Due process for cash civil forfeitures in structuring cases.

• Author: Ford, Timothy J.

TABLE OF CONTENTS INTRODUCTION I. INADEQUATE PRETRIAL PROCEDURES A. Claim Opposing Forfeiture B. Petition for Remission or Mitigation C. Motion to Return Property D. Hardship Release II. DUE PROCESS FOR CASH SEIZURES IN STRUCTURING CASES A. Due Process in Civil Forfeiture B. Due Process Balancing for Cash Seizures 1. Private Interest Affected 2. Risk of Erroneous Deprivation 3. Government Interest III. THE DEMANDS OF DUE PROCESS A. Legislative and Executive Proposals B. Judicial Remedies CONCLUSION INTRODUCTION

On January 22, 2013, Tarik "Terry" Dehko sat down to pay the bills for his small Michigan grocery store when a federal agent entered his office. (1) The agent told Dehko that the Internal Revenue Service (IRS) had executed a seizure warrant and taken the market's entire bank account--more than $35,000. (2) When Dehko asked how he could run his business without its bank account, the agent replied, "I don't care." (3)

The government did not charge Dehko with a crime that day. (4) In fact, Dehko had never been charged with any crime in his life. (5) Instead, the government waited until July 19 to bring a civil forfeiture action against Dehko--ninety-one days after Dehko filed a claim with the IRS asserting his property interest in the seized money. (6) During that time, Dehko could not access those funds to pay his employees, rent, utility bills, or vendors. For the first time, Dehko was late on his payments. (7)

The government's action alleged that Dehko violated federal structuring law. (8) Federal law establishes reporting requirements for bank deposits over $10,000. (9) But the law also bans "structuring" deposits--making more than one deposit arising from the same transaction in amounts less than $10,000 to avoid the reporting requirement. (10) The ban prevents both money laundering and spreading profits from criminal enterprises. (11) But Dehko had a legitimate business reason for regularly depositing less than $10,000 into his business's bank account: like many small businesses, the grocery's insurance policy limited cash losses to $10,000 out of risk. (12) Thus Dehko did not need to report his deposits, because he was not "structuring." (13) On top of that, the IRS had examined Dehko for potential structuring violations just nine months earlier and concluded that "no violations were identified." (14) Ultimately, the government voluntarily dismissed the forfeiture action against Dehko on November 15.15 But not without harm to Dehko and his market.

Law enforcement seized Dehko's bank account through civil forfeiture. Civil forfeiture statutes authorize the government to seize and keep property it suspects is involved in criminal activity, without prosecuting an underlying offense. (16) Forfeiture proceedings are technically in rem actions against property, not its owner. (17) To join the lawsuit, the owner must file a claim opposing forfeiture and asserting her interest in the property, or else forfeit the property. (18) This process is similar to intervention in a civil suit. The alleged conduct used to justify the forfeiture--here, structuring--is criminal. But civil forfeitures are civil: the higher burdens of criminal proceedings, like proof beyond a reasonable doubt, do not apply. (19) The government can seize and keep property without ever securing a criminal conviction in the related offense. (20)

Terry Dehko is not alone: many others face cash seizures by the IRS for alleged structuring. Months after Dehko's seizure, the IRS seized $33,244.85 from Mark Zaniewski, the owner of a gas station in Michigan. (21) As a result, a vendor refused to supply gasoline, causing the station to close for two weeks. Zaniewski then had to assign receipts directly to the supplier and pay a higher rate due to his newly bad credit. (22) The same year, the IRS seized the $33,000 checking account of Carole Hinders, the owner of a cash-only restaurant in Iowa, after she deposited less than $10,000 into the account. (23) The IRS also seized a $66,000 account from Army Sgt. Jeff Cortazzo, who, on the advice of a bank teller, made several sub-$10,000 deposits into a safe-deposit box to save for his daughter's college education. (24) There, the government settled--at a $21,000 cost to Cortazzo. That settlement caused his daughter to delay college for a year. (25)

Current seizure practices extend well beyond anecdote. The government regularly seizes cash without prosecuting the underlying structuring offense. While IRS seizures for alleged structuring increased fivefold over seven years, to 639 seizures in 2012, law enforcement criminally prosecuted only one in five cases. (26) The overenforcement of seizures, notwithstanding the underprosecution of alleged structuring, can be expected when an agency has a direct pecuniary interest in the assets seized. (27) In many cases, local law enforcement can spend assets however it chooses: officers can not only start a new college savings fund from Sgt. Cortazzo's old one, but can buy sports cars (28) or even a margarita machine for the office. (29) In the case of federal seizures, seized assets go into a dedicated fund that supplements the agency's budget, further encouraging civil forfeiture. (30)

These forfeiture practices led to increased media scrutiny, from the Washington Post to comedian John Oliver, which pressured executive branch agencies to change their policies. (31) After a New York Times investigation, the IRS announced it would no longer seize and seek forfeiture of funds in suspected structuring cases "unless there are exceptional circumstances justifying the seizure and forfeiture."* 32 And, after a congressional subcommittee hearing, (33) the Department of Justice (DOJ) announced a new policy requiring prosecutors to develop probable cause for additional federal criminal activity, subject to supervisor approval, before seizing property. (34)

But the policy changes do not eliminate the overenforcement problem. First, the policies do not change existing law. The IRS announcement, for example, insists that structuring is itself illegal and does not define "exceptional circumstances," reserving the IRS's right to seize property in structuring prosecutions. (35) In a congressional subcommittee hearing investigating IRS seizures in structuring cases, the IRS commissioner apologized for seizing assets from innocent people, but insisted that IRS agents followed the law. (36) Despite the policy change, prosecutors still waited a month and a half, and even held a deposition, before dropping the forfeiture case against Carole Hinders. (37) Moreover, future agency leadership could simply change the policies and return to seizing property without prosecuting for structuring. Second, the agencies' pecuniary interests remain.

Other than waiting for a civil forfeiture trial to play out, claimants have few options to challenge the government's continued control of their property when it comes to cash assets. That control is real: on average, civil forfeitures for structuring take more than a year after the seizure. (38) Both Dehko and Zaniewski filed motions for prompt postseizure hearings and return of property before the government voluntarily dismissed the civil forfeiture actions against them. (39) In Zaniewski's case, the government dismissed the case one day after Zaniewski filed. (40) After the dismissals, Dehko and Zaniewski sought declaratory judgments for postseizure hearings in federal court in case the government executed seizure warrants for the same conduct in the future. (41) Because they already had control of their cash by that time, the court dismissed their claims as moot. (42)

Cash seizures for alleged structuring, as compared to other crimes, are particularly worrisome. Not only can the government seize and keep cash with a low burden of proof, but innocent conduct often underlies structuring cases because a person can make several sub-$10,000 deposits for legitimate reasons.

This Note argues that the temporary deprivation of cash warrants increased due process protection and should thus be analyzed under the Mathews v. Eldridge balancing test for civil due process. Part I walks through current forfeiture procedure from the perspective of an owner of seized cash, elucidating the burdens that owners face in real practice. (43) It concludes that the process a claimant of seized cash must follow is inadequate, potentially exposing federal law to a due process challenge. Part II argues that the deprivation and detention of cash for alleged structuring violates due process. Applying Mathews in structuring cases, the strong private interest in cash-an owner's most important asset for essential payments or running a business--will ultimately outweigh the government's interest in avoiding additional procedures. Part III considers possible reforms by each branch of government, ultimately offering a judicial remedy. It concludes that--unless Congress amends federal law to provide better procedural alternatives for claimants of seized cash--due process demands postseizure hearings under Mathews for cash seizures in structuring cases.

1. INADEQUATE PRETRIAL PROCEDURES

   This Part examines how the federal government can seize and keep cash, and what owners can do about it. The Civil Asset Forfeiture Reform Act of 2000 (CAFRA) (44) significantly amended federal civil forfeiture laws. CAFRA's proponents sought to reform the civil forfeiture process by increasing protections for property owners. (45) Reforms included, for example, time limits for the government to provide notice and file forfeiture actions, an innocence defense, and hardship exemptions. (46) But CAFRA's critics continue to assert it does not go far enough to protect property owners. (47)

   In particular, CAFRA includes fewer protections for cash seizures than for seized physical property. (48) CAFRA creates a maze of claims, petitions, motions, and requests for the diligent claimant to exercise...