What Exactly is Forfeiture?
Criminal forfeiture is governed by Federal Rule of Criminal Procedure 32.2, which says the first step in the forfeiture process is notice. In order to enter a judgment of forfeiture following a finding of guilt, the United States must first have notified the defendant in the indictment of its intent to seek forfeiture. A common forfeiture statute used by the government is 18 U.S.C. § 982. Forfeiture is calculated on the basis of the total proceeds of a crime, not the percentage of those proceeds remaining in the defendant’s possession at the time of the sentencing hearing. United States v. Blackman, 746 F.3d 137, 143-44 (4th Cir. 2014); United States v. Hampton, 732 F.3d 687, 692 (6th Cir. 2013). 18 U.S.C. § 982 expressly subjects forfeiture of any property that constitutes or is derived from proceeds the person obtained directly or indirectly, as the result of such violation. Funds that are acquired through a fraudulent scheme become proceeds once the perpetrators gain control over them regardless of receiving the benefit of the funds. United States v. Emor, 850 F. Supp. 2d 176, 217 (D.D.C. 2012). In a criminal forfeiture proceeding under § 982, an individual “obtains proceeds indirectly through a corporation when the individual so extensively controls, or dominates, the corporation and its assets that money paid to the corporation was effectively under the control of the individual.” United States v. Cothran, 302 F.3d 279, 288-89 (5th Cir. 2002). Factors that the Cothran court determined are likely relevant to this question include “the individual’s ownership interest; the level of control he exercised over the company; his authority to direct the disposition of corporate assets and the degree to which he exercised that authority; and the use of corporate assets for his personal expenses.” Id.
The key to whether property is forfeitable is whether it is “involved in” or “traceable to” the offense. 18 U.S.C. § 982(a)(1). Property that is involved in an offense “includes the money or other property being laundered, any commissions or fees paid to the launderer, and any property used to facilitate the laundering offense.” United States v. Bornfield, 145 F.3d 1123, 1135 (10th Cir. 1998). Simply pooling or commingling tainted and untainted funds in an account does not make all contents of the account subject to forfeiture. Id. It is proper to forfeit legitimate and illegitimate funds that are in an account together as long as the government shows that the “defendant pooled the funds to facilitate, i.e., disguise the nature and source of, his scheme.” Id. On the other hand, property traceable to is property where the gaining is attributable to the money laundering scheme rather than from money obtained from untainted sources; thus, proof that the proceeds enabled the defendant to obtain the property is adequate to warrant forfeiture as property traceable to the offense. Id.
It seems unlikely that a court will bring down the forfeiture amount in a criminal forfeiture proceeding. § 981(a)(2)(C) of the civil forfeiture provision entails a deduction from forfeiture of “any portion of the fraudulent loan that was repaid at no loss to the victim, whereas the criminal forfeiture provision, § 982(a)(2)(A), requires forfeiture of the entire amount of the fraudulent loan, regardless of whether it was repaid.” United States v. Annabi, 746 F.3d 83, 85 (2d Cir. 2014). The Annabi court confirmed that § 982(a) of the criminal forfeiture statute does not permit a defendant to offset loan proceeds that have been repaid, and it held that the District Court did not err by ordering forfeiture of the full amount of the loans fraudulently obtained in connection with two of the counts, totaling $580,100, regardless of whether the defendant repaid any portion of those loans. Id.
Who Has the Burden of Proof to Establish that Forfeiture Applies?
At sentencing, the burden of proof is on the government in regard to the base offense level and any enhancing factors. The burden of proof is on the defendant for any mitigating factors. United States v. Howard, 894 F.2d 1085, 1090 (9th Cir. 1990). Therefore, the government should bear the burden of proof when it seeks to raise the offense level, and the defendant bears the burden of proof when he or she seeks to lower the offense level. Id. In other words, even though the government has the burden of proving the amount of loss, the defendant has the burden of proving that they are entitled to a credit against the loss amount. United States v. Exec. Recycling, Inc., 953 F. Supp. 2d 1138, 1152 (D. Colo. 2013).
After the court determines the applicable definition of “proceeds”, it must consider whether the United States has “met its burden of establishing the amount of the criminal forfeiture money judgment by preponderance of the evidence.” United States v. Bader, 678 F.3d 858, 893 (10th Cir. 2012). The government has the burden of proving its right to forfeiture of property by a preponderance of the evidence. 21 U.S.C. § 853(d); 18 U.S.C. § 982(b)(1); United States v. Emor, 850 F. Supp. 2d 176, 201 (D.D.C. 2012); United States v. Bornfield, 145 F.3d 1123, 1134 (10th Cir. 1998). Criminal forfeiture is a sanction against the defendant rather than a judgment against the property itself. United States v. Hampton, 732 F.3d 687, 692 (6th Cir. 2013). The United States does not need to prove that the defendant actually has the forfeited proceeds in his possession at the time of the conviction because the sanction follows the defendant as part of the penalty. Id. Another point to consider is that the government need only establish that the forfeited assets have the requisite nexus, Fed. R. Crim. P. 32.2(b)(1), to that scheme, conspiracy, or enterprise where the conviction is for “executing a scheme, engaging in a conspiracy, or conducting a racketeering enterprise.” United States v. Emor, 850 F. Supp. 2d 176, 217 (D.D.C. 2012).
Can A Criminal Defendant Get an Offset?
In United States v. Joel, the United States filed Motions for Forfeiture Money Judgments in the amount of $1,848,000 against the defendants. After the defendants opposed the amount of the forfeiture, the United States agreed to reduce the request by $230,000, to $1,618,000. United States v. Joel, No. 8:11-CR-89-T-23TGW, 2012 U.S. Dist. LEXIS 89327, at *1 (M.D. Fla. June 4, 2012). The defendants were charged in a thirteen-count indictment alleging conspiracy to commit wire and mail fraud, substantive counts of mail and wire fraud, and making false statements on a loan application, in violation of 18 U.S.C. 1014, 1341, 1343, and 1349. Id. This was a scheme to induce lenders to fund loans for the purchase of properties. Defendants argued that, pursuant to 18 U.S.C. 981(a)(2)(C), they are entitled to a deduction from the forfeiture for loans that were repaid without any financial loss to the victim, stating that at least one of the fraudulently obtained properties was resold for a profit and, therefore, the proceeds of that fraudulent loan should not be included in the forfeiture money judgment. Defendants asserted that their judgment should be reduced by $230,000, because the loan for the purchase of the property was repaid without any financial loss. The United States agreed to reduce the requested forfeiture judgment amount by $230,000 because the property was sold without financial loss, but they disputed that any further reduction is appropriate, arguing inconsistently that §981’s set-off provision does not apply to criminal forfeitures. The court concluded that a close review of the statutes shows that §981’s set-off provision does not apply. §981(a)(1)(C) authorizes the United States to seek criminal forfeiture under §2461(c) for general mail and wire fraud offenses, but the provisions of §981 do not otherwise apply, as §2461(c) directs that the procedures in §853 govern the criminal forfeiture.
One of the defendants in Joel argued that any money forfeiture judgment would violate the Excessive Fines Clause of the Eighth Amendment. The Eighth Amendment to the Constitution provides that “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” The Joel court concluded that the United States correctly responded that the money judgment cannot be considered grossly disproportionate to the harm the defendants’ crimes caused, because it “represents exactly the fruits of their conspiracy”. United States v. Joel, No. 8:11-CR-89-T-23TGW, 2012 U.S. Dist. LEXIS 89327, at *21 (M.D. Fla. June 4, 2012). Thus, the Eighth Amendment contention is meritless; forfeiture violates the Excessive Fines Clause only if it is grossly disproportional to the gravity of a defendant’s offense.” Id.
Another possibility for lowering a forfeiture amount could be by obtaining an expert like the defendants did in Executive Recycling to assist the court with its loss calculations. United States v. Exec. Recycling, Inc., 953 F. Supp. 2d 1138, 1142 (D. Colo. 2013). Defendants are entitled to an offset for the value of the legitimate services they provided to the Victims. Id. at 1155. The purpose of this Expert Report was to identify the services rendered by Executive Recycling to each of the customers and to “isolate the services that specifically relate to the obsolete CRT monitors, as opposed to the handling and destruction of hard drives and other computer equipment and peripheral equipment.” Id. at 1138. Conducting a loss calculation under the Sentencing Guidelines measures the magnitude of the crime at the time it was committed. United States v. Schild, 269 F.3d 1198, 1201 (10th Cir. 2001). When the loss amount is disputed, the Government has the “burden of establishing the amount of loss (or a reasonable estimate thereof) associated with that conduct by a preponderance of the evidence.” United States v. Peterson, 312 F.3d 1300, 1302 (10th Cir. 2002). The Court only needs to make a reasonable estimate of the loss; it is not required to calculate the loss with specificity. United States v. Masek, 588 F.3d 1283, 1287 (10th Cir. 2009).
When conducting the loss calculation, an important aspect to consider is which customers’ payments to the defendant should be included. In Executive Recycling, the Presentence Investigation Reports show losses incurred by seven customers, but the defendants object to the inclusion of two of the customers because they were not convicted on any offense specifically involving these customers. Id. at 1144. The court concluded that the government did not meet its burden of showing that the defendants’ dealings with one of the two customers “included false or fraudulent pretenses, representations, or promises that were material.” Id. at 1147. The court did not consider the amounts paid to defendants by that customer as relevant conduct in its loss calculation because the government did not meet its burden of showing that the defendant’s conduct towards that customer violated any state or federal statute. Id.
The Executive Recycling court did not offset the amount of loss by the money the victims paid to the defendants for anything to do with removal and handling of the CRT monitors because the manner in which the defendants disposed of the CRT monitors was so contrary to the way the Victims wanted the CRT monitors handled that those services had no value to the Victims. United States v. Exec. Recycling, Inc., 953 F. Supp. 2d 1138, 1151-52 (D. Colo. 2013). Other than the CRT handling and disposal, the defendants provided the services which the victims contracted for in the manner anticipated by the parties’ agreements. Id. Therefore, the Court found that the defendants were “entitled to an offset for the fair market value of the legitimate services they provided, which includes all services except for the CRT removal, handling, and disposal.” Id.
Defendants argued that they were only convicted of certain fraudulent transactions, not a wide-ranging scheme to defraud, and they argued there is no evidence that they acquired anywhere near $2,533,762.51 as a result of these illegal transactions. United States v. Exec. Recycling, Inc., 953 F. Supp. 2d 1138, 1158-59 (D. Colo. 2013). The Court found that the government did not meet its burden of showing by a preponderance of the evidence that the amount paid to the defendants by four of the customers was “acquired through illegal transactions” and that those monies are not proceeds subject to forfeiture. 18 U.S.C. § 981(a)(2)(B). In order to find that Defendants’ actions towards a particular customer were criminal, the Court must find that the misrepresentations were material to that customer.
The court discusses how many of the cases cited by the government involved a defendant who pled guilty to one narrow offense but doing this it meant that he admitted an entire business model was fraudulent. Other cases involve convictions on broad fraudulent schemes in which all monies obtained by the defendant are proceeds of the scheme. Defendants in Executive Recycling were convicted on only a portion of the fraud counts which shows that the jury found that certain business dealings were criminal while others were not. The Court cannot conclude that all of the monies the defendants received were proceeds of the illegal activity. Because the United States bears the burden of establishing the amount of proceeds traceable to the criminal conduct, the “lack of evidence on this point is to its detriment and the Court cannot conclude that any portion of the payments from the overseas brokers are proceeds of the fraud convictions.” United States v. Exec. Recycling, Inc., 953 F. Supp. 2d 1138, 1160 (D. Colo. 2013). In sum, the government did not meet its burden of showing that the defendants’ conduct towards any of the other customers was criminal, so the court did not consider those customers as relevant conduct. Id. at 1161.