Corporate Asset Forfeitures
In August of 2011, U.S. Government agents, armed with guns and bulletproof vests, raided a private factory in Tennessee. The federal agents busted into the factory, shut down operations, sent employees home, and confiscated materials. This is the kind of raid we can expect when the D.O.J. targets terrorist organizations, drug rings, illegal gambling rings, arms dealers, or even major white-collar criminals. What was the target of this particular raid? Wood.
Under the Lacey Act, which is designed to protect endangered species, it is illegal to trade certain plants and animals, including an ebony wood harvested in Madagascar. As a result of finding supplies of this ebony wood during its raid, the D.O.J. charged Gibson Guitars Corporation with violating the Lacey Act. Gibson ended up settling with the D.O.J. by paying a penalty of $300,000, forfeiting about $262,000 worth of wood sized by the federal agents, and donating $50,000 to the National Fish and Wildlife Foundation, totaling over $600,000 for using an “endangered” wood in manufacturing their guitars.
What is the moral of the story? Do not assume that the government is overlooking the acts of companies, corporations, or agents where there is seemingly no victim or serious danger to society. Not only is the government targeting the drug dealers, the arms traders, and the fraud schemers, but they are also going after far less egregious offenders and seizing their assets under forfeiture proceedings.
What is Corporate Asset Forfeiture?
Forfeiture is a proceeding that allows the government to seize and retain assets alleged to have been used to accomplish crime, and in some cases, assets alleged to have been involved with an offense. Most federal criminal prosecutions include efforts to forfeit property. This tool has become quite lucrative for both state and federal authorities as a means to raise revenue. In fact, forfeiture efforts by the government have raised billions of dollars. The Marshals Service manages various types of assets such as cash, financial instruments, commercial businesses, real estate, vehicles, jewelry and collectibles. According to the U.S. Marshals website as of September of 2013, forfeited assets on hand were totaled at 22,468 and valued at $2 billion. In 2013, $517 million was distributed among the participating state and local law enforcement agencies while $200 million was distributed to claimants and victims. Since 1985, $6.4 billion was distributed in equitable sharing proceeds.
The fact that the government has been so successful in achieving these results may be credited to their informational advantage in this particular area of law. Unless specifically trained and experienced in this area, most attorneys are generally unfamiliar with the practice of government forfeitures.
For companies and corporations that want to protect themselves in the event of a forfeiture proceeding, it is important for the general counsel to understand both the statutes or acts underlying the offense as well as the forfeiture theories that justify the government’s seizure of company assets.
Corporate Asset Forfeiture Theory
Both civil and criminal forfeiture proceedings are based on the underlying theory that once an actor (organization, corporation, or agent) has committed a crime, the government has the right to seize and keep the assets used to accomplish the crime and/or the proceeds resulting from the crime.
In some situations, the government may be able to seize even legitimate assets that were merely involved with assets associated with criminal activity. For example, if the government alleges that a company committed money laundering, the government can take any assets “involved in” the offense. When legitimate assets are commingled with assets that were involved in the criminal transaction, the legitimate assets are also subject to forfeiture. In other words, if laundered proceeds are deposited into an account and only constitute a small percentage of the entire account balance, the government can still seize the entire account balance on this theory.
Types of Corporate Asset Forfeiture: Civil and Criminal Forfeitures
Forfeiture procedures can occur as a criminal case as well as a civil case. In a civil forfeiture case, the property itself is a party to the proceeding and the government is seeking to own that property. In a criminal forfeiture case, an indictment is filed against an actor or entity and a forfeiture notice is attached to the indictment to allow the government to take the relevant assets.
However, even before criminal or civil proceedings are initiated, the government can still seize property using a seizure warrant. The process begins with law enforcement officers and requires very little from the prosecutors. Judges decide on the seizure warrant based on their discussions with case agents and affidavits. This one-sided process is designed to prevent targets from dissipating assets before they can be properly seized. Unfortunately, the result is that the target loses its assets before it is given a chance to tell its side of the story.
Additionally, not only does the federal government have the authority to initiate a forfeiture proceeding, but so do state authorities. Further, forfeiture proceedings can be initiated as against the individuals but also the company itself.
Asset Forfeiture’s Effect on the Corporation
Once a company discovers that it is the subject of a criminal investigation, it should be prepared for the consequences both immediate and in the long term. Being the subject of such an investigation may damage the company’s reputation in the community as well as its capacity to keep key personnel. An investigation can lead to the imprisonment of important leaders and employees of the company as well as the deprivation of critical company assets. Consequently, shareholders in the company may begin to lose confidence, which in turn, would jeopardize the earning capacity of the company in the long term. Asset forfeiture proceedings can severely damage or even destroy the company altogether.