International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, December 25, 2014

Bipartisan Bill to Provide Due Process Within 28 Days of IRS' Civil Asset Forfeitures

Hearing-default-bannerWays and Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI) introduced the Taxpayer Protections Against Abusive Seizures Act, legislation that provides taxpayers with protections against the inappropriate application of civil forfeiture laws.  These laws were enacted to curtail money laundering and terrorist activities, but a recent report in the New York Times indicates that they have also been used to seize funds from some small businesses, in some cases leaving them with no working capital to make payroll and maintain needed inventory. 

​The laws are designed to prevent a practice called “structuring,” the act of making small cash deposits to avoid the $10,000 bank-reporting threshold that is commonly used by drug dealers, money launderers, and terrorist entities to avoid detection by authorities.  The laws authorize the government to seize the funds of those found engaging in structuring, and in the instance reported in the New York Times, there were inadequate opportunities for the business owner to challenge the seizures.  

In announcing the legislation, Chairman Camp said, “In America, a citizen suspected of a crime is innocent until proven guilty.  All too often, however, our current laws allow the government to assume guilt without allowing the accused a speedy hearing, depriving them of much needed working capital.  This bill provides average American small business owners the ability to challenge powerful government agencies like the IRS, and guarantees them their day in court.”

Ranking Member Levin said, “This legislation would give law-abiding taxpayers – including small business owners – an opportunity to challenge a notice of seizure and ensure that the IRS is acting appropriately and within the law.  Taxpayers have the right to due process when their property is seized, and this bill protects that right.”

The legislation would provide that an affected person, within fourteen days of receiving a notice of a seizure, may request a court to hold a probable cause hearing within fourteen days of such request.  Additionally, the bill provides that if, within fourteen days of such request, no hearing is held, or if the government fails to show probable cause, the seized funds are automatically returned to the individual. 

BUT this is not a new issue.  In 1996,  the House Judiciary Committee considered the Civil Asset Forfeiture Reform Act for the same types of abuses that 18 years still persist:

According to one estimate, in more than 80 percent of civil asset forfeiture cases, the property owner is not charged witha crime. Nevertheless, Government officials usually keep the seized property. Furthermore, to justify its seizure, the 
Government need only present evidence of what its agents see as "probable cause." That is the same standard required to obtain a search warrant, but in that situation, police are permitted to seek evidence of a crime, not to permanently
take somebody's property. Even worse, under present law, the burden of proof is on the property owner, who must
establish by a preponderance of the evidence that his or her property has not been used in a criminal act or not
otherwise forfeitable. The uncharged victim must prove the negative.

The Government Spends $400,000 to Keep $9,000 Seized From a Landscaper Because He Bought His Airline Ticket With Cash

From the 1996 testimony -

Mr. Hyde. Well, tell me about your litigation. What kind of a suit did you file?

Mr. Edwards. We filed a civil rights action under section 1983 against the three officers who seized his money. And incidentally, although they were operating under the leadership direction of the DEA, they were actually local officers. The DEA in Nashville, as occurs all over the country, had formed a joint task force by contract. We actually obtained a copy of the contract and put it into evidence in his trial, whereby the Metropolitan Police Force of

Nashville provided a certain number of officers. The Air Force — I am sorry. The airport police department provided a certain number of officers, and the DEA provided one agent to supervise. And that is how this interdiction unit at the Nashville airport was composed.

The three officers we sued consisted of one Metro Nashville Police sergeant, who was on leave from the drug squad to this interdiction unit, and two airport officers. And we sued the three of them. We could not ask for damages — or at least we made the decision not to, because of the doctrine of qualified immunity. Had we asked for damages against the officers for taking — for stopping Mr. Jones and taking his money, the lawsuit instead of taking 2 years probably would have taken 3 or 4, and we would have run the risk that the case would have been dismissed on the basis of immunity.

But because we asked only for his money back, they could not use qualified immunity as a defense.

The first — there were actually two trials, Mr. Chairman. The first trial was in response to the government's position that a U.S. district court could not review the decision of the Asset Forfeiture Office of the Justice Department in refusing to waive Mr. Jones' bond. In other words, they wouldn't let him into court, and their position was a district — a U.S. district judge couldn't pass judgment on their decision.

Mr. Hyde. And because your client didn't have the $900 to post a bond, you couldn't proceed under the asset forfeiture process? You had to file a civil rights suit?

Mr. Edwards. That's exactly right. We couldn't afford to pay our way into court, so we couldn't get a day in court for Willie Jones without suing the Grovernment because they wouldn't waive the bond requirement.

Mr. Hyde. The U.S. Attorney's Office defended this lawsuit?

Mr. Edwards. Yes, sir.

Mr. Hyde. And they persisted in withholding Mr. Jones' money?

Mr. Edwards. Well, that is a very interesting question, Mr. Chairman. A few weeks after we filed the lawsuit under section 1983 as a civil rights case on behalf of Mr. Jones, I had a conference with an assistant U.S. attorney in Nashville, and we talked about the case, and I explained just how clean Mr. Jones was and just how egregious the seizure of his money was, and the AUSA thought that it would make a lot of sense, if we were willing, to rethink refusing to waive his bond. And I told him that we would agree to drop the civil rights case if the Government would agree to waive the bond and let us go back into the normal forfeiture process and get a trial under the court's jurisdiction to hear forfeiture cases.

So we had a private agreement to do that, but he had to talk to main Justice before we could solidify that understanding, and he came back to me a few days later and said, main Justice wouldn't go along with that.

Mr. Hyde. What year was this? 

Mr. Edwards. This was in 1991. The lawsuit as filed, I believe, 1 or 2 days before the Fourth of July of that year. The seizure, of course, was on February 27, earlier in that year.

Mr. Hyde. Did you deal with the Department of Justice other than the U.S. attorney there?

Mr. Edwards. No, sir. I did not deal directly with anyone in Main Justice.

Mr. Hyde. You don't know who was responsible for making that decision?

Mr. Edwards. No, I am afraid I don't.

Mr. Hyde. What enlightened member of the Justice Department?

Mr. Edwards. Yes, sir.

Mr. Hyde. All right. So you proceed with the civil rights lawsuit. Did you go to trial?

Mr. Edwards. The first trial resulted in the district judge, Thomas Wiseman, holding that the Asset Forfeiture Office had acted in bad faith in refusing to waive the bond, and he ordered the bond waived and ordered an immediate trial with respect to the seizure.

The Government asked for more time and after some argument was granted additional time, and we finally had a trial, as I recall, in late 1992. During that trial, the Government was flying DEA agents from Nashville to Houston and Houston agents from Houston to Nashville. I mean, it may very well be a modest conservative estimate when I say the Government spent over $300,000 trying to defend this seizure. But at any rate, I think it is certainly fair to say that the Government did everything that they could think of to try to prove that Willie Jones was a drug dealer. But they were facing an insurmountable problem: The truth, because he wasn't and never has been.

So ultimately, the judge held that the stop of Mr. Jones in the airport was in violation of his fourth amendment rights; that the money should never have been seized long before the dog sniff occurred.

He further found, based on documents that I was able to obtain showing that DEA lab technicians had long — had much earlier advised against using dog sniffs to establish proof with respect to currency, because the American money supply is so tainted with trace cocaine, he decided that and held that there was no basis for the seizure; there was no basis for a forfeiture, and he ordered the Government to return Mr. Jones' money.

Mr. Hyde. Why didn't he get interest back?

Mr. Edwards. Because of the same problem. We were concerned about giving the Government an opportunity to raise the issue of qualified immunity.

Mr. Hyde. To escape altogether, yes.

Mr. Edwards. There have been some decisions in Federal court since Mr. Jones' case has ended that suggested — or that suggest that perhaps he would have been entitled to obtain interest on his money had we pressed that issue.

Mr. Hyde. How about your attorney's fees, did they get allowed, or did Mr. Jones have to pay those?

Mr. Edwards. Well, that is very interesting. Had the Government waived the $900 bond requirement and let Mr. Jones have his day in court, I would have not been entitled to attorney's fees, and Mr. Jones would have had to pay whatever fee I got paid out of the money he got back. But because they refused to do that and were acting in bad faith in refusing, that left us with the only alternative of suing under the civil rights statute. By virtue of prevailing as a plaintiff in a civil rights case, I was entitled to an award of attorney's fees. So I was ultimately paid in the neighborhood of $80 to $85,000 — I don't remember the exact amount — for the work I did over 2V2 years representing Mr. Jones.

Had the Government waived the bond, I would have been paid nothing, and Mr. Jones would have been stuck with the fee, which is another reason that forfeiture can be so unjust. A reasonable attorney's fee, even in a modest, simple forfeiture case in Federal court, is going to cost $20,000, $25,000, $30,000 in legal fees just because of the time and attorney effort required. So when the amount seized is a relatively modest sum, the property owner isgoi ng to lose anyway, no matter what he does.

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