Only Land Within Curtilage Forfeited

State v. Wilbanks, 430 S.E. 2d 668, Ct. of App. Ga. (1993).
The State sought the forfeiture of the defendant's mobile home
and 4.37 acres of real property upon which the mobile home was
located. The forfeiture was based on a sale of cocaine and the
seizure of cocaine scales and weapons from the mobile home.
Following a bench trial, the trial court declared the personal
property seized to be forfeited and further determined that
"only the mobile home and the curtilage thereto, rather than
the entire 4.37 acres of land, is forfeited to this State
pursuant to  16-13-49(d)(2)." The State appealed the finding
of the trial court and contended on appeal that the trial
court erroneously interpreted the language and legislative
intent of the statute by limiting the real property forfeiture
to the curtilage instead of determining that the entire 4.37
acres was subject to forfeiture. The State argued that the
real property forfeiture statute mandates that, upon a finding
that any portion of the real property was used to facilitate
a drug transaction, the entire tract of land must be forfeited
to the State. The Appellate Court did not agree with the
contention of the State and affirmed the decision of the trial
court, remanding the case to the trial court to determine
specifically what property was included within the curtilage
of the mobile home. In reaching its conclusion, the Appellate
Court distinguished the Georgia real-property forfeiture
statute from the similar Federal statute and noted that the
Federal statute was more comprehensive in scope than the
Georgia statute. Three justices dissented from the majority
opinion, stating that the language in the Georgia statute
clearly signifies the intent of the legislature that the
entirety of any real property be forfeited. 

GEORGIA--Validity of Search Issue in Forfeiture

Pitts v. State, 428 S.E. 2d 650, Ct. of App. Ga. (1993).
Officers executed a search warrant at the claimant's
residence, seizing $64,258 from the premises and an additional
$1,240 on the claimant's person when he returned to the
residence. Officers also seized cocaine at the time of the
search, and the claimant's girlfriend stated that the drugs
were hers. The State filed a complaint seeking forfeiture of
the currency. During the forfeiture hearing, the claimant
attempted to challenge the basis for the underlying search
warrant. The trial judge concluded that any challenge to the
search warrant was more properly the subject of a motion to
suppress at the criminal trial. The trial judge also denied a
motion to stay the forfeiture proceedings pending the
resolution of the criminal trial. The claimant appealed, and
the only issue presented on appeal was whether a collateral
attack on the legality of an underlying search may be made at
a forfeiture hearing when the validity of the search has not
been previously adjudicated in a criminal action. The
Appellate Court concluded that such a collateral attack is
proper when the forfeiture proceedings precede the criminal
action; hence, the claimant is not stopped from raising a
collateral challenge to the underlying search warrant. The
Appellate Court stated that this procedure is consistent with
the requirement that a seizure in forfeiture actions be made
with process or be conducted in a good faith belief that
probable cause exists to conduct the search. 

IDAHO--Entrapment Defense Not Applicable in Forfeiture

Cade v. One 1987 Dodge, No. 19787, Ct. of App. Idaho
(7/30/93). The State sought forfeiture of the defendant's
vehicle, which had been used to facilitate a controlled
substances violation. During the forfeiture hearing before a
magistrate, the defendant argued that the vehicle should not
be forfeited because he was entrapped by the law enforcement
officers to commit the illegal drug transaction. The
magistrate ruled that the defense of entrapment was
unavailable to the defendant in a civil forfeiture case, and
the magistrate ordered the vehicle forfeited. The defendant
appealed to the District Court, and the District Court
reversed the magistrate and held that the defense of
entrapment was available in a civil forfeiture case because
the action is quasi-penal. After an extensive review of the
entrapment defense in criminal cases, the Appellate Court
noted that the defense of entrapment is judicially, rather
than constitutionally, based. The Appellate Court noted that
although forfeiture cases may be deemed both civil and
quasi-penal, such cases are predominately civil in nature;
hence, the entrapment defense is not available in such cases.
The Appellate Court reviewed a number of Federal cases,
particularly the case of U.S. v. One Assortment of 89
Firearms, 465 U.S. 354, 79 L.Ed. 2d 361 (1984), wherein a
firearms dealer who was acquitted on the grounds of entrapment
in the criminal case still forfeited the firearms involved in
a civil forfeiture action. 

ILLINOIS--Notice, Hearing, and Nexus to Offense Required to
Forfeit Firearms

State v. Braden, 611 N.E. 2d 575, App. Ct. Ill. 2nd Dist.
(1993). Subsequent to an officer purchasing cocaine from the
defendant's residence, officers executed a search warrant and
seized property that included five rifles and two shotguns
that the defendant alleged were family heirlooms. The State
sought and obtained forfeiture of the five rifles and two
shotguns during an ex parte proceeding in which the State
contended that the weapons were forfeitable because of their
presence at the site of the drug transaction and because the
weapons were not properly registered under State law. The
defendant appealed, contending that the State failed to
provide him proper notice of the hearing to forfeit the
firearms and also failed to establish the required connection
between the firearms and the drug offenses. The Appellate
Court reversed the forfeiture by the trial court, holding that
the State failed to furnish the defendant sufficient notice
and a meaningful opportunity to contest the forfeiture action;
hence, there was a denial of due process. The Appellate Court
further held that to be deemed contraband, guns must have had
some close connection to the illegal activity; in this case,
no such close connection had been established by the case, and
evidence had been submitted by the defendant that the guns
were family heirlooms. The Appellate Court concluded that
because the requisite sufficient nexus between the weapons and
the crime had not been established by the State, the weapons
could not be deemed derivative contraband.

INDIANA--Search Incidental to Arrest/Proximity Presumption

Caudill v. State, 613 N.E. 2d 433, Ct. of App. Ind. (1993).
Officers observed an informant making a purchase of cocaine
from the defendant and also observed that the defendant
utilized his vehicle to transport and deliver the cocaine to
the informant. The defendant was subsequently arrested and
taken to his residence, where a search was under way. Officers
then searched the defendant and found seven bags of cocaine on
his person along with $355 in currency, which did not match
any of the currency given to the defendant by the informant
during the drug sale. The State sought and obtained the
forfeiture of the vehicle and the $355 in cash seized from the
defendant. The defendant appealed, challenging the sufficiency
of the trial court's forfeiture order. Relying on the Federal
forfeiture statute, the defendant contended that to bring a
forfeiture action, the State must prove a "substantial
connection" between the seized property and the drug
violations. The Appellate Court affirmed the forfeiture by the
trial court and held that while there are similarities between
the Federal and Indiana forfeiture provisions, Indiana need
not resort to Federal law to interpret its own forfeiture
statute. The Appellate Court concluded that under the Indiana
forfeiture statutes, probable cause may be proven by a
preponderance of the evidence, which was present in this case.
Furthermore, the currency seized from the defendant was
properly presumed to be forfeitable under the applicable
proximity presumption. The Appellate Court also held that the
search of the defendant at the time of his arrest, immediately
after the sale of drugs to the informant, and the search of
the defendant at his residence were both incident to the
arrest of the defendant and hence proper.

IOWA--Reinitiated Forfeiture Valid

In the Matter of Property Seized From Bobby Gene Sykes, et
al., 497 N.W. 2d 829, Sup. Ct. Iowa (1993). Upon the arrival
of officers at a premises to execute a search warrant, the
defendant was observed leaving the premises in a vehicle. The
officers gave chase and eventually stopped the vehicle. During
the pursuit, the officers observed seven small plastic bags
being thrown from the vehicle. The items were recovered and
found to contain marijuana. After the officers stopped the
vehicle and arrested the occupants, they seized the vehicle
and found an additional bag of marijuana inside it. In
summary, approximately 3 years after the seizure of the
vehicle and after numerous pleadings and hearings regarding
the forfeiture of the vehicle--including the Iowa Court of
Appeals reversing the forfeiture of the same vehicle on the
basis of a 1985 seizure--the State and the defendant were
again before a trial court. The factual basis for the
forfeiture was adjudicated in favor of the State. The
defendant appealed, contending that the trial court
erroneously allowed the State to reinitiate the forfeiture
proceeding some 3 years after the seizure. The Appellate Court
affirmed the forfeiture of the trial court, noting that
although many errors had been made concerning the forfeiture
of the vehicle, the State had never waived its intention to
proceed with the forfeiture, and the defendant had failed to
establish any misleading conduct by the State on which to base
an estoppel theory. The Appellate Court noted that the
defendants had been furnished a hearing on the merits of the
forfeiture and that the defendants had failed to establish a
valid defense to such forfeiture. 

------------------------------------
The FBI's Racketeering Records Analysis Unit: The Laboratory's
Role in Supporting Asset Forfeiture

Carl J. Jensen III, FBI Laboratory, Washington, D.C.

As investigators and attorneys who regularly deal with
forfeiture matters are aware, all proceeds traceable to
illicit drug exchanges are subject to Federal and,
increasingly, State forfeiture. It is often difficult for the
investigator in the field, however, to document the profits
realized by an illicit drug business over a long period of
time. In those cases in which suspected drug and/or money
laundering records are obtained, the Racketeering Records
Analysis Unit (RRAU) of the FBI Laboratory in Washington,
D.C., may prove an invaluable resource in identifying proceeds
generated by illegal activity.

RRAU was originally formed to conduct forensic examinations of
suspected gambling and vice-related business records. In the
mid-1980's, this mission was expanded to include suspected
drug and drug-related money laundering records.

When records are submitted, RRAU Agent Examiners and
Cryptanalysts employ established techniques of document
analysis and, where necessary, code-breaking to identify what
each document represents. If it is determined that the records
reflect drug sales and/or purchases, RRAU personnel attempt to
establish the type of drug(s) involved, the quantity of drug
sold or purchased, unit prices of each drug identified,
payments made for drug purchases, dates of transactions,
individuals involved in the operation, and profits and assets
associated with the business.

Records often cover many years of illegal activity and
document millions of dollars generated by the business.
Additionally, assets heretofore unknown to investigators may
be identified.

After RRAU personnel complete their analysis of the records,
a report documenting the results of the examination is
prepared and forwarded to the submitting agency. When needed,
Agent Examiners testify as expert witnesses in court or at
sentencing or forfeiture hearings with regard to the
conclusions presented in the laboratory report.

In addition to examining ledgers and notebooks, RRAU conducts
examinations of all types of evidence suspected of containing
notations relating to drug dealing. This may include scraps of
paper, envelopes, address books, and the like. RRAU also has
the capability to reconstruct torn and shredded paper and,
with the assistance of other units in the FBI laboratory, can
analyze records obtained from computers and programmable
calculators.

RRAU conducts its examinations free of charge for all Federal,
State, and local law enforcement agencies. Agencies should
submit information using the following guidelines:

o Submit original evidence whenever possible.

o Submit evidence as soon after its acquisition as possible.

o Submit all paper evidence relating to the seizure.

o Contact RRAU prior to submission if large volumes of
evidence are involved (a field examination by RRAU personnel
may be recommended).

o Advise RRAU of examinations requested (drug record analysis,
handwriting, latent fingerprint, etc.).

o Indicate the following:

 - Name of subject.

 - Place and date of seizure.

 - Trial or other deadline dates, if known.

 - Name and telephone number of point of contact.

 - Brief description of the case.

Evidence should be mailed to the following address: Federal
Bureau of Investigation, Attention: Laboratory Division, RRAU,
Rm. 1B089, 10th St. and Pennsylvania Ave. NW., Washington, DC
20535.

Any questions concerning RRAU may be directed to Unit Chief
Joseph F. Giglio, 202-324-2500; or Special Agent Carl J.
Jensen III, 202-324-6862.
------------------------------------

LOUISIANA--Legitimate Source Established for Seized Currency

State v. Cash Totalling $15,156.00, et al., No. CA 92 1238,
Ct. of App. La. (7/2/93). Officers executed a search warrant
on the claimant's residence, which resulted in the seizure of
cocaine in one bedroom in the house and the seizure of $15,156
from a trunk in another bedroom in the house. The trunk also
contained blueprints of a house and invoices from a building
materials dealer. The trial court forfeited a weapon and the
$15,156 seized from the trunk, utilizing the statutory
presumption that property found in proximity to controlled
substances is subject to forfeiture. The claimant appealed,
contending that she had established at trial that the money in
the trunk had been obtained as part of an insurance settlement
of more than $78,000 from her husband's death and that the
money was being used to build a house for her son. The
claimant also contended that she had no knowledge of the
narcotics that had been seized from the house and denied that
any drug trafficking took place at the house. The Appellate
Court reversed the forfeiture by the trial court and held that
the most believable facts were that the claimant had no direct
knowledge of any drug activity and that she had established by
a preponderance of the evidence that the seized money was from
an independent source and not drug related. Hence, the
claimant was held to have rebutted the probable cause
established by the State to support the forfeiture.

MINNESOTA--Proximity of Currency and Drugs

Jackson v. $2,407, C6-92-1594, Ct. of App. Minn. (5/4/93). The
defendant in this case was arrested twice during a 6-week
period, and large amounts of cash that were found in proximity
to drugs were subjected to forfeiture by the State. The trial
court sustained the forfeiture of $2,407 found on the
defendant after a traffic stop. A laboratory analysis found
traces of cocaine on the seized currency. The trial court, on
the basis of the direct evidence of the presence of cocaine on
the currency, forfeited the currency and held that the
defendant failed to rebut the evidentiary presumption of
currency in proximity to drugs. A few weeks later the
defendant was found passed out in his apartment, where crack
cocaine, scales, glassine envelopes, cocaine cutting agents,
and $12,000 were seized. Although the defendant claimed the
cash was received from his music company, he was unable to
show any records indicating how he came to have $12,000 in his
possession. The Appellate Court confirmed both of the
forfeitures of the currency seized from the defendant and held
that the defendant had failed to rebut the applicable
proximity presumption that established probable cause to
believe that the currency was drug related.

MINNESOTA--Clear and Convincing Evidence Required for
Forfeiture

Backstrom v. One Freightline Semitractor, No. C7-92-2222, Ct.
of App. Minn. (5/4/93). The claimant in this case drove a
tractor/trailer rig from Rochester, Minnesota, to Hampton,
Minnesota, where the claimant was arrested for a controlled
substance violation. The State sought forfeiture of the
tractor/trailer, contending that the vehicle had been used to
facilitate the drug violation. The trial court denied the
forfeiture on the basis that the State had failed to prove by
clear and convincing evidence that the vehicle had been used
to facilitate the crime. The State argued that it need only
establish the connection between the vehicle and the crime by
a preponderance of the evidence and that it was the criminal
offense that must be proven by clear and convincing evidence.
The Appellate Court agreed with the decision of the trial
court in denying the forfeiture and held that the statutory
language "act or omission giving rise to the forfeiture"
indicated that both the crime and its nexus to the property
must be proved by clear and convincing evidence. Hence, the
Appellate Court concluded that the standard of proof to show
use of the subject property to facilitate the commission of
the crime was "clear and convincing evidence," which the State
failed to establish in this case. The Appellate Court noted
that there was no evidence that the vehicle transported the
drugs, no drugs were found in it, and no one testified to
having seen drugs being taken into or out of the vehicle. The
Appellate Court concluded that the discovery of a scale used
for measuring controlled substances in the vehicle did not
justify forfeiture.

MINNESOTA--Forfeiture of Drug Paraphernalia
Sustained/Disclaimer Not Effective

City of St. Paul v. Various Items of Drug Paraphernalia, No.
CO-92-1977, Ct. of App. Minn. (4/20/93). The city sought and
obtained forfeiture of various items of drug paraphernalia
from the claimant's "Hi Times Shop." The forfeiture was based
on evidence obtained by an officer who purchased various items
of drug paraphernalia from the claimant's shop after signing
a disclaimer that the items would not be used to abuse
controlled substances. The city then executed a search warrant
and seized nearly 6,000 items of merchandise from the
claimant's shop. After a bench trial, the trial court
forfeited the merchandise and held that (1) the items were
obtained pursuant to a valid search warrant; (2) the claimant
knowingly and intentionally possessed the items for sale; and
(3) approximately 55 of 66 categories of items constituted
drug paraphernalia. The claimant appealed the trial court's
decision, and the Appellate Court remanded the case to the
trial court to determine whether the claimant possessed the
items intending that they be used as drug paraphernalia. Upon
remand, the trial court made a determination that the claimant
had the requisite intent and again sustained the forfeiture.
The claimant then appealed for a second time. The Appellate
Court again sustained the forfeiture by the trial court and
held that the warrant used to search the claimant's shop was
valid and that the application for the warrant satisfied the
particularity requirements involved. The Appellate Court also
concluded that because the trial court's findings were not
clearly erroneous concerning the claimant's intent, the
Appellate Court sustained such findings. Particularly, the
requisite intent was supported by the name of the claimant's
store and his awareness that certain of the items were clearly
marketed and advertised for use with illegally possessed
controlled substances. The Appellate Court also noted that the
claimant's use of a disclaimer regarding the items not being
used to abuse controlled substances were "easily contrived"
and could "really cut the other way" by indicating knowledge
of the potential unlawful use of the items.

For Further Information

To receive more information about the Asset Forfeiture Project
and additional publications and resources, please contact--

Bureau of Justice Assistance Clearinghouse
Box 6000
Rockville, MD 20849-6000
800-688-4252

BJA Asset Forfeiture Project
Police Executive Research Forum
1120 Connecticut Ave. NW., Suite 930
Washington, DC 20036
202-466-7820

Notes.

1. P.L. 91-508, 84 Stat. 1114 (1970) (codified as amended in
scattered sections of 12 U.S.C., 15 U.S.C., and 31 U.S.C.).

2. 26 U.S.C.  60501.

3. 31 C.F.R.  103.11(i) lists a broad range of entities that
are considered financial institutions for currency transaction
report-filing purposes. Among them are banks, securities
brokers, sellers of cashiers' checks, dealers, or exchangers
of currency to include check cashers, transmitters of funds,
casinos, and the U.S. Postal Service.

4. Ratzlaf v. United States, 1994 WL 4189 (U.S., January 11,
1994).

5. Ibid.

6. Ratzlaf v. United States, 1994 WL 4189 (U.S., January 11,
1994).

7. Ratzlaf, 1994 WL 4189 *7, n. 19. But see also United States
v. Rogers, 1994 WL 74415 *3, n. 4 (4th Cir. March 14, 1994).
In Rogers, the Fourth Circuit pointed out that structuring to
avoid filing of IRS Form 8300 is a tax crime. Therefore,
penalties are set by 26 U.S.C.  7203 and governed by the
holding of Cheek v. United States, 498 U.S. 192, 201 (1991).
Under the Cheek formulation, a jury can be instructed to
return a verdict of guilty only on an actual knowledge theory.

8. See Holland v. United States, 348 U.S. 121, 140 (1950).

9. Ratzlaf v. United States, 1994 WL 4189 *7, n. 19.

10. Ibid.

11. Ratzlaf v. United States, 1994 WL 4189 *7, n. 11.

12. 18 U.S.C.  981. The U.S. Department of Justice Asset
Forfeiture Office and the Money Laundering Section concur that
the Supreme Court's opinion in Ratzlaf v. United States, 1994
WL 4189 *6, n. 16, should have no effect on 18 U.S.C.  981
civil forfeitures based on 31 U.S.C.  5324 structuring
offenses. Memorandum to United States Attorneys attaching
model jury instructions for 31 U.S.C.  5324(3) and 
5324(a)(3) dated January 18, 1994.

13. See Model Financial Remedies Act, Article IV, Sec. 30.

14. United States v. All Monies, 754 F. Supp. 1467, 1472 (D.
Haw. 1991); United States v. Certain Funds on Deposit in
Account No. 01-0-71417, 769 F. Supp. 80 (E.D.N.Y. 1991);
United States v. Certain Accounts, 795 F. Supp. 391, 397 (S.D.
Fla. 1992). See also United States v. $448,342.85, 969 F. 2d.
474, 478 (7th Cir. 1992), stating in dicta that "money need
not be derived from crime to be `involved' in it; perhaps a
particular sum is used as a bank roll facilitating the fraud."

15. But see, e.g., Marine Midland Bank v. U.S., Nos. 93 Civ.
0307 (RPP), 0357 (RPP) (E.D.N.Y. May 11, 1993), aff'd in part
and remanded in part, 11 F. 3d 1119 (2d Cir. 1993); U.S. v.
All Funds on Deposit (Great Eastern Bank), 804 F. Supp. 444,
447 (E.D.N.Y. 1992). The Government lost these cases, seeking
to forfeit the entire balance of an account based on the
theory that some of the balance represented funds traceable to
"structuring" offenses while the remaining funds "facilitated"
those offenses.

16. A fair reading of the plain language of 18 U.S.C.  981
and 31 U.S.C.  5313, 5322, 5324 does not limit forfeiture
to illegal-source funds. But see, e.g., U.S. v. Aversa, 984 F.
2d 493, 503 (1st Cir. 1993), Torruella, J., dissenting,
discussing the purview of the conduct Congress intended to
criminalize by the Bank Secrecy Act and the Money Laundering
Control Act of 1986.

17. See, e.g., Ratzlaf v. United States, 1994 WL 4189 (January
11, 1994).

18. See, e.g., S. Rep. No. 433, 99th Cong., 2d Sess. (1986)
(accompanying S. 2683); H.R. Rep. No. 746, 99th Cong., 2d
Sess. (1986) (accompanying H.R. 5176). See also The
President's Commission on Organized Crime, Interim Report to
the President and the Attorney General, The Cash Connection:
Organized Crime, Financial Institutions and Money Laundering
(1984); S. Rep. No. 433 (1986). See also Model Financial
Remedies Act, Article I, Sec. 2.

19. U.S.C.  1956(c)(7); 18 U.S.C.  981.

20. 21 U.S.C.  881.

21. See, e.g., Marine Midland Bank v. United States, 1993 WL
51337 (2d Cir. December 13, 1993); or U.S. v. All Funds on
Deposit in Great Eastern Bank Account No. 1100817 in the Name
of Hadson Toko Trading Co., 904 F. Supp. 444 (E.D.N.Y. 1992).

22. Ibid.

23. Ibid.

24. See, e.g.,  Austin v. United States, 113 S. Ct. 2801
(1993); United States v. A Parcel of Land, Building,
Appurtenances, and Improvements Known as 92 Buena Vista
Avenue, Rumson, New Jersey, 113 S. Ct. 1126 (1993); Marine
Midland Bank v. United States, 1993 WL 513371 (2d Cir.
December 13, 1993); U.S. v. $448,342.85, 969 F. 2d 474 (7th
Cir. 1992); or U.S. v. All Funds on Deposit in Great Eastern
Bank Account No. 1100817 in the Name of Hadson Toko Trading
Co., 804 F. Supp. (E.D.N.Y. 1992).

25. July 15, 1991, Assistant Secretary (Enforcement) directive
to the Assistant Commissioner (Criminal Investigation) of the
Internal Revenue Service.

26. See Internal Revenue Service Mitigation Guidelines for 18
U.S.C.  5313(A) and 5324 Violations, September 18, 1991.

27. 31 C.F.R.  103.46

28. See Memorandum of Understanding dated August 16, 1990,
among the U.S. Department of Justice, the U.S. Department of
the Treasury, and the U.S. Postal Service.

------------------------------------
This document was prepared by the Police Executive Research
Forum, supported by grant number 92-DD-CX-0011, awarded by the
Bureau of Justice Assistance, U.S. Department of Justice. The
opinions, findings, and conclusions or recommendations
expressed in this document are those of the authors and do not
necessarily represent the official position or policies of the
U.S. Department of Justice.

The Bureau of Justice Assistance is a component of the Office
of Justice Programs, which also includes the Bureau of Justice
Statistics, the National Institute of Justice, the Office of
Juvenile Justice and Delinquency Prevention, and the Office
for Victims of Crime.
------------------------------------

NCJ 152056