Forfeiture Reform and United States v.

Bajakajian
By Steven L. Kessler

Article Posted 7/30/98

To paraphrase a major credit card company: Was it the merits, or the

miles, that prompted the majority of the Supreme Court to side with the
defendant in United States v. Bajakajian?

When I received a call on June 22, 1998 from a reporter asking me to

comment on the Supreme Court's decision in Bajakajian, I asked her who
authored the decision. Clarence Thomas, she replied. After a long pause, I
said softly: Another in a string of recent questionable decisions.

Actually, she said, the Court affirmed the Ninth Circuit's decision in favor of
the defendant. Unbelieving, I asked her to fax the decision to me. Sure
enough, she was right.

There are many aspects of Bajakajian that are remarkable. Most notably, it
is the first time ever that the Supreme Court has struck down a fine as
unconstitutionally excessive. When placed in the context of the number of
cases reviewed by the Court each term, that is truly significant.

Almost as notable as the substance of the decision is that it represents the

first time ever that Justice Thomas has joined, let alone authored, a
decision with the "liberal" segment of the bench, namely, Justices Stevens,
Ginsburg, Breyer and Souter.

That Thomas should be the one to break from the conservative block on a
forfeiture issue, however, is less surprising when placed in the context of
some of his past decisions. Just five years ago, in United States v. James
Daniel Good Real Property, Thomas, concurring, pronounced his "distrust
of the Government's aggressive use of broad civil forfeiture statutes." "I am
disturbed," he continued, "by the breadth of the new civil forfeiture statutes
. . . which subjects to forfeiture all real property that is used, or intended to
be used, in the commission, or even the facilitation, of a federal drug
offense." Notably, "ambitious modern [forfeiture] statutes and prosecutorial
practices have all but detached themselves from the ancient notion of civil
forfeiture". Hence, "it may be necessary . . . to reevaluate our generally
deferential approach to legislative judgments in this area of civil forfeiture."
In Bajakajian, Thomas made clear his belief that the government's current
forfeiture practices are not blessed by history. Although his opinion traces
the history of forfeiture, Thomas noted that it was only in 1970, about the
time of the advent of the Racketeer Influenced and Corrupt organizations
Act (RICO), that the government began imposing criminal forfeiture of the
type at issue here, as opposed to the civil, in rem forfeiture proceedings,
which are based on the legal fiction of "guilt" of the subject property.
Indeed, it was the "War on Drugs" that escalated the use of forfeiture as an
accepted tool of law enforcement.

It seems, therefore, that at least Justice Thomas is tired of the expansive

use of forfeiture by the government. Ironically, the statutes once limited to
combat organized crime and to liquidate drug lords and money launderers
are currently the preferred instruments utilized by the government when it
does not have sufficient evidence of criminal activity. In approximately 85
percent of all forfeiture cases, the property owner is never charged with a
crime! Instead, the forfeiture of his property is his "punishment". That is
unsettling, and outrageous, especially when the purpose of forfeiture was
"to take the profit out of crime." Forfeiture is now a business for the
government, making the government and its agencies full financial
partners in the largest "business" in the country.

One of the more alarming aspects of our current forfeiture scheme is that it
permits law enforcement agencies to keep the proceeds of their forfeitures.
This creates an overwhelming financial incentive for abuse, one that would
tempt even the most honest cop. In one county in Arizona, for example, a
statute provides that a police officer will receive a salary as long as there
are enough funds in the forfeiture account to pay his salary. The local
media coined this "collars for dollars."

On the federal level, forfeiture is fund raising at its best. In 1993, the United
States Attorney for the Southern District of New York brought in close to
$50 million, $17 million more than the office's annual budget. The U.S.
Attorney in the Eastern District of New York collected more than $31.3
million from forfeiture connected to criminal activity in the year ending
September 30, 1994. The office's operating budget was $26 million. In the
fiscal year ending in September 1996, the Southern District of New York
collected $410 million, including $352.3 million in criminal fines,
assessments and bail bond forfeitures, $17 million through forfeiture of
criminals' assets and nearly $41 million in civil judgments. Who says crime
doesn't pay?

More and more courts are finding fault with the government's methods.
Unfortunately, at least for now, most courts seem unwilling to take that
extra step and say so. After all, what's the harm? As long as there is some
suspicion of illicit activity, why quibble about criminal guilt? As the U. S.
Attorney's office argued in a case involving a substantial amount of cash
found in a safe deposit box in a bank, "only a criminal would keep such
money in a safe deposit box." Now, that's a legal argument laden with
evidence. Forget tracing the money to a crime, or some modicum of proof
connected to illegal activity. Where there's smoke, there's money in the
forfeiture coffers.

It is noteworthy that most forfeiture proceedings nowadays are civil. They

are commenced by summons and complaint in civil term before a judge
accustomed to civil proceedings. Yet the plaintiff is a prosecutor, the
defendant is either a criminal defendant or the property alleged to be
involved in criminal activity, and defense counsel — if there is one — is
more often than not a criminal defense attorney, unfamiliar with the
intricacies of civil forfeiture litigation. Once the prosecutor presents
probable cause, the burden of proof switches to the defendant to prove his
innocence or the innocence of the property. How can a civil court not be
influenced by all of this? After all, the government would not sue an
innocent person. Would it?

After the Supreme Court twisted logic on its head last year in Bennis v.
Michigan, House Judiciary Chairman Henry Hyde, a Reagan Republican
from Illinois, introduced the Civil Asset Forfeiture Reform Act (H.R. 1835).
He and Representative John Conyers, a Carter Democrat from Michigan
and the ranking Democrat on the Committee, have joined hands on this
one, in an attempt to remedy some of the worst problems affecting federal
civil forfeiture laws.

Changes in the proposed bill include:

• placing the burden of proof on the government to prove that, by clear and
convincing evidence, the property is subject to forfeiture

• providing for the appointment of counsel for property owners who cannot
afford lawyers to challenge forfeitures, paid for from the Federal Asset
Forfeiture Fund

• clarifying the "innocent ownership" defense, most specifically to state that

an owner who takes "reasonable steps" to prevent others from using the
property for criminal activity can get his property back.
• eliminating the requirement that owners post a bond before being allowed
to challenge the action. [What a concept! Your house has been seized,
your business has been shut down, all of your money has been seized or
frozen, and, before you are permitted to challenge the seizure, you have to
post a bond of $5,000 or ten percent of the property's value, whichever is
less.]

• extending from 10 to 30 days the time for property owners to file a claim
for the return of their property

• requiring the government to institute judicial forfeiture proceedings within

90 days after the filing of a claim

• permitting property owners to sue the government for negligence in

handling or storage of their property, if the property is not ultimately
forfeited, and

• providing federal courts with the ability to grant possession of the

contested property to the owner during the pendency of the forfeiture
proceeding, if possession by the government during the action would
cause the owner to suffer substantial hardship (such as preventing the
functioning of a business or leaving an owner homeless).

This bill goes a long way toward correcting the abuses experienced under
the current structure. Not surprisingly, the Department of Justice strongly
opposed these changes, and introduced its own version of a reform
measure. No hearings have been conducted regarding its bill, however,
nor has the bill been subjected to public scrutiny or intensive committee
review. At 69 pages, it is 54 pages longer than Hyde's bill. Quite simply, it
mocks the reform effort of H.R. 1835. Fortunately, and despite heavy DOJ
lobbying, H.R. 1965 was defeated in Congress. Hyde's bill is pending, and
deserves strong support from all who favor a level playing field in the
forfeiture arena.

United States v. Bajakajian

With this as a backdrop, the Supreme Court was presented with

Bajakajian. Respondent, his wife, and his two daughters were waiting at
Los Angeles International Airport to board a flight to Italy. Using dogs
trained to detect currency by its smell, customs inspectors discovered
some $230,000 in cash in the Bajakajians' checked baggage. A customs
inspector approached Bajakajian and his wife and told them that they were
required to report all money in excess of $10,000 in their possession or in
their baggage. Respondent said that he had $8,000 and that his wife had
another $7,000, but that the family had no additional currency to declare. A
search of their carry-on bags, purse, and wallet revealed more cash, which
brought the total to $357,144. The currency was seized and respondent
was taken into custody.

Bajakajian was indicted for (1) failing to report that he was transporting
more than $10,000 outside the United States, and was doing so 'willfully,'
in violation of §5322(a); and (2) making a false material statement to the
Customs officer, and a third count sought the forfeiture of the full $357,144
pursuant to 18 U.S.C. §982(a)(1), which provides:

The court, in imposing sentence on a person convicted of an offense in

violation of section . . . 5316, . . . shall order that the person forfeit to the
United States any property, real or personal, involved in such offense, or
any property traceable to such property.' 18 U. S. C. §982(a)(1).

Bajakajian pled guilty to the failure to report violation. Count Two was
dismissed by the government and the court held a bench trial on the
forfeiture charge. Following trial, the court found that the entire $357,144
was subject to forfeiture because it was "involved in" the offense. But the
court also found that the funds were not connected to any other crime,
Bajakajian was transporting the money to repay a lawful debt, and
Bajakajian had failed to report that he was taking the currency out of the
United States because of fear stemming from "cultural differences".

Respondent, who had grown up as a member of the Armenian minority in

Syria, had a "distrust for the Government."

Although §982(a)(1) directs sentencing courts to impose full forfeiture, the

court concluded that such forfeiture would be "extraordinarily harsh" and
"grossly disproportionate to the offense in question," and that it would
therefore violate the Excessive Fines Clause of the Eighth Amendment.
Instead, the court ordered forfeiture of $15,000, in addition to a sentence of
three years of probation and a fine of $5,000 -- the maximum fine under
the Sentencing Guidelines -- because the court believed that the maximum
Guidelines fine was "too little" and that a $15,000 forfeiture would "make
up for what I think a reasonable fine should be."

The Ninth Circuit affirmed. The court held that, to satisfy the Excessive
Fines Clause, a forfeiture must be an "instrumentality" of the crime
committed, and the value of the property must be proportional to the
culpability of the owner. The court determined that the currency was not an
"instrumentality" of the crime of failure to report because " '[t]he crime [in a
currency reporting offense] is the withholding of information, . . . not the
possession or the transportation of the money.' " The majority therefore
held that §982(a)(1) could never satisfy the Excessive Fines Clause in
cases involving forfeitures of currency and that it was unnecessary to apply
the "proportionality" prong of the test. Although the panel concluded that
the Excessive Fines Clause did not permit forfeiture of any of the
unreported currency, it held that it lacked jurisdiction to set the $15,000
forfeiture aside because respondent had not cross-appealed to challenge
that forfeiture. The Supreme Court granted certiorari.

In a stunning and important decision, Justice Thomas, writing for the

majority, first deemed criminal forfeiture to be a fine, since it clearly
constitu tes punishment for an offense. Forfeiture under §982(a)(1) is
imposed at the end of a criminal proceeding, following a conviction, and
can be imposed only upon a guilty party, not an innocent owner. Thomas
pointed out that the only loss to the government from one's failure to report
is the loss of information, which cannot be remedied by the confiscation of
the defendant's money. Criminal forfeiture is in personam, against the
culpable individual, not in rem, against the "guilty" property, which, at least
in proceedings under the Double Jeopardy Clause of the Fifth Amendment,
has been deemed to be remedial.

The Court took pains, however, to emphasize that a modern statutory

forfeiture is a "fine" for Eighth Amendment purposes if it constitutes
punishment even in part, regardless of whether the proceeding is styled in
rem or in personam. Therefore, civil forfeiture statutes as well as criminal
forfeitures must be scrutinized through the lens of the Eighth Amendment.

The Court overruled the Second Circuit in United States v. $145,139.00,

holding that the currency in question was not an instrumentality. Adopting
the Ninth Circuit's reasoning, the Court found that the existence of the
currency as a "precondition" to the reporting requirement did not make it an
"instrumentality" of the offense. Thomas wrote:

The currency is merely the subject of the crime of failure to report. Cash in
a suitcase does not facilitate the commission of that crime as, for example,
an automobile facilitates the transportation of goods concealed to avoid
taxes. See, e.g., J. W. Goldsmith, Jr.-Grant Co. v. United States, supra, at
508. In the latter instance, the property is the actual means by which the
criminal act is committed." See Black's Law Dictionary 801 (6th ed. 1990)
('Instrumentality' is '[s]omething by which an end is achieved; a means,
medium, agency').
With the forfeiture deemed punitive, the majority focused on the test for the
excessiveness of a punitive forfeiture. The Court held that excessiveness
involves "solely a proportionality determination." "The touchstone of the
constitutional inquiry under the Excessive Fines Clause", Thomas wrote,
"is the principle of proportionality: The amount of the forfeiture must bear
some relationship to the gravity of the offense that it is designed to punish."
Reasoning that "judgments about the appropriate punishment for an
offense belong in the first instance to the legislature" and that "any judicial
determination regarding the gravity of a particular criminal offense will be
inherently imprecise," the Court dismissed a "strict proportionality"
requirement between the amount of the forfeiture and the gravity of the
crime. Instead, the Court held that punitive forfeiture is unconstitutional if it
is "grossly disproportional" to the gravity of a defendant's offense.

Applying the new standard to the facts before it, the Court held
Bajakajian's

"crime was solely a reporting offense. It was permissible to transport the

currency out of the country so long as he reported it. Section 982(a)(1)
orders currency to be forfeited for a 'willful' violation of the reporting
requirement.. . . Had his crime gone undetected, the Government would
have been deprived only of the information that $357,144 had left the
country. ... There is no inherent proportionality in such a forfeiture. It is
impossible to conclude, for example, that the harm respondent caused is
anywhere near 30 times greater than that caused by a hypothetical drug
dealer who willfully fails to report taking $12,000 out of the country in order
to purchase drugs. ... [The] $357,144 forfeiture the Government seeks. . .
bears no articulable correlation to any injury suffered by the Government."

Further, the defendant's possession of the money was lawful. Bajakajian's

"violation was unrelated to any other illegal activities. The money was the
proceeds of legal activity and was to be used to repay a lawful debt.
Whatever his other vices, respondent does not fit into the class of persons
for whom the statute was principally designed: He is not a money
launderer, a drug trafficker, or a tax evader. And under the Sentencing
Guidelines, the maximum sentence that could have been imposed on
respondent was six months, while the maximum fine was $5,000. Such
penalties confirm a minimal level of culpability."

The dissenters, in an opinion by Justice Kennedy, had little difficulty with

the standard set by the majority. Instead, they stressed the seriousness of
the defendant's crime, terming it "smuggling". Kennedy discussed what he
saw as "suspicious circumstances" in the case -- including lies told to
officials by Bajakajian and his friends, leading to a false-statement charge
that was later dropped -- stating that they pointed to "some form of crime,"
which, according to Kennedy, would satisfy the "gross disproportionality"
test and justify the forfeiture of all of the funds.

But Thomas took exception to Bajakajian's repeated characterization as a

"smuggler." "Respondent owed no customs duties to the Government, and
it was perfectly legal for him to possess the $357,144 in cash and to
remove it from the United States. His crime was simply failing to report the
wholly legal act of transporting his currency."

The Court also found that "the nature of the nonreporting offense in this
case was not altered by respondent's 'lies' or by the 'suspicious
circumstances' surrounding his transportation of his currency.' A single
willful failure to declare the currency constitutes the crime, the gravity of
which is not exacerbated or mitigated by 'fable[s]' that respondent told one
month, or six months, later. The Government indicted respondent under 18
U.S.C. §1001 for 'lying,' but that separate count did not form the basis of
the nonreporting offense for which §982(a)(1) orders forfeiture.

Further, the District Court's finding that respondent's lies stemmed from a
fear of the Government because of 'cultural differences does not mitigate
the gravity of his offense. "We reject the dissent's contention that this
finding was a 'patronizing excuse' that 'demeans millions of law-abiding
American immigrants by suggesting they cannot be expected to be as
truthful as every other citizen.' We are confident that the District Court
concurred in the dissent's incontrovertible proposition that '[e]ach
American, regardless of culture or ethnicity, is equal before the law.' The
District Court did nothing whatsoever to imply that 'cultural differences'
excuse lying, but rather made this finding in the context of establishing that
respondent's willful failure to report the currency was unrelated to any
other crime--a finding highly relevant to the determination of the gravity of
respondent's offense."

Kennedy also expressed concern that the majority's decision "portends

serious disruption of a vast range of statutory fines." If Kennedy is referring
to other forfeiture statues, which, as discussed earlier, are in great need of
repair, the news is good. Serious punishment should be

reserved for serious criminals. That's what proportionality is all about.

Hopefully, the Court will follow that reasoning in future opinions in the
forfeiture and criminal areas.

Any concern that Bajakajian will lead to greater use of civil forfeiture in an
attempt to circumvent the Eighth Amendment is unsupported by the law.
Under Austin and Ursery, "modern" civil forfeitures are still punitive, a
concept confirmed by the Court in Bajakajian.

Further, the new decision should have a positive impact on innocent

owners or in situations where minor or technical offenses are involved.
Where, for example, a defendant uses his home phone for a minor drug or
gambling offense, the defendant could argue that the forfeiture of the
house would be excessive.

Left open however, is the precise definition of "grossly disproportional".

That will be the subject of extensive litigation in the circuits.

Interestingly, it is unclear whether the law in the Ninth Circuit changes after
Bajakajian. After all, the Court affirmed the Ninth Circuit decision without
modification. Does that mean that the Ninth Circuit's reasoning remains
valid, or must it adopt the particulars of Bajakajian?

We in New York do not have to deal with that issue. Of importance to us is

that the instrumentality test and result of $145,139 is no longer valid. In
$145,139, the Second Circuit, by 2-1, held that the unreported money is
the instrumentality of the reporting violation and, as such, is fully forfeitable
regardless of its origin or legitimacy. In her dissent, Judge Kearse argued
that the money could not be deemed an instrumentality of a crime,
because the government was only deprived of information about it,
required for statistical purposes, not of revenue because of it, as in, say,
the failure to report imported items subject to duty or other charges.
Indeed, even in tax cases, where the failure to report income is a crime,
there is no assertion that the unreported income is an "instrumentality"
permitting its forfeiture. Such would subject to forfeiture a person's entire
annual income, a perposterous result.

Fortunately, the Bajakajian majority adopted this common sense approach.

That should assist most claimants in circumstances similar to the
defendant's in Bajakajian. It also will give the lower courts greater latitude
in deciding not to grant forfeiture of a claimant's entire property where no
criminal charges are filed or where the facts demonstrate innocent
ownership or minor involvement in the alleged illicit acts.

Making the punishment fit the crime, i.e., proportionality, is the essence of
our concept of justice. Combined with changes pending before Congress,
Bajakajian, although not a magic elexir, should assist in reverting our
forfeiture laws to what they were meant to be, a means of taking the profit
of crime from criminals, or from major players in the drug world, not
ordinary, innocent people, and not for the purpose of fund-raising to meet
otherwise out-of-control federal, state and local budgets.

______________________

Steven L. Kessler is a practicing attorney in New York City specializing in

white collar criminal defense and is the author of Civil and Criminal
Forfeiture: Federal and State Practice (West Group 1993 and 1998 Supp.)
and the forthcoming New York Criminal and Civil Forfeitures (Gould 1998).