How The US Government Legally Stole Millions From Kim Dotcom

from the the-fun-of-asset-forfeiture dept

About a month ago we covered the basics of the lawsuit by which the US government was seeking to keep pretty much all of Kim Dotcom's assets, despite the fact that Dotcom himself hasn't been tried -- and, in fact, it hasn't even been determined if he can be extradited to the United States (a country he's never visited). This week, that case took another step, with the judge, Liam O'Grady, who had already ruled that Kim Dotcom could be considered a "fugitive," more or less finalizing the theft of Dotcom's assets by declaring a default judgment in favor of the US. This isn't the end of the process (not by a longshot), but it highlights just how the US government can use some ridiculous procedures to steal millions in assets from someone who hasn't been shown to be guilty of anything.

As we discussed last time, the story of the raid on Kim Dotcom's rented home in New Zealand, the seizure of all of his cars, money, bank accounts, computers, servers, etc. is well known. That was part of a case for which Kim Dotcom was indicted (under what appears to be questionable legal reasoning -- but that's a separate issue). As has been widely reported, that case is still on hold while Dotcom fights extradition from New Zealand. The extradition fight will finally go to a New Zealand court later this summer. Once that's done, if Dotcom loses, he'll be sent to the US, where he'll face a criminal trial based on the indictment.

But this is actually separate from all of that. You see, when the US government grabbed or froze all of Dotcom's assets, they did so using an asset seizure procedure. Asset seizure is allowed in such cases, but the government then has to give that property back. What the government really wanted to do is keep all of Dotcom's tens of millions of dollars worth of assets -- and in order to do that it has to go through a separate process, known as civil asset forfeiture. It's technically a civil (not criminal) case, but (and here's the part that people find most confusing), it's not actually filed against Kim Dotcom at all, but rather against his stuff that the government already seized. Yes, it's technically an entirely separate lawsuit, that was only filed last summer (two and a half years after the government seized all of his stuff and shut down his company), entitled United States Of America v. All Assets Listed In Attachment A, And All Interest, Benefits, And Assets Traceable Thereto. And, as we noted last time, Attachment A is basically all of Kim Dotcom's stuff.

This whole process is known as an "in rem" proceeding -- meaning a lawsuit "against a thing" rather than against a person. And the "case" basically says all this stuff should be "forfeited" to the US government because it's the proceeds of some criminal activity. You would think that in order for such civil asset forfeiture to go forward, you'd then have to show something like a criminal conviction proving that the assets in question were, in fact, tied to criminal activity. You'd be wrong -- as is clear from what happened in this very case. Once the Justice Department effectively filed a lawsuit against "all of Kim Dotcom's money and stuff," Dotcom did what you're supposed to do in that situation and filed a challenge to such a ridiculous situation. And here the DOJ used the fact that Dotcom was fighting extradition to argue that he was a "fugitive." Judge O'Grady agreed with that last month, and that resulted in the decision earlier this week to then declare a "default judgment" in favor of the DOJ, and giving the US government all of Kim Dotcom's stuff.

A "default judgment?" As you know if you regularly read Techdirt, that's usually what happens when a defendant simply ignores a court case filed against him. As the court notes in this ruling, for that to happen in a civil asset forfeiture case, it means no one tried to block the claim:

Federal Rule of Civil Procedure 55 permits the court to grant a motion for default judgment when the well-pled allegations of the complaint establish plaintiff's entitlement to relief, and where a defendant has failed to plead or defend as provided by the rules.... In the civil forfeiture context, default judgment is permitted where no potential claimant has filed a response to the complaint...

A defendant in default, and a claimant who fails to assert a claim in rem, is deemed to have admitted all of the plaintiff's well-pled allegations of fact, which then form the basis for the judgment in the plaintiff's favor.

But, wait, you say: Kim Dotcom did file a complaint about the asset forfeiture, so how could a default judgment happen here? That's where the whole "fugitive" bit comes in. Because Dotcom won't come to the US, he's been deemed a fugitive, and thus the Judge simply hands over all of his stuff to the US government. And thus, without any sort of criminal conviction at all, the US gets to steal millions of dollars from Dotcom.

If that sounds insane, you're absolutely right. And, again, it is entirely possible that when all of this is over, Kim Dotcom will be found guilty of "criminal conspiracy." If that's the case, then at that point it's reasonable to discuss whether the government should get to keep all of his stuff. But it seems an absolute travesty of concepts like due process for the government to be able to take all of his money and stuff based on purely procedural reasons having to do with a separate criminal case that hasn't even been tried yet.

The process isn't over yet. Dotcom can still appeal this ruling, though the real problem is with the civil asset forfeiture process, rather than how it was applied in this particular case. Dotcom also has other options for the assets that are in New Zealand and Hong Kong, in using the local courts in those places to try to block the transfer of those assets to the US government. Not knowing enough about the law in either place, it's difficult to say what the chances of success of such a strategy would be. Either way, this seems like a classic case demonstrating how the civil asset forfeiture process appears to be little more than legalized theft by the US government.

Filed Under: asset forfeiture, civil asset forfeiture, copyright, criminal copyright, doj, justice department, kim dotcom, liam o'grady
Companies: megaupload

Senator Wants To Know Why The US Marshals Asset Forfeiture Division Is Blowing Money On $10,000 Tables

from the converting-expensive-things-into-money-to-spend-on-expensive-things dept

Asset forfeiture -- both at state and national levels -- is receiving some intense scrutiny, thanks to unflattering coverage in major news outlets like the New York Times and Washington Post. Attorney General Eric Holder made some minor cuts to the DOJ's participation in states' forfeiture programs. Meanwhile, at the state level, legislators have introduced bills targeting these programs' perverted incentives -- namely, that the agency performing the asset seizure usually benefits directly from the "forfeited" wealth.

It hasn't always been successful. Wyoming legislators were shot down by the governor -- a former prosecutor -- who explained that asset forfeiture is "good" and "right" -- something it rarely is in practice. Washington DC's city council managed to push its reform bill through, placing more constraints on seizures and raising the evidentiary standard needed to declare other people's assets "guilty."

Back at the national level, Sen. Chuck Grassley is raising some pointed questions about the US Marshals' use of asset forfeiture funds. He sent two letters to the agency recently, the first of which questioned its hiring practices.

Grassley said a whistleblower claimed that Kimberly Beal, then the deputy assistant director of the AFD, had qualification requirements waived to hire a person for a high-paying contract who was recommended by Stacia Hylton, the director of the Marshals Service. According to the whistleblower, Beal did so while under consideration for her current position of assistant director, raising suspicions that the hiring was a quid pro quo arrangement.

“This quid pro quo exchange of favors, if true, would raise serious doubts about the operational practices of the USMS AFD under Ms. Beal as well as, frankly, Ms. Hylton’s leadership of the USMS,” Grassley’s office said in the letter.

The second letter questions the Marshals Service's appetite for office luxuries.

1. Regarding AFD offices at Crystal Mall 4, please answer the following questions:

a. Did AFD purchase a conference table that exceeded $10,000 in cost? If so, what was the cost and why was a less expensive table not considered?
b. Did AFD replace window treatments already provided for in the office lease with expensive custom window treatments? If so, why and what was the cost?
c. Did AFD install custom wallpaper, artwork, crown moldings, and chair rails in its offices? If so, why and at what cost for each of these installations?
d. Does AFD intend to expend similar amounts to decorate and furnish new office space it anticipates moving into in the near future? What will happen to the furnishings and decorations after AFD moves out?

That's the most eyegrabbing part of Grassley's letter but the rest asks similar -- if less dramatic -- questions about the agency's spending habits.

The US Marshals Service doesn't necessarily have a long history of asset forfeiture abuse, but it has previously been called out by the DOJ's Inspector General for being less than accurate with its bookkeeping.

In at least eight of the 55 cases taken up by the asset team between 2005 and 2010, the purchaser or the price of the asset was not recorded. On top of that, the team failed to perform sufficient market research to properly value the assets it was eyeing; for some of them, it couldn’t even provide the OIG with bank statements and other basic documentation.

More damning was the OIG's discovery of a huge conflict of interest. Another whistleblower uncovered lead asset forfeiture official Leonard Briskman's extremely fortuitous moonlighting gig. Briskman, who appraised assets for the US Marshals Service, ran his own private appraisal business on the side.

The inspector general reported that in several instances, Briskman valued and sold the same asset himself without supervision by anyone in the marshal’s office. In addition, he failed to publicly announce the sale of some assets, which limited their availability to the general public. In one case, an assistant U.S. Attorney from the Southern District of New York objected to a decision by Briskman to sell assets that had been seized during the Bernard Madoff case–more than one million shares of a pet prescription firm and a 5 percent stake in another investment portfolio–without announcing the sale.

The US Marshals Service doesn't need to dirty its hands by performing seizures. All it has to do is sit there and wait for assets from equitable sharing programs to roll in. And roll in they do, thanks to local law enforcement agencies partnering up with the DOJ to avoid state laws put in place to limit the sort of abuse that is all too frequent when cops are given the authority to declare money, vehicles and other property guilty on the spot.

As would befit any government agency spending other people's money and divesting itself of other people's property, the US Marshals Service buys $10,000 tables and does little to ensure its auctioned items return something close to market value. Because of its lax accounting and questionable appraisals, money from sales went AWOL and what it did receive from auctions was likely less than it would have obtained with a bit more diligence and competence.

Whether Grassley will receive any answers to his questions remains to be seen, but the recent history of the US Marshals Service doesn't indicate it's an agency enthralled with concepts like fiscal responsibility and public accountability. If the agency is blowing seized funds on pricey tables and custom window treatments, it's going to take more than a couple of angry letters to change its "Spend it like you seized it!" culture.

Filed Under: asset forfeiture, spending, us marshals

Wyoming Governor Vetoes Asset Forfeiture Bill, Because Asset Forfeiture 'Is Right'

from the any-and-all-money-prolly-drug-money-or-something dept

With the abuses of asset forfeiture being loudly publicized, there has (finally) been some legislative pushback against these abusive programs. Wyoming's legislators -- hoping to institute asset forfeiture reform -- ran into pushback themselves from the state's governor, who vetoed the popular bill (which passed out of the Senate with an 80-9 vote) when it hit his desk.

Governor Matt Mead explained his reasons for doing so in a letter to the Senate president Phil Nicholas. According to Mead, he didn't agree that Wyoming has an asset forfeiture problem and saw no reason to curtail a program that is (supposedly) so effective in fighting the Drug War.

Now, while Wyoming hasn't made splashy headlines with bogus busts, it's more likely due to the limited population than better laws or better law enforcement. Mead's letter explaining his veto contains three examples he feels prove Wyoming is better-behaved than most when it comes to separating citizens from their possessions. But none of those are particularly persuasive.

One deals with $17,000 being returned after "procedural safeguards" were ignored. The other two simply assume the seizure of funds was completely justified, even though no corresponding conviction is noted in his explanation.

In one case, a car owner denied knowing whose $327,000 was found in his vehicle. Fully justified, of course, because as Mead explains, the seized funds were spent "to enforce drug laws." In the other case, $415,000 was found in a vehicle being carried on a semi trailer full of vehicles. This, too, was taken and the seizure fully justified because the money was obviously evil in and of itself. Here's Mead's actual sentence explaining what happened to these funds.

"The money was taken out of circulation so it could not be used for other illegal activity."

Stupid money. It's like it's a troubled teen in need of a grounding. "Don't let it out! It will probably just do illegal things!"

Not cited: the "illegal activity" prompting the seizure of the funds in either case.

The reform bill didn't ask for much -- just a conviction to go with every seizure -- but that was still too much for Mead, who still carries inside him the beating heart of a long-term prosecutor. To him, these means are perfectly acceptable because drugs are a problem. Case closed.

That's likely one of the factors playing into the deployment of his otherwise seldom-used veto power. This is the other: a meeting with the Wyoming Association of Sheriffs and Police Chiefs -- which occurred three days before the veto.

I enjoyed meeting w/ the WY Assoc.of Sheriffs & Chiefs of Police.Thanks for serving & protecting the citizens of WY. pic.twitter.com/TRzgXcMyru

— Governor Matt Mead (@GovMattMead) February 14, 2015

Beyond all that, Mead simply believes asset forfeiture is a law enforcement tool that simply cannot be questioned.

I believe civil asset forfeiture is important and it is right.

Too "right" to be even slightly curtailed by the addition of a small but logical stipulation: a conviction of the assets' owner before the assets can be claimed. Mead prefers the way it's been done for years: assets are presumed guilty, the burden of proof rests on those whose assets have been seized and anything not clearly associated with any criminal activity can still be repurposed to fight the Everlasting War on Drugs.

Wyoming may not have a history of forfeiture abuse, but it makes no sense not to head off a problem before it becomes one. Everything about its current program lends itself to abuse.

Wyoming has horrible civil forfeiture laws, with an F law grade. The state’s final grade is pulled up to a C only by limited use of equitable sharing (an evasion grade of A) to date. The government can seize and subsequently forfeit property with just probable cause that it is subject to forfeiture. This is the lowest standard, far easier for the government than proving criminal guilt beyond a reasonable doubt. A property owner who wishes to claim an innocent owner defense bears the burden of proof, effectively making owners guilty until proven innocent. All of the proceeds from civil forfeiture are distributed to the state Attorney General’s asset fund. In turn, those funds are used as matching funds for federal drug enforcement grants. Finally, although officials are required to collect information on the use of forfeiture, they did not respond to requests.

Gov. Mead's view of this program is rosy to the point of blindness. But that's the sort of thing we expect from career prosecutors who question very little if anything about the law enforcement under their purview and who wholeheartedly support strong drug enforcement tactics. Mead may not see any abuse occurring, but I get the feeling he's not looking too hard. Considering how low the bar is set in terms of burden of proof, you'd have to do some serious digging to find seizures not justified by this barely-there requirement. And, considering the funds flow into Mead's former office, I would imagine he's in no hurry to find anything that might threaten the state's revenue stream, or its attendant matching funds grants from the US government.

Filed Under: asset forfeiture, law enforcement, matt mead, wyoming

US Court Rules That Kim Dotcom Is A 'Fugitive' And Thus DOJ Can Take His Money

from the um. dept

In the long, convoluted and complex legal battles facing Megaupload founder Kim Dotcom, there was some bizarre stuff that happened late last year. As you may recall, early on, the US government seized basically all of his stuff and money. Dotcom has made efforts to get some of it returned, as it's tough to fight the most powerful government in the world when it's holding onto all of your money. Keep in mind from our previous discussions on asset seizure and forfeiture, the government can basically seize whatever it wants, just by claiming it was somehow related to a crime, but the seizure is only a temporary process. If the government wants to keep it, it then needs to go through a separate process known as civil asset forfeiture, which is effectively the government suing the assets. Back in July, the US government moved to forfeit everything it had seized from Dotcom in a new lawsuit with the catchy name USA v. All Assets Listed In Attachment A, And All Interest, Benefits, And Assets Traceable Thereto. As you may have guessed, Attachment A [pdf] is basically all of Kim Dotcom's money and posessions.

Back in November, the DOJ argued that it should get to keep all of Kim Dotcom's money and stuff because he's a "fugitive", which is a bizarre and ridiculous way to portray Kim Dotcom, who has been going through a long and protracted legal process over his potential extradition from New Zealand (though he's offered to come to the US willingly if the government lets him mount a real defense by releasing his money). Dotcom's lawyers told the court that it's ridiculous to call him a fugitive, but it appears that Judge Liam O'Grady didn't buy it.

In a ruling [pdf] that was just posted a little while ago, O'Grady sided with the government, and gave the DOJ all of Dotcom's things. You can read the full reasoning here and it seems to take on some troubling logic. Dotcom's lawyers pointed out, as many of us have, that there is no secondary copyright infringement under criminal law, but the judge insists that there's enough to show "conspiracy to commit copyright infringement." But the reasoning here is bizarre. Part of it is the fact that Megaupload did remove links to infringing content from its top 100 downloads list. To me, that seems like evidence of the company being a good actor in the space, and not trying to serve up more infringing downloads. To Judge O'Grady and the DOJ, it's somehow evidence of a conspiracy. No joke.

The government has alleged that the conspirators knew that these files were infringing copyrights, as evidenced by their exclusion of infringing files from the "Top 100" list. The "Top 100" list purported to list the most frequently downloaded files on Megaupload.... According to the government, an accurate list would have consisted almost entirely of infringing content, so the claimants "carefully curated" the list to make the site look more legitimate.... Additionally, the claimants regularly told copyright holders, including many U.S.-based organizations, that they would remove infringing content, when in actuality they only removed particular links to the files.... The actual infringing files remained on the Mega-controlled servers and could be accessed from other links.

As for that latter part, there are tons of perfectly legitimate reasons to only remove the links and not the underlying files. If Megaupload was doing deduping, then some version of the same file could be perfectly legitimate. Let's take an example: say that you and I have an MP3 of a Katy Perry song. I upload it to Megaupload to keep as a backup. You upload it to distribute to the world. Megaupload dedupes it, and just has the file stored one time. Your link could be potentially infringing if you distribute unauthorized copies, whereas my copy may be a legitimate personal backup. Given that, Megaupload should only delete the links that are called out as infringing, rather than the underlying files, which -- depending on their use -- may or may not be infringing. But the court just takes the DOJ's version and says "good enough for me."

The court also has no problem with the fact that most of the assets aren't in the US, noting that since some of the "conspiracy" took place in the US, that's good enough. It more or less brushes off the concerns raised by Dotcom and the other defendants that this appears to violate existing treaties between New Zealand and the US -- basically saying that because Dotcom refuses to come to the US, it's not "punitive." Huh? On top of that, the judge says that taking all of Dotcom's assets shouldn't interfere with the legal process in New Zealand, because the New Zealand courts could (yeah right) reject the DOJ's request after this ruling to hand over Dotcom's assets.

Then we get to the whole "fugitive" bit. Judge O'Grady notes that the statute does allow him to call anyone who "declines to enter" the United States a fugitive, and argues that Dotcom fits that description. Furthermore, he actually argues that Dotcom's offer to the DOJ to come willingly to the US if the money is freed for his defense actually works against Dotcom, and gives weight to the fugitive claim:

As demonstrated, Dotcom need not have previously visited the United States in order to meet the prerequisites of § 2466. The statute is satisfied where the government shows that the claimant is on notice of the criminal charges against him and refuses to "enter or reenter" the country with the intent to avoid criminal prosecution. Because the court assesses intent under the totality of the circumstances, it is certainly relevant that Dotcom has never been to the United States and that he has lived in New Zealand since 2011, where he resides with his family. This tends to show that he has other reasons for remaining in New Zealand besides avoiding criminal prosecution. However, the existence of other motivations does not preclude a finding that he also has a specific intent to avoid criminal prosecution. Dotcom's statements, made publicly and conveyed by his attorneys to the government, indicate that he is only willing to face prosecution in this country on his own terms. See Technodyne, 753 F.3d at 386 (2d Cir. 2014) ("The district court was easily entitled to view those [requests for bail], evincing the [claimants'] desire to face prosecution only on their own terms, as a hallmark indicator that at least one reason the [claimants] declined to return in the absence of an opportunity for bail was to avoid prosecution"). Dotcom has indicated through his statements that he wishes to defend against the government's criminal charges and litigate his rights in the forfeiture action. If it is truly his intent to do so, then he may submit to the jurisdiction of the United States.

In short, damned if you do, damned if you don't. This is the justice system, ladies and gentlemen. The DOJ gets to seize and keep all your money, and merely asking for access to it to fight to show your innocence is used as a reason to allow the DOJ to keep it. So he comes to the US and has to fight criminal charges without his own money, or he stays in New Zealand and the government uses it as an excuse to keep all the money. How is any of this even remotely fair? Where is the "due process" in totally handicapping Dotcom from presenting a defense?

Again, it is entirely possible that Dotcom and the others broke the law -- though the case certainly does look pretty weak to me. But what's really astounding is how far the DOJ appears to want to go to make it absolutely impossible for Dotcom to present a full defense of his case.

Filed Under: asset forfeiture, conspiracy, copyright, copyright infringement, criminal copyright infringement, doj, fugitive, kim dotcom
Companies: megaupload

Virginia Lawmakers Attempting To Reform State's Asset Forfeiture Debacle By Pushing For A Conviction Requirement

from the but-more-work-is-still-needed dept

The Institute for Justice's 2010 report "Policing for Profit" listed Virginia as one of the worst five states in the nation in terms of forfeiture abuse. Pushing the state towards its Bottom Five finish was this perverted incentive: 100% of the proceeds from civil asset forfeiture were retained by the law enforcement agency performing the seizure. And, like a majority of states, Virginia also perverted the justice system, deeming the property "guilty" and transferring the burden of proof to those whose assets were seized.

Now that civil asset forfeiture has gone mainstream, receiving coverage from major press outlets, legislators are having a harder time ignoring opponents of these "legalized theft" programs. In response, Virginia's lawmakers are trying to drag the state out of its forfeiture morass.

Last week the Virginia House of Delegates overwhelmingly approved a bill that would effectively raise the burden of proof for civil forfeitures by forcing the government to return seized property unless it can obtain a criminal conviction. The bill, introduced by Del. Mark Cole (R-Spotsylvania) and Del. Scott Surovell (D-Mount Vernon), passed by a vote of 92 to 6 and is now being considered by the state Senate.

This fixes one major issue with many civil asset forfeiture programs. Virginia's laws only demanded a "preponderance of the evidence," something that sounds like a lot but in reality is far lower than establishing guilt "beyond a reasonable doubt." If the latter edges towards a theoretical 75% assurance of guilt, the percentage for asset forfeiture approaches a coin flip: 51%. Now, there needs to be a conviction before the agency can keep the seized property.

But there are also problems left unaddressed by this proposal.

That conviction does not have to involve the owner, however. Someone who uses an asset (a car or a home, say) in connection with a crime could be convicted, whereupon the asset would be forfeited, even if it belonged to someone else. Once a "substantial connection" between an asset and a crime is established, Virginia puts the burden on innocent owners to prove their innocence, and this bill does not change that.

The law also doesn't change the allocation of seized funds. 100% is still awarded to the agency performing the seizure with 10% of that allocated for "promoting law enforcement activities." The law also leaves the DOJ loophole open, allowing agencies to route seizures through the feds in order to dodge restrictions placed on them by local laws.

The introduction of a criminal conviction requirement should be the minimum standard any agency with these powers should have to meet. Without it, you get the sort of abuse perpetrated by Virginia's law enforcement, which has seized nearly $3 million/year in vehicles for the last 18 years and approximately $5 million in cash/year over the last decade. Contrary to the oft-stated defense that these programs are necessary to cripple powerful drug lords and multimillion dollar fraudsters, more than half the cash seized from 2001-2006 fell in the $614-1,288 range and the average worth of vehicles seized has hovered at about $6,000.

Law enforcement agencies won't be happy with the new requirement, as it's certain to result in a lower take. According to Institute of Justice statistics, the total amount seized by the state's agencies spiked in 2007, jumping from about $4 million a year to over $25 million a year. And there's been no sign of slowdown since.

It's not a complete fix, but it does at least attack the biggest problem inherent to these programs: the lack of a conviction requirement. Somehow, proponents of asset forfeiture feel there's still some unshattered logic remaining when they contradictorily deem certain property guilty, but somehow can't amass enough evidence to charge its former owners with anything.

Filed Under: asset forfeiture, conviction, due process, law enforcement, police, stealing, virginia

IRS Shuts Down Another High-Profile Asset Forfeiture Case, Gives $447,000 Back To Its Rightful Owners

from the sadly,-no-interest-will-be-collected-on-this-two-year-'loan' dept

Thanks to our nation's tax laws and liberal asset forfeiture programs, the IRS can seize funds from a bank account if it believes the account holder is attempting to bypass income reporting requirements by making deposits under the arbitrary $10,000 cutoff. The IRS doesn't need to obtain evidence of wrongdoing or even ever press charges against the account holders. It just takes the money, and it's up to those whose accounts have been emptied to prove that they weren't "structuring" their deposits.

Recently, it dismissed a structuring case against Carole Hinder, who had run her small, cash-only restaurant for nearly 40 years without incident before the IRS decided she was hiding money from it. It seized nearly $33,000, but seemed to reconsider its position after her case was covered by national press outlets like the New York Times.

The same seems to have happened here. Many of the reports on asset forfeiture also detailed the plight of the Hirsch family, whose convenience store distribution company's account attracted IRS attention for the same reason. Asset forfeiture went into play and the IRS walked off with nearly a half-million of Bi-County Distribution's money. Over two years later, the case is suddenly being dropped and the money returned to its rightful owners.

The government acknowledged in its agreement to return the money that the Hirsch brothers, who operate Bi-County, were never charged with any crime. In fact, all of the money deposited by the Hirsches was lawfully earned from their small business, according to the Institute for Justice, a libertarian law firm in Arlington, Va., that represented the Hirsches.

The Hirsch case was helped by the family's retention of a forensic accountant, who prepared a report analyzing the company's deposits and financial transactions and handed it over to federal prosecutors. However, it was not helped by the IRS' refusal to make the next move after it seized the family's money back in 2012.

During the two-and-a-half years that the government held the money, federal prosecutors filed no formal action in court to complete the forfeiture, which deprived the Hirsch brothers of an opportunity to contest the seizure in court.

So, media heat or not, it took a lawsuit filed by the Hirsch family to finally regain the $447,000 from the IRS. The settlement doesn't do much for the family who spent more than two years fighting this, as the agreement stipulates each party is responsible for its own legal fees. This will hit the Hirsches harder than it hits the US government since only the former party will be paying out of its own pocket.

In the settlement agreement [pdf link], the government disingenuously dodges admitting wrongdoing and even adds in wording stating that the return of the funds does not release the family or its company from "any potential criminal liability." This leaves room for the IRS to make another run at the Bi-County Distribution if it wishes, although I would imagine the harsh light of unwanted publicity means this will be the last we hear of this particular asset forfeiture case.

Filed Under: asset forfeiture, asset seizure, carole hinder, cash, forfeiture, irs, stealing money
Companies: bi-county distribution

How Seizing Assets Leads To More Surveillance... And Then More Seized Assets... And Then More Surveillance... And Then...

from the nefarious-cycle dept

Note: The bulk of the research in this post was compiled prior to Attorney General Eric Holder's surprise announcement that he is curtailing the federal equitable sharing program. The post may be updated as further ramifications of the policy decision become clear.

"You follow drugs, you get drug addicts and drug dealers. But you start to follow the money, and you don't know where the f*** it's gonna take you."

This oft-cited wisdom comes from Detective Lester Freamon, a character in the classic HBO series The Wire, which tracked how an elite task force of (fictional) Baltimore cops used electronic surveillance to bring down criminal networks. But, the sentiment is ironic to a fault: if you keep following the money, it might take you right back to the police.

Asset forfeiture has long been a topic of controversy in law enforcement. Cops and prosecutors have had the power to seize property and cash from suspects before anyone has actually been convicted of a crime (usually narcotics-related). Then these law enforcement agencies have plugged a portion of that money (and money derived from auctioning of property) into their own budgets, allowing them to spend in ways that possibly would not have passed scrutiny during the formal appropriations process.

Critics note that asset forfeiture creates a perverse incentive for policing priorities: the more assets cops seize, the more money they get to spend. Satirist John Oliver characterized the practice as akin to "legalized robbery by law enforcement" in a must-watch segment on his show Last Week Tonight. News organizations, including New York Times, the New Yorker and the Washington Free Beacon have recently outlined abuses of the system.

The good news is that, on Friday, the Washington Post reported that Attorney General Eric Holder is taking steps to rein in the federal version of the program, barring state and local law enforcement agencies from "using federal law to seize cash, cars and other property without evidence that a crime occurred." 

Last year, the Washington Post's investigative team used the Freedom of Information Act to liberate hundreds of thousands of documents associated with federal asset forfeiture, including the entire collection of annual spending disclosures ("Equitable Sharing Agreements") filed with the U.S. Department of Justice by each individual law enforcement agency and task force across the country that receives these funds. The documents reveal a wide variety of spending, from using seized assets to pay for new vehicles and helicopters, drug "buy" money, payments to confidential informants, travel expenses, law enforcement equipment, and rewards for police, such as "challenge coins.

An examination of these documents reveal the connection between seized assets and electronic surveillance across the country.  It many ways, it has been a circular, self-sustaining system: asset forfeiture helps law enforcement agencies pay for electronic surveillance, which allows cops to seize more money to pay for electronic surveillance.

According to data compiled by the Washington Post for the years 2008-2013, law enforcement agencies around the country collectively spent $121 million of federal asset forfeiture funds on electronic surveillance equipment, an annual nationwide average  $20.2 million.  

The forms do not clearly define "electronic surveillance," but it typically includes the type of equipment used in wiretaps. The amount of seized assets spent on electronic surveillance could potentially be much higher, since law enforcement agencies can categorize staff time spent on surveillance in other categories. Sometimes agencies weren't sure how to categorize certain technologies, such as automatic license plate readers and GPS tracking devices, so they reported them separately under other categories. To put it another way: these numbers are just the chunk of the iceberg viewable through public records.

The data sets are enormous, so let's drill down on California. Brace yourself, it's about to get mathy.

How Wiretaps Are Used to Seize Funds

California law enforcement agencies executed 2,078 wiretap orders between 2011 and 2013, according to the California Electronic Interceptions Reports, an annual accounting of electronic surveillance compiled by the California Attorney General's Office.  These reports show that these agencies seize hundreds of millions of dollars each year in wiretap-related criminal investigations, usually involving narcotics or gang activities, and frequently in partnership with federal agencies.

In Los Angeles County, law enforcement agencies conducted 515 wiretap operations over that three-year period, leading to the seizure of at least $25 million in assets. The California Electronic Interceptions Report provides details on the outcome of every single wiretap, which typically include the number of communications captured, the number of individuals affected by the wiretap, and any arrests made or drugs or assets seized. For example, you might see that one 2013 LA wiretap intercepted 9,273 communications involving 67 people, resulting in a single arrest and the seizure of $427,000 in alleged narcotics proceeds. Or that in 2012, LA authorities captured 6,176 communications involving 245 people, resulting in the seizure of $440,000 in alleged drug money. 

The Cost of Wiretaps

Electronic surveillance isn't cheap. Between 2011 and 2013, the average cost to execute a wiretap order in California was $40,594, which included $36,807 for staff time and $3,787 for equipment-related expenses. 

From a bird's eye view, California law enforcement agencies collectively spent $84 million on electronic interceptions during that period, an average of $28 million per year. Of that, staff time spent on electronic surveillance cost California agencies $76 million ($25 million annually) and equipment-related expenses cost $7.9 million  ($2.6 million annually).

In Los Angeles County alone, law enforcement agencies spent $20.3 million between 2011 and 2013, including $2.1 million on wiretap equipment. 

How Seized Assets Were Turned into Electronic Surveillance

When local law enforcement agencies participated in federal investigations, the federal government paid them back by divvying out a portion of the proceeds from the seizures.  These agencies included police department, sheriff offices, and district attorney offices, as well as investigative task forces that span multiple jurisdictions. These agencies were required to broadly report how they spent the money in a variety of categories, including electronic surveillance, on an annual basis.

Between 2011 and 2013, law enforcement agencies in California spent a total of $13.6 million in funds from the federal asset forfeiture program on electronic surveillance equipment, a statewide average of $4.5 million per year. 

To give a sense of scale: that was enough to cover the cost of wiretap equipment (including installation fees, supplies, and equipment) for the entire state of California, with change left over. 

To look at it another way, that's enough to pay for equipment in more than 3,500 wiretaps, far more than these agencies actually conducted. This could indicate that either agencies may have bought more equipment than they needed to carry out these wiretaps or that they may have spent significant portions of the money on surveillance that doesn't require a wiretap order.

Los Angeles County is made up of dozens of local law enforcement agencies and task forces, but two in particular consistently rose to the top of electronic surveillance spending: the Los Angeles County Sheriff's Office and Los Angeles Interagency Metropolitan Police Apprehension Crime Team (LA IMPACT), a cross-jurisdictional task force.

The Los Angeles County Sheriff's Department dug deep into seized federal asset forfeiture funds to run its electronic surveillance operations. Between 2008 and 2014, the LA Sheriff received a total of $47.3 million from the federal program and spent roughly $4 million of that on electronic surveillance equipment. Meanwhile, LA IMPACT received approximately $30 million in asset forfeiture funds over that period, two thirds of which it transferred to other law enforcement agencies. Of the remaining money, about $620,000 went towards electronic surveillance.

That's how it works (or worked on the federal level before Holder's announcement): police spend money on electronic surveillance, which leads to the seizure funds from suspected criminals, and then that money is channeled back to police to use on more electronic surveillance.  

Holder's announcement could have a significant impact on how law enforcement agencies fund electronic surveillance. However, it's important to remember that the next administration's attorney general could easily reverse this policy decision. Further, many states also have their own asset forfeiture programs, so a whole second layer of funding remains on the state level.

The Washington Post has released its giant cache of Equitable Sharing Agreements from thousands of local law enforcement agencies around the country. We urge you to dig in, find your local cops, identify out how they've spend this money, and let the world know what you find.

Major thanks goes out to Washington Post data editor Steven Rich and his colleagues for freeing this data, making it available to the public, and helping us wrap our heads around the spreadsheets.

Reposted from the EFF Deeplinks blog

Filed Under: asset forfeiture, asset seizure, forfeiture, law enforcement, police, seizure, surveillance

Eric Holder Cuts Off Program That Helped Spur Police Asset Seizure 'Shopping Sprees'

from the good-move dept

Well, here's a bit of a surprise. For years we've been highlighting the ridiculousness of police asset seizure and asset forfeiture laws (and, actually, were working on another post on some new such laws that we may now need to revisit...). These laws have basically become a legalized way for local police to steal cars and money without ever charging anyone with a crime. And then... they get to keep the money and sell off the cars. Some have even admitted the process is basically the police going "shopping" for stuff they want. They can seize anything, claiming that it was used in a crime, even if no one is ever charged with a crime. Effectively, they're "charging the thing" which is why you get crazy case names like the (actual case): United States v. Article Consisting of 50,000 Cardboard Boxes More or Less, Each Containing One Pair of Clacker Balls.

However, on Friday, somewhat unexpectedly, outgoing Attorney General Eric Holder announced that he was massively limiting a federal program that helped make these seizures so valuable to police:

“With this new policy, effective immediately, the Justice Department is taking an important step to prohibit federal agency adoptions of state and local seizures, except for public safety reasons,” Holder said in a statement.

Holder’s decision allows some limited exceptions, including illegal firearms, ammunition, explosives and property associated with child pornography, a small fraction of the total. This would eliminate virtually all cash and vehicle seizures made by local and state police from the program.

While police can continue to make seizures under their own state laws, the federal program was easy to use and required most of the proceeds from the seizures to go to local and state police departments. Many states require seized proceeds to go into the general fund.

There's still more to be done to fix bad asset seizure and forfeiture laws, but this is a really big step forward.

Of course, just watch as police departments start to protest that they can no longer go "shopping" for "toys" that they can steal:

The policy will touch policing and local budgets in every state. Since 2001, about 7,600 of the nation’s 18,000 police departments and task forces have participated in Equitable Sharing. For hundreds of police departments and sheriff’s offices the seizure proceeds accounted for 20 percent or more of their annual budgets in recent years.

Either way, kudos to Holder for making this move.

Filed Under: asset forfeiture, asset seizure, cars, doj, equitable sharing, eric holder, feds, money, police

IRS Drops Its Asset Forfeiture Case Against Owner Of Small, Cash-Only Restaurant

from the the-beginnings-of-shift-in-priorities? dept

Some of the recent heat surrounding asset forfeiture seems to have gotten to the IRS. Late last week, it moved to dismiss one of its more high-profile cases -- one that had received extensive coverage from the New York Times and countless other sources. [via Michael Scarcella's (of the National Law Journal) invaluable Twitter feed]

A brief refresher:

Carole Hinder had run a small, cash-only restaurant for nearly 40 years without incident before the IRS decided to step in and seize $33,000 from her bank account. Shortly after that, it acquired a warrant to seize another $150,000. The IRS's case hinged on the fact that every deposit made to the account totalled less than $10,000.

From the dismissal order [pdf link]:

As reflected in the affidavit in support of the verified complaint, from April 2012 through February 2013, more than $315,000 in currency was deposited into Mrs. Lady’s, Inc. bank account in approximately fifty-five separate deposits. No individual currency transaction exceeded $10,000 during that period. A sample of cash transactions between May 2012 and August 2012 showed a pattern of deposits consisting of frequent large deposits in amounts under $10,000 that were near in time to smaller deposits that, taken together, would have triggered bank reporting requirements.

Hinder's defense was that her mother had advised her to break up the deposits into smaller amounts as a "convenience" to the bank. Staying below the reporting requirements does actually make the bank's work easier (and the customer's), but the IRS (and law enforcement) view this sort of behavior, no matter if it's linked to criminal activity or not, as "structuring" -- deliberate attempts to avoid reporting large amounts of cash to the government.

The dismissal order indicates the IRS may have had evidence on its side. (That is, evidence that someone broke up deposits to avoid hitting the $10,000 mark. Not evidence that Hinder was involved in criminal activity or somehow intentionally screwing the IRS.) Despite this, it moved to drop the case, using the old "we have better things to do" excuse. It also maintains it did nothing wrong.

Pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure, the United States hereby moves to dismiss, without prejudice, the instant case. Despite two judicial probable cause finding supported by Claimant’s clear pattern of manipulating bank deposits below $10,000 in order to evade the reporting requirements of 31 U.S.C. § 5313, plaintiff believes, in the exercise of its prosecutorial discretion, that allocating its limited resources elsewhere would better serve justice in this case. Notwithstanding, the request herein, the request should not be construed as an acknowledgement or admission to any liability or wrongdoing whatsoever.

The dismissal is without prejudice, meaning the IRS is still free to pursue this in court in the future. The court also notes that this voluntary dismissal does not remove the IRS's claim to the disputed assets seized by the agency. So, it's not a complete win for Hinder, but it does at least indicate the IRS is somewhat responsive to negative press. The IRS does have limited resources, and it's going to be better off pursuing clearly illegal actions than chasing down fringe cases and fighting battles in two courts (federal and public opinion). The IRS has also announced that it will no longer pursue apparent "structuring" if there's no indication the money comes from illegal sources. This is a step in the right direction, especially considering asset forfeiture has become shorthand for government abuse and the agency's pursuit of small business owners seemingly nothing more than the intersection of vindictiveness and greed.

Filed Under: asset forfeiture, carole hinder, cash, forfeiture, irs, legalized stealing

Washington DC Council Moves To Protect Its Citizens From Its Cops, Passes Asset Forfeiture Overhaul Bill

from the The-Man-sticks-it-to-The-(other)-Man! dept

Federal guidelines on asset forfeiture say law enforcement agencies "may not commit" to spending figures in advance, but that hasn't stopped the Washington, DC police department from doing exactly that. As we covered here recently, the DC police have penciled in expected seizure amounts all the way up through 2018. All that's left to do is meet the budget and if it means making a whole lot of small-time seizures to hit those dollar amounts, so be it. It takes a perverse incentive and makes it even more perverse, turning citizens into ATMs for drug interdiction agents.

Fortunately, the Washington, DC council has just passed a bill that neuters many of these incentives and hopefully, the attendant perversity as well.

The Civil Asset Forfeiture Amendment Act of 2014 stabs at the heart of what makes civil forfeiture so potentially corrupting: Letting cops and prosecutors keep what they forfeit creates “at best, the appearance of a conflict of interest, and at worst, an unchecked incentive for slush funds,” remarked Councilman Tommy Wells, who authored the reform. If the bill becomes law, Washington, D.C. would join just eight states that ban policing for profit. Rather than padding law enforcement budgets, any revenue generated with civil forfeiture instead would be deposited into the general fund.

The bill also stitches up law enforcement's favorite loophole: equitable sharing partnerships with the federal government. By cutting in Uncle Sam, law enforcement agencies can split the proceeds with the federal government, thus bypassing any state requirements that send forfeiture proceeds to a general fund.

In addition, the bill sets other limits. Vehicles may not be seized unless "clear and convincing evidence" exists that they were used in the commission of a crime. Cash amounts under $1,000 would be presumed "innocent," i.e., not subject to forfeiture. This stipulation cuts to the heart of the DC PD's abuse of asset forfeiture -- more than half of its $5.5 million in cash seizures were for less than $141, with over 1,000 of the 12,000 seizures being for less than $20.

DC residents' homes will also be safer. No longer will the property be presumed guilty. It will take an actual conviction before a residence can be seized.

That's the good news. The bad news is that the law would allow the DC police to ride out its current string of pre-budgeted forfeitures.

[T]he District’s reform would not take place until fiscal year 2019, since MPD has already budgeted $670,000 a year in equitable-sharing revenue for a special police fund. Both the Institute for Justice and the American Civil Liberties Union urged the council to “immediately stop this conflict of interest” and ban District police from keeping equitable-sharing funds at once. Ultimately, that effort ultimately did not go through.

The DC police department still has four years to abuse the law as it stands today -- possibly longer if the mayor refuses to sign the bill. The reform measures included should be standardized across the nation as they are a significant step up from many existing state forfeiture laws.

But this isn't necessarily a panacea. There's still enough wiggle room within the reform bill to allow bad things to happen to good people. The $1,000 floor will bring an end to the PD's petty theft efforts, but still puts those who don't -- or can't -- bank at risk. People doing nothing more than attempting to pay rent may find themselves coughing up this "suspicious" money to the DC PD. And while requiring evidence and/or convictions before seizing property just makes sense, this could still result in relatives of those criminally charged losing their homes or vehicles simply because the suspect drove the car once or stayed a few nights at the house in question.

Overall, though, it's about as good as anyone should expect, given the imperfections of the legal system and humanity's natural knack for exploiting systems for personal gain. And it's more than a little sad that we've gotten to the point where the government has to step in and protect its employers (the citizens) from other government employees.

Filed Under: asset forfeiture, police, seizure, washington dc