III. Application of Civil Asset Forfeiture Under the Drug Control Act
Under the Drug Control Act, property may be forfeited as part of the punishment that is imposed in the criminal prosecution of the owner or possessor of the property for his participation in the underlying drug offense. [FN53] Property may also be forfeited as part of an independent civil proceeding. [FN54]
The Drug Control Act provides the statutory basis for forfeitures in civil cases. [FN55] Subject to certain exceptions, it provides *1621 for the forfeiture of all personal and real property that is in any way related to drug trafficking. [FN56] Therefore, in addition to providing a powerful deterrent against drug-traffickers, the Drug Control Act deters those persons who, while not directly involved in the drug trade, might otherwise allow their property to be used in advancing criminal activity.
Forfeitable property under the Drug Control Act generally falls into one of four categories: contraband, derivative contraband or instrumentalities, proceeds, and derivative proceeds. [FN57] The category "contraband" encompasses items that are illegal in and of themselves, such as controlled substances. [FN58] The terms "derivative *1622 contraband" or "instrumentality," on the other hand, include items that are utilized to further the drug trade, but that are not themselves necessarily illegal. [FN59] This category can include a number of objects ranging from small inexpensive items, such as baggies, to more expensive articles, such as automobiles and boats. [FN60] "Proceeds" include any money or other items of value received in exchange for drugs. [FN61] Lastly, "derivative proceeds" encompass any items purchased or maintained with proceeds. [FN62]
In order to obtain the forfeiture of guilty property, the government must first seize the property. There are two essential ways in which property can be seized: summarily or through a seizure warrant. Generally, items of contraband and derivative contraband are summarily seized incident to a valid arrest either because the items themselves are illegal, as in the case of drugs, or because their use as instrumentalities of the drug trade is evident at the time of the arrest. [FN63] The same is the case with proceeds. [FN64]
When the connection between the guilty property and the crime is not evident at the time of arrest, the government must obtain a seizure warrant under Rule C of the Supplemental Rules for Certain Admiralty and Maritime Claims (Supplemental Rules). [FN65] Under Rule C, the government must demonstrate that it has probable cause to believe that the property falls under one of *1623 the categories of property forfeitable under the Drug Control Act. [FN66] It must do so by filing a sworn or "verified" complaint, which states the underlying facts leading to the forfeiture with particularity. [FN67]
With the exception of civil forfeitures that involve real property, [FN68] there is no notice requirement or opportunity to be heard prior to the issuance of a seizure warrant. [FN69] Nevertheless, the government must notify all potential claimants of the seizures of its intent to seek forfeiture of the property, and of the procedures available to potential claimants for recovery of the property. [FN70] The required notice can be effected through publication or direct notification to any known claimants. [FN71]
The forfeiture of property is not completed unless and until the government institutes forfeiture proceedings, which must be instituted no later than five years after seizure. [FN72] Once forfeiture *1624 proceedings are instituted, claimants to the property in question must contest the forfeiture within twenty days from actual notice of the intended forfeiture. [FN73] Otherwise, the property is forfeited by default. [FN74]
In order to prevail in a civil forfeiture action, the government must show that it has probable cause to believe that the property at issue is forfeitable under the Act. [FN75] It can do so through the *1625 introduction of direct or circumstantial evidence. [FN76] The government need not demonstrate that the claimant has been criminally convicted of the underlying drug offense, or that the drug offense has been completed. [FN77] The government is only required to demonstrate that the property was intended to be used for a purpose that is prohibited by the Drug Control Act. [FN78]
In turn, claimants must demonstrate that they have standing to challenge the forfeiture of the property, either by ownership or possessory interest. [FN79] Once standing is established, claimants must *1626 rebut the government's showing of probable cause by a preponderance of the evidence, either by discrediting the government's evidence or by presenting an affirmative defense [FN80] to the forfeiture. [FN81]
*1627 Unlike the government, [FN82] claimants may not use hearsay to prove their cases. [FN83] Moreover, if a claimant claims ignorance and the government raises an inference that the claimant had actual knowledge of the illegal activity, the claimant must produce objective proof of ignorance. [FN84] If the claimant fails to carry his burden of proof, the property is forfeited to the government. [FN85]
In sum, with a few exceptions, the government enjoys substantial procedural advantages in civil forfeiture cases. [FN86] By contrast, criminal forfeiture proceedings impose much heavier *1628 burdens on the government. [FN87] Unlike the civil forfeiture context, assets may not be seized for purposes of criminal forfeiture unless and until a judicial forfeiture order is issued. [FN88] Thus, criminal *1629 defendants in such proceedings have a greater opportunity to hide or transfer assets. [FN89] Moreover, unlike its civil counterpart, a criminal forfeiture is incidental to a criminal proceeding and, thus, may only be accomplished if the government demonstrates the culpability of the defendant, as well as the criminal involvement of the property, beyond a reasonable doubt. [FN90]
Given the substantial advantages that are enjoyed by the government in civil forfeiture proceedings, it is not surprising that the civil avenue of forfeiture is often preferred over its criminal counterpart. [FN91] However, recent Supreme Court decisions have shattered the foundation and viability of civil forfeiture as a constitutional method of enforcing the law.
[FN54]. Unlike civil forfeiture proceedings, criminal forfeiture proceedings are actions in personam. See infra notes 87-88; see also Alexander v. United States, 113 S. Ct. 2766, 2775 n.4 (1993) ("Unlike Austin, this case involves in personam criminal forfeiture, not in rem civil forfeiture....").
(a) The following shall be subject to forfeiture to the United States and no property right shall exist in them:
(1) All controlled substances which have been manufactured, distributed, dispensed, or acquired in violation of this subchapter.
(2) All raw materials, products, and equipment of any kind which are used, or intended for use, in manufacturing, compounding, processing, delivering, importing, or exporting any controlled substance in violation of this subchapter.
(3) All property which is used, or intended for use, as a container for property described in paragraph (1), (2), or (9).
(4) All conveyances, including aircraft, vehicles, or vessels, which are used, or are intended for use, to transport, or in any manner to facilitate the transportation, sale, receipt, possession, or concealment of property described in paragraph (1), (2), or (9), except that -
(A) no conveyance used by any person as a common carrier in the transaction of business as a common carrier shall be forfeited under the provisions of this section unless it shall appear that the owner or other person in charge of such conveyance was a consenting party or privy to a violation of this subchapter or subchapter II of this chapter;
(B) no conveyance shall be forfeited under the provisions of this section by reason of any act or omission established by the owner thereof to have been committed or omitted by any person other than such owner while such conveyance was unlawfully in the possession of a person other than the owner in violation of the criminal laws of the United States, or of any State; and
(C) no conveyance shall be forfeited under this paragraph to the extent of an interest of an owner, by reason of any act or omission established by that owner to have been committed or omitted without the knowledge, consent, or willful blindness of the owner.
(5) All books, records, and research, including formulas, microfilm, tapes, and data which are used, or intended for use, in violation of this subchapter.
(6) All moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance in violation of this subchapter, all proceeds traceable to such an exchange, and all moneys, negotiable instruments, and securities used or intended to be used to facilitate any violation of this subchapter, except that no property shall be forfeited under this paragraph, to the extent of the interest of an owner, by reason of any act or omission established by that owner to have been committed or omitted without the knowledge or consent of that owner.
(7) All real property, including any right, title, and interest (including any leasehold interest) in the whole of any lot or tract of land and any appurtenances or improvements, which is used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, a violation of this subchapter punishable by more than one year's imprisonment, except that no property shall be forfeited under this paragraph, to the extent of an interest of an owner, by reason of any act or omission established by that owner to have been committed or omitted without the knowledge or consent of that owner.
(8) All controlled substances which have been possessed in violation of this subchapter.
(9) All listed chemicals, all drug manufacturing equipment, all tableting machines, all encapsulating machines, and all gelatin capsules, which have been imported, exported, manufactured, possessed, distributed, or intended to be distributed, imported, or exported, in violation of a felony provision of this subchapter or subchapter II of this chapter.
(10) Any drug paraphernalia ...
(11) Any firearm ... used or intended to be used to facilitate the transportation, sale, receipt, possession, or concealment of property described in paragraph (1) or (2) and any proceeds traceable to such property.
21 U.S.C.A. s 881 (West 1981 & Supp. 1995).
[FN56]. Subsections (4)(A)-(C) of s 881 provide a safe harbor for persons whose property becomes forfeitable without fault of the owner. The exceptions contained within those subsections are collectively referred to as the "innocent owner" exception. See, e.g., United States v. 92 Buena Vista Ave., 113 S.Ct. at 1137.
[FN61]. When proceeds have been commingled with other legally obtained funds, the government need not identify or limit the forfeiture to the portion of the funds that constitute illegal proceeds. Instead, the government can seek forfeiture of the entire fund. See 18 U.S.C. s 984(b)(1) (1981 & Supp. 1995); United States v. Certain Funds on Deposit in Account No. 01-0-71417, 769 F. Supp. 80 (E.D.N.Y. 1991).
[FN71]. Id. If the property is worth less than $10,000, the government can give notice through publication. See 19 U.S.C.A. ss 1607, 1609 (West 1980). Eighty-three percent of federally-imposed forfeitures involve property which is worth less than $10,000 in value. 137 Cong. Rec. E3060 (daily ed. Sept. 17, 1991) (Rep. Jacobs). In such cases, the owner of the property must file a claim for relief from the seizure within three weeks plus twenty days from the notice, or face summary forfeiture. 19 U.S.C.A. ss 1607, 1609 (West 1980).
If the value of the property exceeds $10,000, the government must attempt to give actual notice to the owner and initiate formal judicial forfeiture proceedings. Id.
[FN72]. 21 U.S.C.A. ss 881(a), (d) (West 1980 & Supp. 1995); United States v. $8,850 in United States Currency, 461 U.S. 555, 564-69 (1983). The five-year period in which the forfeiture of seized property must be finalized is troublesome. Under this provision of the Drug Control Act, the government is entitled to deprive an owner of his property for up to five years and there is nothing that the owner can do to speed up the resolution of the matter.
Moreover, the government is not required to provide any compensation for the loss of use of the property should the seizure ultimately be determined to have been improper.
The five-year period would not be as troublesome if the requirement of probable cause for the initial seizure was subject to judicial supervision. As the Drug Control Act currently reads, however, it relies on government self-policing in this area.
[FN73]. See 19 U.S.C.A. s 1608 (West 1980) (discussing methods of contesting forfeiture available to claimants); see also 19 U.S.C.A. s 1623 (West 1980 & Supp. 1995) (bond requirements applicable to forfeiture proceedings). A claimant raising the "innocent owner" defense must file a "petition for remission or mitigation" within thirty days of the notice of seizure. In the petition, the claimant must establish a good faith interest in the property, lack of knowledge or reason to believe that the property was being utilized for illegal purposes, and lack of knowledge about the criminal record or reputation of the owner. Additionally, the claimant must show that he took reasonable steps to prevent the illegal use of the property. See 28 C.F.R. s 9.5(b); 21 C.F.R. ss 1316.78-.81. Notably, three quarters of such petitions are successful. See $8,850 in United States Currency, 461 U.S. at 558.
[FN75]. In order to prove probable cause, the government must demonstrate a belief that a substantial connection exists between the property to be forfeited and the criminal activity. United States v. $4,255,000.00, 762 F.2d 895, 904 (11th Cir. 1985), cert. denied, 474 U.S. 1056 (1986).
There is a split of authority as to when the government must have probable cause for a seizure and forfeiture. Some jurisdictions have held that it is sufficient for the government to show probable cause at the time of trial. See, e.g., United States v. Premises & Real Property at 4492 S. Livonia Rd., 889 F.2d 1258, 1268 (2d Cir. 1989). Other jurisdictions require that the government demonstrate probable cause at the time the forfeiture action is initiated. See, e.g., United States v. $191,910.00 in United States Currency, 16 F.3d 1051, 1065 (9th Cir. 1994). The latter is the better rule, inasmuch as it prevents the government from depriving persons of their property for the purpose of engaging in fishing expeditions.
[FN76]. On many occasions, the government relied exclusively on questionable circumstantial evidence, such as drug courier profiles, positive reactions by sniffing dogs, and tips from "confidential" informants. See, e.g., United States v. $319,820 in United States Currency, 620 F. Supp. 1474, 1478 (N.D. Ga. 1985) (origin of flight and claimant's behavior sufficient to support probable cause). Finding the reliance on such evidence to be extremely troublesome, courts have begun to impose a higher evidentiary burden on the government. See, e.g., United States v. $31,990 in United States Currency, 982 F.2d 851 (2d Cir. 1993) (disallowing exclusive reliance on drug courier profile); Jones v. United States Drug Enforcement Admin., 819 F. Supp. 698 (M.D. Tenn. 1993) (positive reaction by sniffing dog with respect to currency held to be of little probative value).
[FN77]. See United States v. One Assortment of 89 Firearms, 465 U.S. 354, 362-66 (1984); United States v. Sandini, 816 F.2d 869, 872-73 (3d Cir. 1987). In fact, in eighty percent of successful civil forfeiture actions conducted by the government in 1990, no criminal charges had been filed. See 137 Cong. Rec. E3059 (daily ed. Sept. 17, 1991) (statement of Rep. Jacobs).
[FN79]. See, e.g., United States v. 1982 Sanger 24' Spectra Boat, 738 F.2d 1043, 1046 (9th Cir. 1984) (possessory interest sufficient to confer standing). Cf. Mercado v. United States Customs Serv., 873 F.2d 641, 645 (2d Cir. 1989) (unexplained possession is not enough to confer standing).
It should be noted, however, that a large number of forfeitures go unchallenged because a claimant's admission of ownership in the property at issue may be used against that claimant in a subsequent criminal action. See United States v. Scrivner, 1995 WL 398932 (9th Cir. July 6, 1995) (allowing the introduction of affidavit filed by defendant in civil forfeiture case in which he was a claimant in subsequent criminal proceeding). Although claimants have a Fifth Amendment privilege against self-incrimination, that privilege merely allows them to stay out of the civil forfeiture proceedings altogether or seek a postponement of such proceedings until the conclusion of any pending or imminent criminal action. See London v. Patterson, 463 F.2d 95, 98 (9th Cir. 1972), cert. denied, 93 S. Ct. 1531 (1973).
[FN80]. An interesting issue is whether, and under what circumstances, the innocent owner exception applies to intermediate transferees of the property. In 92 Buena Vista Ave., the Supreme Court considered whether an "innocent" donee of real estate that had been purchased with drug proceeds could defeat the government's right to forfeiture. 113 S. Ct. at 1130. The Court concluded that the innocent owner exception includes intermediate bona fide purchasers for value and donees. Id. at 1131-35.
While the Supreme Court's holding alleviates the harshness of the relation-back doctrine, it goes too far. In many drug-trafficking cases, drug dealers parcel out most of the property that has been purchased with drug proceeds among their relatives and friends, who, with good legal representation, are often able to demonstrate, or at least create sufficient doubt as to, their lack of knowledge with respect to the underlying drug activity. Thus, by allowing "innocent" donees to retain property that has been purchased with drug proceeds and subsequently transferred to them by drug dealers, the Supreme Court allows drug dealers to set up sham transfers of property to third parties in order to insulate their ill-gotten gains from forfeiture, while retaining the ability to derive benefits from the property.
This was precisely the situation presented in 92 Buena Vista. There, a drug dealer's girlfriend had bought a house with drug proceeds that had been given to her by her boyfriend. Id. at 1130. Notwithstanding the fact that she had a long and close relationship with the drug dealer, the Supreme Court allowed her to retain the house after she claimed that she did not know about the illegal nature of the proceeds. Id. at 1131-35. 92 Buena Vista, therefore, set up a tremendous loophole for the insulation of drug proceeds.
Extending the innocent owner protection to intermediate bona fide purchasers for value, on the other hand, presents a much smaller risk of sham transactions, inasmuch as the third party must lay out money to consummate the transaction.
[FN81]. 21 U.S.C.A. s 881(d) provides that customs laws govern the procedure in drug forfeiture cases. The customs laws hold that the burden of proof lies upon the claimant. 19 U.S.C.A. s 1615 (West 1980); see also United States v. Four Parcels of Real Property, 893 F.2d 1245, 1251 (11th Cir. 1990) (claimant submitted affirmative proof that property was purchased with legitimate funds). Thus, in effect, once the government shows probable cause for the forfeiture, a presumption of forfeitability arises, which is rebuttable only by a preponderance of the evidence.
[I]n forfeiture actions, if a court finds it reasonable to infer from the objective evidence that the claimant had or must have had actual knowledge of the drug transaction, then the claimant cannot meet his or her burden of proof in opposing summary judgment simply by asserting innocence. In other words, although courts have maintained that an innocent ownership defense turns on a claimant's actual, and not constructive, knowledge of the illicit activity which gave rise to the forfeiture action, if the evidence supports a "reasonable inference" of actual knowledge and the claimant fails to come forward with anything more than a naked protestation that he or she really didn't know of the illicit activity, the claimant's defense of innocent ownership fails.
[FN85]. At the discretion of the Attorney General, civilly or criminally forfeited property may be "retain[ed] ... for official use or ... transfer [ed] ... to any Federal agency or to any State or local law enforcement agency which participated directly in the seizure or forfeiture of the property." 21 U.S.C.A. s 881(e)(1)(A) (West Supp. 1995).
[FN86]. There are justifications for the advantages enjoyed by the government in civil forfeiture cases. Given the underground and cash nature of the illegal drug industry, it is extremely difficult for the government to trace, except in limited circumstances, the tainted nature of each piece of property that is involved in a drug case. By contrast, claimants are in a better position to produce exculpating evidence, if such evidence exists, such as the source of the funds confiscated or utilized to purchase the property at issue.
Any person convicted of a violation of this subchapter or subchapter II of this chapter punishable by imprisonment for more than one year shall forfeit to the United States, irrespective of any provision of State law -
(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation;
(2) any of the person's property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, such violation; and
(3) in the case of a person convicted of engaging in a continuing criminal enterprise in violation of section 848 of this title, the person shall forfeit, in addition to any property described in paragraph (1) or (2), any of his interest in, claims against, and property or contractual rights affording a source of control over, the continuing criminal enterprise.
The court, in imposing sentence on such person, shall order, in addition to any other sentence imposed pursuant to this subchapter or subchapter II of this chapter, that the person forfeit to the United States all property described in this subsection. In lieu of a fine otherwise authorized by this part, a defendant who derives profits or other proceeds from an offense may be fined not more than twice the gross profits or other proceeds.
Id. Additionally, 21 U.S.C.A. s 848 (West 1981) allows the forfeiture of the property of individuals who engage in a "continuing criminal enterprise." Id. The only advantage that criminal forfeiture proceedings provide over their civil counterpart is that, for purposes of the former, courts have jurisdiction over all properties owned by a defendant. See Fed. R. Crim. P. 18. By contrast, civil forfeiture proceedings only confer upon the presiding court jurisdiction over assets that are located or brought within the territorial jurisdiction of the court. See 28 U.S.C.A. ss 1395(b), (c) (West 1993). But see 21 U.S.C.A. s 881(j) (authorizing civil forfeiture in the district where the defendant is found and where the criminal prosecution is brought if the defendant is the owner of the property at issue).
[FN88]. 21 U.S.C.A. s 853(e) (West 1981). Moreover, while the government may pursue a restraining order to preserve the property for the forfeiture, it may do so only after the filing of an indictment against the criminal defendant. Id. In order to obtain such injunctive relief from a court, the government has to prove that:
(I) there is a substantial probability that the United States will prevail on the issue of forfeiture and that failure to enter the order will result in the property being destroyed, removed from the jurisdiction of the court, or otherwise made unavailable for forfeiture; and
(ii) the need to preserve the availability of the property through the entry of the requested order outweighs the hardship on any party against whom the order is to be entered.
Id. s 853(e)(1)(B)(i)-(ii). Except when an indictment is filed, restraining orders are only good for 90 days, unless an extension is sought for good cause. Id. s 853(e)(1)(B)(ii). Furthermore, in criminal forfeiture proceedings, the property owner must receive notice and be afforded a hearing prior to seizure. Id. s 853(e)(1)(B). Thus, unlike in civil proceedings, individuals who are suspected of crimes have time to move or conceal assets.
[FN91]. Congress intended to provide the government with both methods of forfeiture. See Joint House-Senate Explanation of Senate Amendment, Title III - Forfeiture of Proceeds of Illegal Drug Transactions, S. Rep. No. 959, 95th Cong., 2d Sess. 7 (1978), reprinted in 1978 U.S.C.C.A.N. 9518, 9522.