The American Perspective on Recovering Criminal Proceeds in
Criminal and Non-Conviction Based Proceedings
Stefan D. Cassella[1]
Introduction
The purpose of this paper is to provide the American perspective on the following question: why, after more than a decade of effort to reconcile our respective procedures to accommodate requests to freeze assets and enforce confiscation orders, is it still so difficult to reach assets moved across national borders. There is no single answer to that question.
First, there is the issue of training and resources: Do states have the necessary skills and tools to freeze assets and obtain confiscation orders? Or do the deficiencies in those areas preclude any success in recovering assets in transnational cases before any request for mutual legal assistance is even made. If the law enforcement authorities in the jurisdiction where a crime occurs are unwilling, or lack the resources, to attempt to freeze assets or to obtain a confiscation order, the willingness and ability of other states to assist in that process is a moot point.
States also take different views on the legality and efficacy of recovering assets via forfeiture orders obtained as part of a criminal cases versus orders obtained in non-conviction based or ‘civil’ proceedings. For reasons that I will discuss, a non-conviction based proceeding will often be the best, or even the only, means of recovering the forfeitable property. For example, it is a particularly effective tool when dealing with a fugitive from justice. But non-conviction based forfeiture orders are more limited tools when property cannot be traced directly to the underlying crime.
Indeed, tracing requirements, which differ from jurisdiction to jurisdiction depending in part on whether a forfeiture judgment was obtained in a criminal or non-criminal proceeding, are among the greatest obstacles to recovering assets in transnational cases. The likelihood of recovering assets is greatly diminished if a state will restrain funds and enforce forfeiture orders only if the property is directly traceable to the underlying crime, as opposed to treating the request for pre-trial restraint as a precursor to a personal judgment that may be satisfied out of any of the wrongdoer’s assets.
Finally, another obstacle concerns the legal tools that have been put in place to allow courts to register and enforce foreign restraining orders and forfeiture judgments, and the willingness of courts to apply those tools without relitigating the merits of the underlying order. Many countries still lack the legal means of recognizing foreign orders, and in others, including the United States, the courts have shown a visceral distrust of such orders and a general reluctance to use the tools enacted to give them force and effect.
This paper will attempt to address at least some of these issues. It begins with a discussion of the training and resources necessary even to initiate an attempt to recover forfeitable property. It will then discuss the tracing issues that arise in both criminal and non-conviction based forfeiture cases, and the reasons why, despite the tracing difficulties that may arise, non-conviction based proceedings are an essential tool in recovering assets, particularly in transnational cases.
I will then highlight two aspects of U.S. forfeiture law that have proven particularly effective in such cases: the ability to recover money from a foreign bank without requiring the assistance of the Government where the bank is located, and the ability to bar fugitives from attempting to contest forfeiture actions without surrendering to face pending criminal charges.
Finally, I will discuss the American experience with giving recognition to foreign forfeiture orders and the difficulty prosecutors in the United States encountered in overcoming judicial resistance to those efforts.
Training and Resources
Let me start with whether sufficient training and resourcesare devoted to asset recovery.
From the American perspective, the proto-typical case is one in which someone has committed a crime in the United States but has placed the proceeds overseas. The financial investigation to determine the location of the assets and their connection to the underlying crime is typically done by the same law enforcement agency that is investigating the crime itself. In the United States, that could be any one of a host of federal agencies: the FBI which has fairly broad jurisdiction over most federal crimes, the Drug Enforcement Administration (DEA) which has jurisdiction in drug cases, the IRS which has jurisdiction in tax and money laundering cases, Homeland Security Investigations (HSI) which has jurisdiction in terrorism, smuggling and immigration cases, and so forth.
Obviously this creates problems of overlapping jurisdiction and battles over turf. Beyond that, there are certain systemic and recurring problems inherent in combining a financial investigation with the investigation of the underlying crime than inhibit full use of the forfeiture remedy.
Many law enforcement agents and criminal prosecutors consider the financial investigation to be a distraction. To obtain a conviction, they must prove beyond a reasonable doubt that a crime was committed and that the defendant is the one who committed the crime; so their focus naturally is on persuading witnesses to cooperate, finding admissible evidence sufficient to prove the case, and complying with the rules that require disclosure of evidence to the accused.
Devoting time and resources to finding the defendant’s assets necessarily detracts from the time and resources that can be devoted to the primary goal of obtaining a conviction; yet it is obvious that to be effective the financial investigation must be done contemporaneously with the criminal investigation so that the assets can be identified and immobilized at the time that the arrest is made or the indictment is returned.
Moreover, the prosecutor may feel that making a robust effort to recover the defendant’s assets may complicate his or her ability to resolve the case in terms of a plea bargain, and thus avoid the uncertainties and the investment of time and resources involved in proceeding to trial. To put it bluntly, many defendants will more readily see the virtues of accepting a plea offer if the Government is not insisting on the forfeiture of their assets as part of the package.
Forfeiture law is also viewed as procedurally arcane, and fraught with complications when third parties and competing property rights are involved. Will a court – foreign or domestic – allow the restraint of property in which a spouse or other third party has an interest? Will the third party be allowed to intervene in the case or demand a pre-trial hearing? A prosecutor may say, ‘I have enough to do without getting into all of that’.
Finally, the agents and prosecutors may feel that the relative improbability of finding recoverable assets in a foreign country and of obtaining that country’s assistance in repatriating the property makes the investment of time and effort in navigating the forfeiture labyrinth of questionable value. If it is unlikely that the defendant has retained any forfeitable property, or unlikely that it will be found and recovered, the agent or prosecutor may say, ‘why bother’.
The solutions to these problems are not intuitively obvious, but efforts have been made to overcome them. Training the agents to look for assets as they proceed with the criminal investigation, or if possible, assigning additional agents with particular expertise in asset recovery and a prosecutor who specializes in asset recovery as well, tend to be essential ingredients. Once the agents and prosecutors are personally invested in the recovery of the property, they are more likely to assign it the priority it requires, and less likely to bargain it away when the case is resolved. Moreover, a serious effort has been made to educate agents and prosecutors on the tools available to restrain and recover assets in both domestic and transnational cases and to make the process less onerous and opaque.
Nevertheless, there are many cases filed in the federal courts in the United States in which less than a full-throated effort is made to recover the proceeds of the crime. And if that is so in the country that is widely-perceived as a world leader in such efforts – with more than $2 billion in criminal proceeds recovered every year – it will come as no surprise that lack of training, resources and institutional commitment hampers asset recovery in most parts of the world. And if no serious effort is made to identify, locate and recover assets in the country where the underlying crime was committed, the willingness of other countries to apply their tools and resources to assist in that effort when the property has moved across a national boundary will not matter.
Traceable Assets versus Substitute Assets
Any effort to recover criminal proceeds that have been transferred across national boundaries will involving tracing issues.
In the US as in many countries, a criminal forfeiture order can be made in terms of specific assets actually traceable to the offense, or can be a value-based money judgment directed to the wrongdoer personally. If it is an order forfeiting property directly traceable to the offense, we have all manner of tracing issues that I will discuss in a moment. If it is a value-based money judgment, we can, under US law, name untainted assets of equal value as property that be may be used to satisfy the judgment – what we call ‘substitute assets’.
But there are problems with forfeiting substitute assets in the international context:Some countries have difficulty under their domestic law in enforcing a foreign judgment against property that is not directly traceable to a crime, or they may require a high level of proof that the substitute property, if it is forfeitable at all, actually belongs to the wrongdoer. Criminal defendants, of course, are aware of this, and go to great lengths to conceal and disguise their legal interests not only in the proceeds of their crimes, but in any untainted property that might be used to satisfy a forfeiture judgment – property that seems always to be titled in the name of a corporation or a member of the defendant’s extended family.
For these reasons, in most cases it is highly desirable to show that the money in question is actually traceable to the offense of conviction. This is where the tracing issues come in.
There are always tracing issues when it comes to recovering criminal proceeds: Money changes form as it goes from the defendant (or his victim) to a corporation, an investment account, or a tangible asset that is later sold, or mortgaged to generate new funds. And it may be that after all of the tracing, the existence of a lien or mortgage or other encumbrance has so reduced the equity in the property that it is not worth forfeiting. But the most serious problem involves the commingling of criminal proceeds with untainted assets in a bank account.
Suppose that investigators can show that $100,000 was taken from a victim in the United States and deposited into an account in a European bank on Monday. And suppose that there is still $100,000 in the same account on Friday. Is it the same money?
Suppose the balance fell to zero on Tuesday and another $100,000 from an unknown source was added on Thursday – is it still forfeitable as directly traceable property? Suppose there was already $100,000 in the account on Monday when the tainted deposit was made, and the entire $200,000 was withdrawn on Thursday with half used to buy a yacht and half lost at the blackjack table at a casino. Which $100,000 was used to buy the yacht and which was lost in the casino? Is the yacht traceable to the tainted money or to the untainted money?
To address these problems, will the court allow the Government to apply accounting principles such as last in / last out, or last in / first out? Is there a “lowest intermediate balance rule” that says that the money the Government is looking for is always in an account until the balance falls below the value of the money it is seeking to recover? Can we simply consider any money found in a bank account to be fungible so that tracing is not necessary?
Can the Government avoid all of these problems by basing its asset recovery theory not on the underlying drug or fraud or human trafficking offense, but on money laundering, which permits the forfeiture of all commingled funds as property “involved in” the money laundering offense?
Courts in the United States have been struggling with all of these questions for at least two decades and the results are mixed.[2] Some courts will apply accounting principles and some will not, depending on the procedural context.[3] Money is considered fungible in some instances and not others.[4] And money laundering is a good alternative but only if the elements of the offense are satisfied.[5] Otherwise, the Government must resort to value-based money judgments and substitute assets, with all of the difficulties that I’ve already mentioned.
The point is this: if prosecutors in the United States have all of those tracing problems in purely domestic asset recovery cases, one can easily imagine the difficulties that arise when they ask a foreign court to accept their tracing analysis or their money laundering theory. To say the least, if a concept is ‘foreign’ to a court in the US, it is very likely to be considered at least equally foreign to a foreign court.
Non-conviction Based Forfeiture
All of these problems arise in criminal cases where the money has left the US and prosecutors are attempting to recover it pursuant to a conviction-based forfeiture or confiscation order. Similar problems, and additional ones, arise if they are trying to enforce a non-conviction based order.
First, it is important to understand that non-conviction based forfeiture is absolutely essentialto the recovery of assets in the transnational context. In a host of instances, there is simply no other way to recover the assets.[6]
For example, if the defendant is a fugitive, he cannot be convicted, and if he cannot be convicted there is no possibility of a conviction-based forfeiture order.[7] In that instance, the Government needs the capability of obtaining a non-conviction based order and asking a foreign Government to enforce it. The same is true if the defendant has died before a conviction could be obtained or is incompetent to stand trial.[8]
Or the defendant may be convicted of a crime other than the one giving rise to the forfeiture of the particular asset that the Government is seeking to recover. In the US, the courts have not fully adopted the concept of ‘extended confiscation’ whereby a conviction for a given offense will give rise to a forfeiture order directed at the proceeds of all other crimes that the same defendant has committed. To the contrary, because criminal forfeiture is regarded as part of the defendant’s sentence relating to the commission of a given offense, only property connected to the commission of that offense is subject to criminal forfeiture.[9] In those cases, the Government must bring a non-conviction based forfeiture action to recover any property involved in other offenses.
The defendant may also have committed the crime using someone else’s property. For example, he may have laundered his money through a third party’s business, robbed a bank with a third party’s gun, or distributed drugs using a third party’s airplane.
Conviction-based forfeiture cannot reach the property of third parties;[10] it would be a violation of the due process rights of third parties to attempt to confiscate their property in a proceeding in which they were not able to participate; but non-conviction based forfeiture can reach third-party property, because in that setting the third party has the right to intervene and defend his property interest by contesting the Government’s proof on the merits and/or by asserting that he is an innocent owner of the property.[11]
In other cases, the perpetrator of the offense giving rise to the forfeiture may simply be unknown. If weapons, flight simulators, contraband electronics, or money is intercepted while on the way to a country designated as a supporter of terrorism, but it is unclear who the exporter or recipient of the property might be, there is no one to prosecute and hence no one to convict. But a non-conviction based order will reach the property and force the property owner to come forward to contest the forfeiture proceeding.
In still other cases, the interests of justice will militate in favor of a non-criminal resolution even if there was a clear violation of a criminal law. For example, suppose a convicted felon persuades his 70-year old mother to purchase a firearm on his behalf, in a situation where both of them know that it is a violation of federal law for a convicted felon to possess such a weapon. And suppose the mother not only buys the firearm, but lies on the required document when asked if she is buying it for herself or for a third party.
In that case, the mother has clearly violated federal law and would be subject to criminal prosecution, but faced with the choice between doing nothing (and allowing the felon to retain the weapon) and bringing criminal charges against the aged woman, the Government might decide that confiscating the weapon pursuant to a non-conviction based forfeiture order is the right thing to do.[12]