Pubdate: Mon, 22 Aug 2011
Source: Wall Street Journal (US)
Copyright: 2011 Dow Jones & Company, Inc.
Contact:  http://www.wsj.com/
Details: http://www.mapinc.org/media/487
Author: JOHN R. EMSHWILLER, And GARY FIELDS

FEDERAL ASSET SEIZURES RISE, NETTING INNOCENT WITH GUILTY
New York businessman James Lieto was an innocent bystander in a fraud 
investigation last year. Federal agents seized $392,000 of his cash anyway.

An armored-car firm hired by Mr. Lieto to carry money for his 
check-cashing company got ensnared in the FBI probe. Agents seized 
about $19 million""including Mr. Lieto's money""from vaults belonging 
to the armored-car firm's parent company.

He is one among thousands of Americans in recent decades who have had 
a jarring introduction to the federal system of asset seizure. Some 
400 federal statutes""a near-doubling, by one count, since the 
1990s""empower the government to take assets from convicted criminals 
as well as people never charged with a crime.

Last year, forfeiture programs confiscated homes, cars, boats and 
cash in more than 15,000 cases. The total take topped $2.5 billion, 
more than doubling in five years, Justice Department statistics show.

The expansion of forfeiture powers is part of a broader growth in 
recent decades of the federal justice system that has seen hundreds 
of new criminal laws passed. Some critics have dubbed the pattern as 
the overcriminalization of American life. The forfeiture system has 
opponents across the political spectrum, including representatives of 
groups such as the American Civil Liberties Union on the left and the 
Heritage Foundation on the right. They argue it represents a widening 
threat to innocent people.

"We are paying assistant U.S. attorneys to carry out the theft of 
property from often the most defenseless citizens," given that people 
sometimes have limited resources to fight a seizure after their 
assets are taken, says David Smith, a former Justice Department 
forfeiture official and now a forfeiture lawyer in Alexandria, Va.

Backers of the system say there are adequate protections for the 
innocent, and describe the laws as a powerful tool for returning 
money to crime victims.

The government has recovered for eventual distribution to victims 
more than $650 million from imprisoned swindler Bernard Madoff and 
others who received money from his scheme. Federal officials are in 
the process of recovering over $6.5 billion more from the Madoff fraud.

Last year, federal authorities say, some $293 million of forfeiture 
proceeds were returned to crime victims nationally, nearly double the 
amount in 2009. The Justice Department filed about 90,000 criminal 
cases last year. There were forfeiture actions in a total of about 
3,700 criminal cases, double the number of five years earlier.

Supporters further say there should be many more forfeiture actions. 
Even an imprisoned criminal "can have a smile on his face because he 
is going to be able to enjoy the proceeds of his crime when he gets 
out," says Charles Intriago, a former federal prosecutor and now 
president of the International Association for Asset Recovery, a 
Miami organization for asset-recovery specialists.

Forfeiture law has its roots in the Colonial days, when it was used 
to battle pirates and smugglers. In the 1970s and 1980s, Congress 
began giving law-enforcement officials power to go after the assets 
of other criminals, such as organized-crime figures.

The more than 400 federal statutes allowing for forfeiture range from 
racketeering and drug-dealing to violations of the Northern Pacific 
Halibut Act, according to a December 2009 Congressional Research 
Service report. The report shows that seizure powers were extended to 
about 200 of those laws in 2000 in a major congressional overhaul of 
the forfeiture system.

Top federal officials are also pushing for greater use of 
civil-forfeiture proceedings, in which assets can be taken without 
criminal charges being filed against the owner. In a civil 
forfeiture, the asset itself""not the owner of the asset""is 
technically the defendant. In such a case, the government must show 
by a preponderance of evidence that the property was connected to 
illegal activity. In a criminal forfeiture, the government must first 
win a conviction against an individual, where the burden of proof is higher.

Raul Stio, a New Jersey businessman, is caught up in the 
civil-forfeiture world. Last October, the Internal Revenue Service, 
suspicious of Mr. Stio's bank deposits, seized more than $157,000 
from his account. Mr. Stio hasn't been charged with a crime.

In a court filing in his pending civil case, the Justice Department 
alleges that Mr. Stio's deposits were structured to illegally avoid 
an anti-money-laundering rule that requires a cash transaction of 
more than $10,000 to be reported to federal authorities. Mr. Stio 
made 21 deposits over a four-month period, each $10,000 or less, the 
filing said.

Steven L. Kessler, Mr. Stio's attorney, says there was no attempt to 
evade the law and that the deposits merely reflected the amount of 
cash his client's businesses, a security firm and bar, had produced. 
Mr. Stio was saving to buy a house, he says.

A Justice Department spokeswoman declined to comment on the case.

Speaking about civil forfeiture broadly, another Justice Department 
official called it a tool of "critical" importance in taking away the 
ill-gotten gains of international criminal organizations operating in 
the U.S. Otherwise, participants in criminal operations such as these 
might often be beyond federal authorities' reach, leaving asset 
seizure as one of the ways authorities can target an operation.

In fiscal year 2010, there were more than 11,000 noncriminal 
forfeiture cases, according to available federal statistics. That 
figure has held fairly steady the past five years.

It's tough to know how many innocent parties may be improperly pulled 
into the forfeiture system. Last year, claimants challenged more than 
1,800 civil-forfeiture actions in federal court, Justice Department 
figures show.

Justice Department officials say they rarely lose such cases, a fact 
they cite as evidence the system is working properly. Forfeiture 
attorneys counter that the government often settles cases, returning 
at least part of the seized assets, if it thinks it might lose.

Part of the debate over seizures involves a potential conflict of 
interest: Under a 1984 federal law, state and local law-enforcement 
agencies that work with Uncle Sam on seizures get to keep up to 80% 
of the proceeds.

Last year, under this "equitable-sharing" program, the federal 
government paid out more than $500 million, up about 75% from a decade ago.

The payments give authorities an "improper profit incentive" to seize 
assets, says Scott Bullock of the Institute for Justice, a 
libertarian public-interest law firm in Arlington, Va. It's a 
particular concern amid current state and local government budget 
problems, he contends.

Justice Department officials say the 8,000 state and local agencies 
in the equitable-sharing program have greatly expanded the federal 
government's ability to go after criminal activities, particularly 
the movement of drugs and drug cash along the nation's highways. The 
program is monitored to ensure seizures are handled properly, they add.

Seeming abuses occasionally emerge. In 2008, federal Judge Joseph 
Bataillon ordered the return of $20,000 taken from a man during a 
traffic stop in Douglas County, Neb. Judge Battaillon quoted from a 
recording of the seizure, in which a sheriff's deputy complained 
about the man's attitude and suggested "we take his money and, um, 
count it as a drug seizure."

The judge's order said the case produced "overwhelming evidence" that 
the funds were clean.

Douglas County Sheriff Tim Dunning said the remarks made by his 
officers on the recording were "uncalled for" and "had a potential 
for tainting the case." But overall, he says, the seizure was handled 
properly. Since 2002, he says, his department has earned $11 million 
in equitable-sharing money.

A spokesman for the U.S. Attorney's office in Nebraska said the 
deputy's remarks were "a rare and isolated event."

About a decade ago, the forfeiture system got a major overhaul. The 
2000 Civil Asset Forfeiture Reform Act, or Cafra, put in protections 
for individuals, including increasing the government's burden of 
proof in many proceedings. Cafra also extended forfeiture powers to 
additional crimes.

Cafra's new safeguards didn't go far enough, critics argue. For 
instance, reformers failed to win a broad guarantee that poor people 
would have access to a lawyer. "It isn't much good to say you have 
the right to get your property back if you can't afford a lawyer," 
said the late Rep. Henry Hyde (R-Ill.) at a 1999 congressional hearing.

Jorge Jaramillo, a construction worker, says he couldn't afford a 
lawyer after more than $16,000 was seized from him last year in a 
traffic stop. "I had all of $20 left," he says.

In a Delaware federal-court filing, the Justice Department argued the 
money was related to drug dealing. It pointed to air fresheners in 
the car, which could mask the smell of drugs, and a fast-food bag 
containing cigar tobacco, which the filing said was often a sign that 
the cigar wrapper had been used to smoke marijuana.

The filing also said a police dog had signaled that the cash carried 
residue of illegal drugs. Such "dog sniffs" are a common but 
controversial feature in forfeitures.

Mr. Smith, the Virginia attorney, represented Mr. Jaramillo at no 
upfront cost. In court documents, Mr. Jaramillo, who wasn't charged 
with a crime, said he was carrying the money because he was traveling 
to buy a car from a seller who wanted cash.

The government in May agreed to return Mr. Jaramillo's money, with 
interest. Mr. Smith was also awarded $6,000 in attorney's fees. Under 
Cafra, attorneys' fees in civil-forfeiture cases are at least 
partially payable if the claimant wins.

The Cafra reforms helped Mr. Jaramillo find a lawyer even though he 
says he had no money. Still, forfeiture attorneys say this feature of 
the law is being eroded in some instances. In April, the U.S. Ninth 
Circuit Court of Appeals found that the Cafra attorney's fee should 
be paid to the client, not directly to the lawyer. Lawyers say this 
makes it possible for the government to seize their fees if the 
client has a tax lien or other obligation.

Mr. Lieto, the New York businessman, discovered the frustrations an 
innocent party can face as he worked for months to keep open his 
check-cashing business after federal agents seized his firm's working capital.

For years, according to court filings, Mr. Lieto used an armored-car 
company to pick up cash from his bank for delivery to his 
check-cashing outlets. The sealed bank bags were routinely stored 
overnight in the car company's vault. In February 2010, the FBI raid 
seized the $19 million as part of the fraud probe.

Under the law, an innocent third party generally can't seek an 
asset's return until the underlying criminal case is resolved, which 
can take time. In this case, two men pleaded guilty last fall to a 
multi-million-dollar fraud.

An innocent party's money is returnable if it's clearly separate from 
the fraud. Mr. Lieto's two sealed and marked bank bags with the 
$392,000 qualified, his attorney, Mr. Kessler, argued in court 
filings. Others among the scores of customers made similar claims.

The government countered that the crooks' operation, which included 
the armored-car service, routinely commingled customers' money. Thus, 
everyone had to get in line as fraud victims.

Court records indicate that fraud victims might get about 25 cents or 
less on the dollar. However, in February the government agreed to 
give Mr. Lieto's money back in full.

Mr. Lieto's lawyer, Mr. Kessler, had filed a deposition from a vault 
manager who had watched Mr. Lieto's two still-sealed bags being 
loaded onto the FBI's truck. If the bags were opened and commingled, 
it was done by authorities, a Lieto court filing argued.
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