Substitute Assets in Criminal Asset Forfeiture:

Substitute Assets are is of the most powerful forfeiture theories in the Government’s ability to seek the forfeiture of property that isn’t connected to crime as a substitute for property that has been spent, transferred, or dissipated in some other way.  Texas state forfeitures do not contain substitute asset provisions. Nor do federal civil forfeiture cases. However, all federal criminal asset forfeitures may seek the forfeiture of substitute assets.

The statutory basis for the forfeiture of substitute property lies within 21 USC 853(p) which holds that the Government can forfeit otherwise untouchable assets as a substitute for all forfeitable property that, because of some action (or omission) of a criminal defendant:

  • (A) cannot be located upon the exercise of due diligence;
  • (B) that has been transferred or sold to, or deposited with, a third party;
  • (C) has been placed beyond the jurisdiction of the court;
  • (D) has been substantially diminished in value; or
  • (E) has been commingled with other property which cannot be divided without difficulty.

Examples of Substitute Assets in Criminal Forfeiture:

For example, imagine a person is convicted of healthcare fraud (18 USC 1347) and purchased a yacht with some of the proceeds of that offense. Next imagine that that defendant sends the yacht to South America to hide it from federal authorities. Also imagine that that same defendant’s spouse bought a home in a community property state (say Texas) while she and the defendant were married. Further, assume that the spouse was unaware that her husband was breaking the law and that the home was bought with proceeds of legal activity. The Government could seek criminal forfeiture of all proceeds of that offense under 18 USC 982 & 1956(c)(7)(F). Finally, assume the indictment lists the yacht as an item subject to forfeiture and that the indictment contains a substitute property provision. In this circumstance the Government could allege that the yacht is beyond the jurisdiction of the court and seek the home as a substitute to satisfy its forfeiture case. Further, all property owned by the defendant would be subject to forfeiture, including his community property interest in the home. The fact that the home is “clean” asset does not immunize it from forfeiture as a substitute asset.

The spouse would have a right to make a claim to the property in the ancillary proceedings process for third parties under Federal Rule of Criminal Procedure 32.2. this would put the spouse in the same position as a civil claimant and would require legal representation.

Restitution in Criminal Sentencing:

It is also worth noting that restitution is also a proper aim of criminal sentencing. Federal authorities have extensive powers to seize and keep assets via the Mandatory Victim Restitution Act. While restitution in criminal sentencing and forfeiture may seem to be close legal cousins, they are distinct and require an understanding of separate rules, cases, and statutes. Nonetheless, the Government may also go after community property to collect restitution just as it may do so to pursue asset forfeiture.

Substitute assets in criminal asset forfeiture proceedings may carry serious financial consequences. Contact our Fort Worth Asset Forfeiture Attorneys today at (817) 203-2220.

Image courtesy of Chris Potter