Forfeiture on the Rise: Government Grabs Skyscrapers
Last month, a federal judge of the U.S. District Court for the Southern District of New York (SDNY) found that prosecutors have the right to seize a 36-story skyscraper on Fifth Avenue in New York in what prosecutors call the country's "largest-ever terrorism-related forfeiture."1 Recovery of this skyscraper is just one example of a slew of recent high-dollar forfeitures. Civil forfeiture—with its more lenient burden of proof—has become a critical tool for law enforcement in recent years. Indeed, between fiscal years 2008 and 2012, the civil forfeiture amount that U.S. attorneys sought nationwide ballooned from approximately $508 million to more than $8.7 billion.2 In the SDNY alone, the civil forfeiture amount sought skyrocketed from nearly $22 million in fiscal year 2008 to nearly $8.0 billion in fiscal year 2012.3
Coinciding with, and perhaps fueling, this increased focus on civil forfeiture has been a substantially high rate of success in litigating these cases. Of the civil forfeiture cases pursued by U.S. attorneys and terminated in federal court between fiscal years 2008 and 2012, only about 1.7 percent resulted in a judgment against the United States.4 The government won more than two-thirds of the cases, with slightly more than 10 percent resulting in a settlement.5
This success rate, combined with the increasing amounts sought, has led to a dramatic rise in the amount of forfeiture collected: Between fiscal years 2008 and 2012, this amount increased nearly fourfold, from $1.1 billion in fiscal year 2008 to nearly $4.4 billion in fiscal year 2012.6 Again, the U.S. Attorney's Office for the Southern District of New York played an outsized role, contributing nearly $3 billion (or nearly 68 percent of the nationwide total) in fiscal year 2012.7
Counsel should be aware of this trend, and become familiar with the most "sweeping and powerful" of the federal civil forfeiture statutes involving money laundering, 18 U.S.C. §981(a)(1)(A).8
Civil Forfeiture Statute, 18 U.S.C. §981
Title 18, U.S.C. §981 is a sweeping statute that allows the government to pursue forfeiture of property involved in many types of transactions, including property involved in money-laundering violations. In civil forfeiture proceedings, the action proceeds in rem against the property rather than the person, and the purported owner of the property effectively becomes a third-party claimant.9 Although there is a parallel criminal forfeiture statute (18 U.S.C. §982), in civil forfeiture cases the government's burden is to show that the funds are traceable to money-laundering violations by a preponderance of evidence, rather than beyond a reasonable doubt.10 The government also may use an array of civil discovery mechanisms.11
Section 981(a)(1)(A) broadly permits forfeiture of "[a]ny property involved in" a transaction or attempted transaction in violation of 18 U.S.C. §§1956, 1957, or 1960 (which involve money laundering) "or any property traceable to such property." The statute's reach is narrowed only by 18 U.S.C. §983(c)(3), which provides that "the Government shall establish that there was a substantial connection between the property and the offense."
Several different defenses are available to avoid forfeiture. For example, under the "innocent owner defense" for property interests in existence at the time of the alleged offense, an owner can defeat forfeiture by proving that he was unaware of the conduct giving rise to the forfeiture or, upon learning of the conduct, did all that could be reasonably expected under the circumstances to terminate the criminal use of the property.12 For property interests acquired after the alleged offense, the owner must show that he is a "bona fide purchaser or seller for value" who "did not know and was reasonably without cause to believe that the property was subject to forfeiture."13 In In re 650 Fifth Avenue and Related Properties, discussed below, a judge in the SDNY considered and rejected this defense.14
'In re 650 Fifth Avenue'
In an unprecedented decision on Sept. 16, 2013, Judge Katherine B. Forrest authorized prosecutors to seize 650 Fifth Avenue, a 382,500 sq. foot property just steps away from Rockefeller Center estimated by one source to be worth $500 to $700 million.15 This skyscraper includes prominent tenants such as Starwood Hotels & Resorts Worldwide, Doris Duke Charitable Foundation, and the Juicy Couture flagship store.16
Assa Corporation and Assa Company Limited (40 percent owners) and the Alavi Foundation (60 percent owners) comprise 650 Fifth Avenue Company, the owner of the building.17 In her decision granting summary judgment, Forrest agreed with prosecutors that the Assa entities are a front for Bank Melli Iran, an institution wholly owned by the Iranian government, and that both Assa and Alavi laundered money.18 The court further concluded that the property is subject to forfeiture.19
The government moved for summary judgment in part based on §981(a)(1)(A).20 Considering the language of §981(a)(1)(A)—requiring that subject property be "involved in" a transaction or attempted transaction—the court broadly interpreted the term "involved in" to encompass both "property that is itself being laundered, as well as property used to facilitate a money laundering offense."21 As discussed above, pursuant to §983(c)(3), the government must show a substantial connection between the property and the money laundering offense.22 The court held that this is shown where the property has "served as a conduit for the proceeds of the illegal transactions."23 The court determined that Alavi and Assa served as a conduit where they distributed rent with the intent to conceal that it was meant for the Iranian government's benefit and caused partnership funds to be transferred abroad.24 The court concluded that there were no issues of triable fact: "[h]aving engaged in a money laundering violation, the entirety of the 650 Fifth Avenue Building (the business premises) and all of the associated bank accounts are subject to forfeiture—even if they were not used in the money laundering offense itself."25
Although the burden is on the claimant to assert the innocent owner defense, the court sua sponte reviewed the issue.26 The court reasoned that because knowledge is an explicit element of the money laundering violations, the finding of whether a claimant is an innocent owner overlaps with the government's burden of showing knowledge.27 The court ultimately held that no triable issue existed as to the claimant's knowledge.
Other High-Dollar Cases
Two other recent SDNY cases further demonstrate the sweeping scope of the civil forfeiture statute. On July 23, 2013, the U.S. Attorney obtained an indictment against the hedge fund S.A.C. Capital Advisors, L.P. and its affiliates (collectively SAC), charging those entities with "criminal responsibility for insider trading offenses committed by numerous employees and made possible by institutional practices that encouraged the widespread solicitation and use of illegal inside information."28 The government alleged that SAC employees traded on inside information to increase investment returns and the fees SAC received.29
The indictment seeks to hold SAC criminally liable for these individual actions on the theory that it "enabled and promoted" insider trading by recruiting employees "with proven access to public company contacts likely to possess" inside information and by using financial incentives to encourage insider trading.30 These measures allegedly resulted in "hundreds of millions of dollars of illegal profits and avoided losses at the expense of members of the investing public."31