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E. Forfeiture of "Laundered" Funds

Several of the proposed bills including the Administration Bill, H.R. 2785, H.R. 2786, and s. 1335, contain forfeiture provisions which broadly expand the scope of the current federal forfeiture laws to cover all state and federal felonies. The section strongly opposes enactment of these forfeiture provisions. The widespread statutory authority for civil and criminal forfeitures under current law raises substantial doubts about the need for extending these sanctions to these new, and untested, criminal offenses. Ample statutory authority exists for civil and criminal forfeitures for violations of many current federal of tenses. See, e... 18 0.s.c. S 1963 (RICO, which includes currency reportIng violations as predicate offense); 21 U.S.c. S 853 (all drug offenses); 21 0.s.c. S881 (civil forfeiture for drug violations); 31 0.8.c. S 5317 (6) (civil forfeiture for illegally transporting currency and monetary instruments).

The Section also believes that the proposed forfeiture legislation will unduly infringe on the sixth Amendment right to counsel and represents an unwarranted increase in criminal penalties. As

presently drafted, the forfeiture provisions contain many ambiguities which will place an unwarranted additional burden on the Federal Judiciary.

The forfeiture sanctions in the proposed legislation contain many statutory ambiguities. The proposed criminal forfeiture provisions of the Administration Bili, s. 1335, H.R. 2785 and H.R. 2786, contain a new definition of forfeitable property geared toward the new substantive offenses in these bills. The general description of forfeitable property as "any money or other property involved in such an offense" fails to identify what is the required nexus between the defendant, the offense, and the property. For example, does "property involved in an offense" include only property actually used to violate these offenses? A broad interpretation of the flexible phrase "involved in" might lead a court to conclude that a defendant's entire bank account, mortgage, stock, or equitable interest in an asset would be subject to forfeiture regardless of the nexus between the property and the defendant's criminal conduct. Under this interpretation, a $10 deposit, for example, would render an entire bank account forfeitable. The Section believes such a result is unjust and inequitable.

Application of the flexible phrase "involved in" to the classic money laundering scheme also highlights the imprecise fit between the term and the targeted offense. If a bank teller accepts a deposit of illicit funds, these funds are "involved in" a substantive offense but they are also not the teller's funds to forfeit. If deposits are the targeted evil, then the threat of a prison term is the only

sanction available against the teller. Of course, current forfeiture law would apply with full vigor to the depositors' illicit monies.

If

In a similar manner, the additional description of forfeitable property as that "which represents the proceeds of or which is traceable to such money or property is equally ill-phrased. Congress wants to reach the "proceeds" of illicit activity, it can do so by using the word "proceeds." See, e. 9., 18 U.S.C. S 1963(a) (3); 21 U.S.C. S 853 (a) (1). Adding the prefatory words *which represents the" can only lead to ambiguity as to what Congress has attempted to describe. Additionally, the proposed statute's listing of property "which represents the proceeds" as an alternative to property "traceable to such money" raises a fundamental question as to the meaning of "proceeds" in the first place.

The relation back provisions of the proposed legislation also create new ambiguities. The relation back doctrine, which establishes the legally operative point of title transfer from the defendant to the government, is triggered by the commission of the act giving rise to forfeiture." 21 U.S.C. S 853(c). The proposed money laundering offense, however, is predicated on the use or attempted use of a financial institution as a conduit for funds emanating from "unlawful activity." If the unlawful activity is considered the "act giving rise to forfeiture" then title vests in the federal government from the operative date of every state and federal felony offense. Conversely, if the use of the financial institution constitutes the "act giving rise to the forfeiture," then some clarification of the triggering financial event (i.e., deposit, withdrawal, extension of credit, etc.) would appear necessary. Again, the ambiguity is created not by the doctrine itself but rather by its wooden application to a broadened class of criminal conduct without reference to the enforcement needs that inspired the criminal offense in the first place. All of these ambiguities are not contained in the current criminal forfeiture laws.

The "substitute asset" provisions of the proposed legislation are also extremely troublesome. These provisions are even more ambiguous than those regarding property forfeitable as a direct result of the defendant's criminal conduct. There are serious constitutional problems with this portion

of the proposed legislation. A similar (although not as broad) substitute asset provision deleted by the Conferees for the Comprehensive Forfeiture Act of 1984. See, Conference Report, No. 1159, 98th Cong. 28 Sess. 419 (1984). The House Report rejected the concept of substitute assets forfeiture and noted the similarity of the concept to the constitutional prohibition against forfeiture of estate. The Report stated:

was

At the present time the proposed 'substitute asset' provision appears to be illadvised, unworkable and the need for it has not been substantiated. Any attempt to forfeit 'substitute assets' which has no nexus to the crime 'in personam' forfeiture is a giant step in the direction of 'forfeiture of estate' and would needlessly raise constitutional questions which could jeopardize successful prosecutions

under this bill for years to come. H. Rep. No. 845, Part I, 98th Cong. 28 Sess. 12 (1984). The House and Senate Conferees on the Comprehensive Crime Control Act of 1984 apparently agreed with this assessment; the "substitute assets" provision in the Comprehensive Forfeiture Act was deleted. Wholly apart from whether the imposition of "substitute" forfeiture penalty constitutes a prohibited forfeiture of estate, the imposition of criminal forfeiture in a criminal prosecution on assets unrelated to the defendant's criminal conduct raises substantial questions of due process.

The proposed "substitute assets" provision set forth in the Administration Bill, s. 1335, H.R. 2785 and A.R. 2786 goes even further than the prior substitute assets language previously rejected by the 98th Congress. Under the proposed "substitute assets" language, mand:torv forfeiture is imposed not only for the affirmative acts of defendant which diminish the assets available for forfeiture, substitute assets can be forfeit as a result of the defendant's failure to act in a way which maximizes the assets available for ultimate forfeiture. Thus, the defendant will be placed in the incongruous position of being a trustee or fiduciary to the government's unsecured claim of title from the moment of the operative criminal act. Enactment of this proposed legislation will require the federal judiciary to engage in a historical analysis of the relative success of the defendant's investment strategy for purposes of determining the defendant's current forfeiture liability.

For the preceding reasons, the section strongly recommends against the adoption of the proposed expanded forfeiture sanctions.

a

Paul B. Johnson
Chairperson

February, 1986

AMERICAN BAR ASSOCIATION

SECTION OF CORPORATION, BANKING AND BUSINESS LAW

CONSIDERATION OF THE RECOMMENDATION OF
THE SECTION OF CRIMINAL JUSTICE ON PROPOSALS
TO CONGRESS FOR COMBATTING MONEY LAUNDERING

This Commentary summarizes the discussions by the section of Corporation, Banking and Business Law at its Mid-Winter Meeting on January 18, 1986, concerning the request from the Section of Criminal Justice of the American Bar Association to support that Section's Recommendation on Money Laundering ("Recommendation").

The Section of Corporation, Banking and Business Law ("Section") agrees with the general tenor of the Recommendation and with many of the positions set forth in the Report accompanying it ("Report"). There are specific areas in the Report, however, with which the section has problems.

As defined in the Criminal Justice Section's Report, "money laundering" is defined as the

process used to conceal the source of
illegally obtained funds. In some cases,

it
is also used to facilitate other crimes such
as tax evasion, smuggling and bribery.

The Section of Corporation, Banking and Business Law shares the common concern of the law enforcement community and others over the use of the payment system of this country to further the expansion of criminal conduct and to hide evidence of criminal activity through the use of sham transactions, agents, and other devices which are designed to shelter the fruits of illegal activity. For this reason, the Section supports the general concepts embodied in the section of Criminal Justice's Recommendation. This support of the Recommendation, however, does not embrace all details of the accompanying Report.

On page 7 of the Report under the subheading of "Commentary on Recommendations, there is a provision that the Bank Secrecy Act be amended to provide for faster notification of money laundering transactions. The Report suggests that the present reporting system, which calls for reports to be filed within 15 days, be changed to a one business day standard and that in certain "suspicious transactions" a telephone notification be given within one business day of the transaction. Also a postcard notification procedure is suggested.

From our experience and contacts with various financial institutions, it is not believed that a one day reporting requirement is feasible and that it would result not only in enormous operating burdens and costs which appear to exceed the

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benefit contemplated, but it would also be extremely difficult, if not impossible, to achieve. The current regulations specifying a 15-day reporting period were negotiated earlier with the financial institutions based upon operating restraints. The Report states that there have been instances of reports being submitted long after the present reporting period. There is no indication that this is a wide-scope problem, nor is there a showing that late reporting is a problem that cannot be cured under present regulations through normal enforcement efforts.

In the absence of more specific evidence supporting the shortened notification period, we feel that the increased reporting burden and costs would not warrant the change of reporting periods.

The reporting of "suspicious transactions" within one business day by telephone also has inherent problems. The determination of what constitutes a "suspicious transaction" cannot normally be made at the input level of these transactions and has to be reviewed against the background of the transaction, the relationship of the customer with the institution (if known or can be ascertained), and a judgment decision by supervisory personnel who are more experienced than an input clerk who is trained to handle a large volume of items but not to make value judgments. This appears to be a necessary division of labor within a financial institution which enables the operating process to work. A one day reporting requirement would be unfeasible and the subjective judgment of "suspicious transactions" obviously is a difficult one.

Additionally, the "suspicious transaction" proposal in the Report may raise major problems with privacy considerations and may cause a conflict with the Right to Financial Privacy Act (12 U.S.C. 3401, 3402).

The postcard notification suggested in the Report would not relieve the reporting burden that currently exists since a supervisory review must be made and a paper trail of the reporting to the proper governmental authority would have to be maintained by the reporting institution. Reactions from inquiries we have made are that the current reporting method is generally adequate for its purpose and that nothing would be achieved with a postcard reporting mechanism since the operating procedures would not materially change and might become somewhat cumbersome.

The Report calls for a new threshold reporting standard of $2,000.00 to be applied to cashier's checks when purchased by non-accountholders and which require more than one business day to complete the transaction. The determination of whether or not the purchaser is a non-accountholder would require financial institutions with their branch systems to have the capability gain immediate access to a bank's multiple account files so that the report could be made. Very few banks have computer systems which integrate customers' files enabling them to make an automated

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