B-198049.OM, FEB 24, 1981

B-198049.OM, FEB 24, 1981

SUBJECT: FORFEITURE OF ILLICITLY DERIVED ASSETS UNDER THE ORGANIZED CRIME STATUTES (FILE B-198049; CODES 181650, 186600)

GROUP DIRECTOR, GGD - THOMAS COLAN:

MATERIAL FOR THE REPORT TEXT ON THE REMEDIES AVAILABLE UNDER THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS (RICO) STATUTE, 18 U.S.C. SECS. 1963 ET SEQ., AND THE CONTINUING CRIMINAL ENTERPRISE (CCE) STATUTE, 21 U.S.C. SEC. 848, IS ATTACHED.

AS YOU KNOW, BOTH RICO AND CCE AUTHORIZE CRIMINAL FORFEITURE OF CERTAIN ASSETS. SINCE THAT IS THE PRIMARY SUBJECT OF YOUR REVIEW AND ONE ASPECT OF THE ORGANIZED CRIME REVIEW, JEFF JACOBSON AND I DEVELOPED THIS MATERIAL WITH AN EMPHASIS ON THE FORFEITURE REMEDY. A COPY OF THE ATTACHMENT HAS BEEN PROVIDED TO MR. OLS FOR HIS USE IN THE ORGANIZED CRIME AUDIT.

SEVERAL CASES BEARING ON FORFEITURE AND THE SUBSTANTIVE ELEMENTS OF THE RICO OFFENSE ARE PENDING APPEAL. WE WILL KEEP MR. STEPHENSON OF YOUR STAFF APPRISED OF THEIR PROGRESS.

ATTACHMENT

REMEDIES AVAILABLE IN THE PROSECUTION OF ORGANIZED CRIME

THE HEART OF THE RACKETEERING AND CRIMINAL ENTERPRISE STATUTES IS THEIR UNIQUE REMEDIAL AND PUNITIVE SCHEMES. THE PENALTIES AND REMEDIES AVAILABLE UNDER THESE STATUTES ARE SEVERE, AND CONSIST OF BOTH CIVIL AND CRIMINAL SANCTIONS. THEIR ESSENTIAL DESIGN IS TO INCAPACITATE THOSE ENGAGED IN RACKETEERING VENTURES, AND TO PROVIDE THE TOOLS NECESSARY TO DESTROY ORGANIZED CRIME'S ECONOMIC BASE. THE ORGANIZED CRIME CONTROL ACT'S REMEDIES ARE CONTAINED IN THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATION STATUTE, SEE 18 U.S.C. SEC. 1963, COMMONLY REFERRED TO AS RICO. THE COMPREHENSIVE DRUG PREVENTION AND CONTROL ACT'S BASIC REMEDIES ARE CONTAINED IN THE CONTINUING CRIMINAL ENTERPRISE STATUTE, REFERRED TO AS CCE, 21 U.S.C. SEC. 848. CCE CAN ONLY BE USED IN NARCOTICS PROSECUTION. RICO IS NOT LIMITED TO ANY ONE TYPE OF RACKETEERING, AND, AT LEAST IN THEORY, INCLUDES NARCOTICS TRAFFICKING.

CRIMINAL SANCTIONS: FINES, INCARCERATION, AND CRIMINAL FORFEITURE

IF CONVICTED, A RICO VIOLATOR FACES A MAXIMUM $25,000 FINE AND 20 YEAR IMPRISONMENT FOR EACH VIOLATION. ALTHOUGH FINES AND INCARCERATION ARE COMMON SANCTIONS FOR CRIMINAL VIOLATIONS, THE MAXIMUM FINE AND TERMS OF IMPRISONMENT AVAILABLE UNDER RICO ARE SOMEWHAT HIGHER THAN THOSE FOR MOST OTHER FEDERAL OFFENSES. HOWEVER, THE MOST UNIQUE FEATURE OF RICO'S CRIMINAL SANCTIONS IS THE STATUTE'S PROVISION FOR CRIMINAL FORFEITURE OF ILL-GOTTEN GAINS. RICO PROVIDES THAT UPON CONVICTION, THE DEFENDANT SHALL FORFEIT TO THE UNITED STATES (1) ANY INTEREST ACQUIRED OR MAINTAINED IN VIOLATION OF RICO AND (2) ANY INTEREST IN ANY ENTERPRISE THAT THE DEFENDANT PARTICIPATED IN, SET UP, OR CONTROLLED IN VIOLATION OF RICO. SECTION 1963(A) OF TITLE 18, U.S. CODE, STATES:

"WHOEVER VIOLATES RICO SHALL FORFEIT TO THE UNITED STATES (1) ANY INTEREST HE HAS ACQUIRED OR MAINTAINED IN VIOLATION OF RICO AND (2) ANY INTEREST IN, SECURITY OF, CLAIM AGAINST, OR PROPERTY OR CONTRACTUAL RIGHTS OF ANY KIND AFFORDING A SOURCE OF INFLUENCE OVER, ANY ENTERPRISE WHICH HE ESTABLISHED, OPERATED, CONTROLLED, CONDUCTED OR PARTICIPATED IN THE CONDUCT OF, IN VIOLATION OF RICO ***."

IF CONVICTED, A FIRST-TIME CCE OFFENDER FACES A MAXIMUM $100,000 FINE, A MINIMUM PRISON TERM OF 10 YEARS, AND A MAXIMUM TERM OF LIFE. UNLIKE THOSE CONVICTED UNDER RICO, CCE VIOLATORS ARE NOT ELIGIBLE FOR SENTENCE SUSPENSION, PROBATION, OR PAROLE. CCE IS UNIQUE AMONG FEDERAL OFFENSES IN REQUIRING IMPOSITION OF A MANDATORY MINIMUM TERM OF IMPRISONMENT, AND IN BARRING PAROLE ELIGIBILITY. LIKE RICO, HOWEVER, CCE DOES PROVIDE FOR FORFEITURE OF CERTAIN ILLICIT ASSETS:

"(2) ANY PERSON WHO IS CONVICTED *** OF ENGAGING IN A CONTINUING CRIMINAL ENTERPRISE SHALL FORFEIT TO THE UNITED STATES -

(A) THE PROFITS OBTAINED BY HIM IN SUCH ENTERPRISE, AND

(B) ANY OF HIS INTEREST IN, CLAIM AGAINST, OR PROPERTY OR CONTRACTUAL RIGHTS OF ANY KIND AFFORDING A SOURCE OF INFLUENCE OVER, SUCH ENTERPRISE." 21 U.S.C. SEC. 848(A)(2).

PRIOR TO ENACTMENT OF RICO AND CCE, NO STATUTE ENABLED THE DEPARTMENT OF JUSTICE TO RECOUP ANY OF THE ILL-GOTTEN GAINS OF CRIMINALS OR OF THE CRIMINAL ORGANIZATIONS OF WHICH THEY WERE A PART. BEFORE RICO, FOR EXAMPLE, IF FUNDS GENERATED BY A LOAN SHARKING OPERATION WERE USED TO BUY A CONTROLLING INTEREST IN A LEGITIMATE RETAIL ESTABLISHMENT, PROSECUTORS WOULD SPEND THEIR TIME INVESTIGATING, DEVELOPING, AND PROVING THE ELEMENTS OF THE CRIME OF LOAN SHARKING. IF A LEGITIMATE BUSINESS WAS ACQUIRED THROUGH FRAUD OR EXTORTION, THE GOVERNMENT STRESSED THE GATHERING OF EVIDENCE TO PROVE THE ELEMENTS OF THE FRAUD AND EXTORTION OFFENSE. IF A LEGITIMATE ENTERPRISE WAS USED AS A FRONT FOR A FENCING OPERATION, THEN THE DEPARTMENT'S NORMAL APPROACH WOULD BE TO INDICT AND CONVICT FOR THE OFFENSE OF RECEIVING AND SELLING STOLEN GOODS.

THERE WERE AND ARE TWO DIFFICULTIES WITH THIS APPROACH. FIRST, IT DOES NOT STOP THE CRIMINAL ENTERPRISE FROM CONTINUING ILLEGAL OPERATIONS AND REPLACING THE CONVICTED GAMBLER, EXTORTIONIST, OR FENCE. THUS, THE ENTERPRISE COULD CONTINUE TO FLOURISH. SECOND, THE GOVERNMENT FAILED TO HIT THE ORGANIZED CRIMINAL, OR ORGANIZATION OF WHICH HE WAS PART, IN THE POCKETBOOK. WITH THE ADVENT OF FORFEITURE, RICO PROVIDED A SIGNIFICANT REMEDY THAT, PROPERLY AND SELECTIVELY EMPLOYED, COULD REDIRECT THE ATTACK AGAINST ORGANIZED CRIME TO STRIKE DECISIVELY AT EFFORTS OF RACKETEERS TO ACQUIRE POWER AND PROFIT. OF COURSE, THE GOVERNMENT MUST STILL PROVE THE ELEMENTS OF THE CRIMINAL OFFENSE WITH WHICH THE DEFENDANT IS CHARGED.

WE BELIEVE EARLY DELIBERATIONS ON CASE REMEDY, PARTICULARLY FORFEITURE, SHOULD BE AN INDISPENSABLE COMPONENT OF ANY ORGANIZED CRIME PROSECUTION UNDER RICO OR TRAFFICKING PROSECUTION UNDER CCE. WHILE TRADITIONAL REMEDIES OF FINE AND INCARCERATION ARE NOT TO BE OVERLOOKED, STANDING ALONE THEY CANNOT REASONABLY BE EXPECTED TO REMOVE THE PROFITS OR RELATED INCENTIVES THAT DRIVE CRIMINAL ACTIVITY. DUE TO THE POTENTIAL OF FORFEITURE, THIS REPORT PROVIDES BACKGROUND ON THE NATURE OF FORFEITURE, ITS ORIGIN, HISTORICALLY AND IN THE CONTEXT OF RICO AND CCE, OUTLINES PROBLEMS FACING CRIMINAL FORFEITURE, AND REPORTS ON THE USE OF FORFEITURE BY THE DEPARTMENT.

NATURE OF FORFEITURE

FORFEITURE MEANS A JUDICIALLY REQUIRED DIVESTITURE OF PROPERTY WITHOUT COMPENSATION THEREFOR. EXCLUDED FROM THIS DEFINITION ARE FINES, BAIL AND BOND FORFEITURES, AND THE IMPOSITION OF CIVIL DAMAGES RESULTING FROM A LAWSUIT.

THERE ARE IMPORTANT LEGAL DISTINCTIONS BETWEEN THE CLASSES OF PROPERTY, AND THERE ARE BASICALLY FOUR OF THEM, THAT ARE USED BY ORGANIZED CRIME. THE FIRST CLASS, REFERRED TO AS CONTRABAND PER SE, DESCRIBES PROPERTY THAT IS CONSIDERED INHERENTLY DANGEROUS, AND THE POSSESSION OR DISTRIBUTION OF WHICH IS ITSELF USUALLY A CRIME. CERTAIN TYPES OF GUNS, CONTROLLED SUBSTANCES, LIQUOR, AND GAMBLING DEVICES QUALIFY AS CONTRABAND PER SE. THE SECOND CLASS, CALLED DERIVATIVE CONTRABAND, DESCRIBES PROPERTY SUCH AS BOATS, AIRPLANES, AND CARS THAT SERVE THE FUNCTION OF WAREHOUSING, CONVEYING, TRANSPORTING, OR FACILITATING THE EXCHANGE OF CONTRABAND PER SE. THE THIRD CLASS, CALLED DIRECT PROCEEDS, DESCRIBES PROPERTY SUCH AS CASH THAT IS RECEIVED IN EXCHANGE OR AS PAYMENT FOR ANY OF A VARIETY OF ILLEGAL TRANSACTIONS INVOLVING CONTRABAND. THE FOURTH CLASS, REFERRED TO AS SECONDARY OR DERIVATIVE PROCEEDS, DESCRIBES PROPERTY SUCH AS STOCK, LEGITIMATE BUSINESSES, REAL ESTATE, AND THE LIKE THAT ARE ULTIMATELY PURCHASED, MAINTAINED, OR ACQUIRED, INDIRECTLY OR DIRECTLY, WITH THE PROCEEDS OF AN ILLEGAL TRANSACTION. THIS LATTER CLASS OF PROPERTY CONSISTS ALMOST ENTIRELY OF PROFITS.

THE FEDERAL GOVERNMENT HAS NEARLY TWO CENTURIES OF EXPERIENCE WITH FORFEITURE OF CONTRABAND PER SE AND DERIVATIVE CONTRABAND. HOWEVER, THE FEDERAL GOVERNMENT'S EFFORTS TO CAUSE FORFEITURE OF DIRECT AND SECONDARY PROCEEDS HAVE BEEN LIMITED. ONE REASON FOR THIS LIMITED EFFORT IS HISTORICAL, OR AT LEAST THAT WAS THE CASE UNTIL 1970. A MAJOR CHANGE IN AMERICAN FORFEITURE LAW BEGAN IN 1970 WITH CONGRESS' ADOPTION OF THE COMPREHENSIVE DRUG PREVENTION AND CONTROL ACT, AND THE ORGANIZED CRIME CONTROL ACT. BOTH ACTS AUTHORIZE FORFEITURE OF CERTAIN TYPES OF DIRECT AND SECONDARY PROCEEDS. THIS WAS SEEN BY SOME, WE BELIEVE MISTAKENLY, AS A RETURN TO THE TYPE OF FORFEITURE KNOWN IN COMMON LAW ENGLAND.

ORIGIN OF FORFEITURE

IN COMMON LAW ENGLAND, CONVICTION FOR A FELONY LED TO A FORFEITURE OF PROPERTY TO THE CROWN. UPON CONVICTION, FORFEITURE OF THE FELON'S PROPERTY - ALL OF IT - FOLLOWED SWIFTLY AND AUTOMATICALLY. THIS TYPE OF FORFEITURE, COMMONLY KNOWN AS CRIMINAL FORFEITURE OF ESTATE, WAS MERELY AN ADDED AUTOMATIC PENALTY IMPOSED "IN PERSONUM" AGAINST A FELON AS A CONSEQUENCE OF A JUDGMENT OF PERSONAL GUILT. SIGNIFICANTLY, IT WAS IRRELEVANT WHETHER THE FELON'S PROPERTY WAS USED IN THE COMMISSION OR FURTHERANCE OF A FELONY, OR WHETHER THE PROPERTY REPRESENTED PROCEEDS OF AN ILLEGAL TRANSACTION. NEITHER THE VALUE OF THE PROPERTY NOR THE PROPERTY ITSELF BORE ANY NECESSARY RELATIONSHIP TO THE OFFENSE CHARGED. PUT DIFFERENTLY, CONVICTION ALONE WOULD RESULT IN FORFEITURE, WITHOUT REGARD TO THE PROPERTY'S RELATIONSHIP, IF ANY, TO THE CRIME OF CONVICTION.

IN CONTRAST TO THE ENGLISH TRADITION, MOST REMNANTS OF WHICH VANISHED IN THE LATE 1800S, CRIMINAL FORFEITURE NEVER ENJOYED WIDESPREAD USE IN THE AMERICAN COLONIES. ABUSES OF FORFEITURE BY THE ENGLISH CROWN ARE OFTEN CITED AS THE PRINCIPAL REASON FOR THE EARLY AMERICAN AVERSION TO CRIMINAL FORFEITURE.

THIS AVERSION IS REFLECTED IN ARTICLE III OF THE CONSTITUTION, WHICH PROVIDES THAT WHILE CONGRESS HAS THE POWER TO DECLARE THE PUNISHMENT OF TREASON, "NO ATTAINDER OF TREASON SHALL WORK *** A FORFEITURE, EXCEPT DURING THE LIFE OF THE PERSON ATTAINTED." THE FIRST CONGRESS ENACTED A STATUTE THAT SOME COURTS BELIEVE CODIFIES THE NEGATIVE IMPLICATION OF ARTICLE III, NAMELY, THAT NO FORFEITURES OF ESTATE BE ALLOWED EXCEPT IN CASES OF TREASON. SEE WALLACH V. VAN RISWICK, 92 U. S. 202 (1876); UNITED STATES V. GRANDE, 620 F.2D 1026 (4TH. CIR. 1980). THIS STATUTE, WHICH HAS NEVER BEEN EXPRESSLY REPEALED, PROVIDES:

"NO CONVICTION OR JUDGMENT FOR ANY OF THE AFORESAID OFFENSES CRIMINAL OFFENSES NOW CODIFIED IN TITLE 18 SHALL WORK *** A FORFEITURE OF ESTATE."

18 U.S.C. SEC. 3563. WITH THE EXCEPTION OF THE CONFISCATION ACT OF 1862, WHICH AUTHORIZED THE PRESIDENT TO FORFEIT THE PROPERTY OF CONFEDERATE SYMPATHIZERS, ALL FORMS OF CRIMINAL FORFEITURE ARE BELIEVED TO HAVE BEEN UNKNOWN IN U. S. JURISPRUDENCE UNTIL 1970 - THE YEAR IN WHICH CONGRESS PASSED THE RICO AND CCE STATUTES.

THE FORFEITURE PROVISIONS OF THESE TWO STATUTES SHOW THE SIGNIFICANCE OF THIS HISTORICAL BACKGROUND. NEITHER STATUTE REVIVES THE FUNCTIONAL EQUIVALENT OF FORFEITURE OF ESTATE, AS THAT PENALTY WAS KNOWN IN COMMON LAW ENGLAND. FN1 BOTH ADOPT A SUBSTANTIALLY NARROWER OR MILDER FORM OF CRIMINAL FORFEITURE IN THAT THERE MUST BE SOME CONNECTION BETWEEN THE PROPERTY TO BE FORFEITED AND THE CRIMINAL ACTIVITY IN WHICH THE OFFENDER ENGAGED. IN COMMON LAW ENGLAND, NO SUCH CONNECTION WAS REQUIRED.

RICO AND CCE ASSET FORFEITURE PROCEDURES ALSO DIFFER MATERIALLY FROM COMMON LAW FORFEITURE OF ESTATE PROCEDURES. COMMON LAW FORFEITURE OF ESTATE WAS AUTOMATIC, IMMEDIATE, AND MANDATORY, THE ONLY CONDITION BEING A CONVICTION FOR A FELONY. PRELIMINARY TO CONVICTION AT COMMON LAW, NO PROCEDURES WERE REQUIRED TO ASSURE FORFEITURE. PRECONVICTION ASSET TRANSFERS TO RELATIVES WERE OF ALMOST NO LEGAL SIGNIFICANCE, SINCE UPON THE DEFENDANT'S CONVICTION THE KINDRED OF FELONS WERE DISINHERITED AND TAINTED AS WELL. SEE GENERALLY, 1 J. BISHOP, COMMENTARIES ON THE CRIMINAL LAW 581-583 (1882); COMMENTARIES ON AMERICAN LAW 385-387 (1836 ED.). ALTHOUGH RICO DOES PROVIDE THAT UPON CONVICTION DEFENDANTS "SHALL FORFEIT *** ANY INTEREST," THUS SUGGESTING AN AUTOMATIC AND MANDATORY FORFEITURE MECHANISM COMPARABLE TO THAT IN FORCE AT COMMON LAW, OTHER SECTIONS OF RICO ADOPT PROCEDURES THAT MUST BE FOLLOWED AS A MATTER OF COURSE TO OBTAIN A CRIMINAL FORFEITURE. THE SAME IS TRUE OF THE CCE STATUTE. THESE PROCEDURES ARE OUTLINED BELOW.

THE FIRST IS TO PLACE APPROPRIATE FORFEITURE LANGUAGE IN THE INDICTMENT, AS REQUIRED BY RULE 7(C)(2) OF THE FEDERAL RULES OF CRIMINAL PROCEDURE. THE PURPOSE OF THIS REQUIREMENT IS TO APPRISE THE DEFENDANT THAT HE STANDS TO LOSE PROPERTY INTERESTS UTILIZED OR ACQUIRED IN VIOLATION OF LAW. RULE 7(C)(2) STATES:

"NO JUDGMENT OF FORFEITURE MAY BE ENTERED IN A CRIMINAL PROCEEDING UNLESS THE INDICTMENT OR THE INFORMATION SHALL ALLEGE THE EXTENT OF THE INTEREST OF PROPERTY SUBJECT TO FORFEITURE."

NONCOMPLIANCE WITH THIS REQUIREMENT MAY JEOPARDIZE A PROSECUTION, AND MAY LEAD TO DISMISSAL OF THE ENTIRE INDICTMENT. AT A MINIMUM, NONCOMPLIANCE MEANS THAT FORFEITURE LOSES ITS STATUS AS A VIABLE CASE REMEDY. SEE UNITED STATES V. HALL, 521 F.2D 406 (9TH CIR. 1975); UNITED STATES V. BOLAR, 569 F.2D 1071 (1978). THE SECOND STEP IS TO GUARANTEE THE EXISTENCE OF THE INTEREST OR PROPERTY SUBJECT TO FORFEITURE DURING THE PENDENCY OF THE CRIMINAL CASE. PREVENT PRECONVICTION TRANSFER OR DISSIPATION OF FORFEITABLE ASSETS, THE GOVERNMENT MAY MOVE THE COURT TO ISSUE A RESTRAINING ORDER, REQUIRE A PERFORMANCE BOND, OR TAKE "SUCH OTHER ACTIONS *** IT SHALL DEEM PROPER." DESPITE THE FACT THAT PERFORMANCE BONDS MIGHT BE A PRACTICAL WAY TO ASSURE COMPLIANCE WITH A RESTRAINING ORDER, WE KNOW OF NO CASE WHERE ONE HAS BEEN REQUIRED. SEE 18 U.S.C. SEC. 1963(B); SEE ALSO UNITED STATES V. SCALZITTI, 408 F. SUPP. 1014 (W.D.PA. 1975); UNITED STATES V. BELLO, 470 F. SUPP. 723 (S.D.CAL. 1979); UNITED STATES V. MANDELL, 408 F. SUPP. 679, 682-684 (D.MD. 1976); BELL V. WOLFISH, 441 U. S. 520 (1979); UNITED STATES V. RUBIN, 559 F.2D 975 (5TH CIR. 1977).

THE THIRD STEP IS TO PRESENT PROOF AT TRIAL SHOWING THE NATURE AND EXTENT OF THE DEFENDANT'S PROPERTY INTERESTS THAT ARE SUBJECT TO FORFEITURE. UNLESS WAIVED, A SPECIAL JURY VERDICT ON FORFEITURE IS REQUIRED BY RULE 31(E) OF THE FEDERAL RULES OF CRIMINAL PROCEDURE. THIS VERDICT IS RETURNED AFTER THE RETURN OF THE GENERAL VERDICT OF GUILT.

THE FINAL STEP IS THE SEIZURE OF THE FORFEITED PROPERTY. RULE 32(B)(2) OF THE FEDERAL RULES OF CRIMINAL PROCEDURE AUTHORIZES THE ATTORNEY GENERAL TO SEIZE PROPERTY ORDERED FORFEITED. THIS RULE, PLUS THE PROVISIONS OF 18 U.S.C. SEC. 1963(C), GOVERN HOW THE PROPERTY IS TO BE DISPOSED OF AND HOW THE RIGHTS OF INNOCENT PERSONS WILL BE PROTECTED. IN GENERAL, CUSTOMS LAW FORFEITURE PROCEDURES ARE FOLLOWED.

USE OF FORFEITURE - POLICY & PRACTICE VARY

THE CRIMINAL FORFEITURE PROVISIONS OF RICO AND CCE ARE AMONG THE MOST POWERFUL TOOLS THE GOVERNMENT HAS FOR COMBATING ORGANIZED CRIME, WHITE COLLAR CRIME, AND NARCOTICS TRAFFICKING. THE RICO AND CCE STATUTES, BOTH ENACTED IN 1970, REFLECT A NEW ECONOMIC APPROACH TO THE PROBLEM OF LARGE- SCALE GROUP CRIMINALITY. THE THEN ATTORNEY GENERAL, IN TESTIMONY BEFORE A SENATE SUBCOMMITTEE ON THE PROPOSED RICO STATUTE, STATED:

"WHILE THE PROSECUTION OF ORGANIZED CRIME LEADERS CAN SERIOUSLY CURTAIL THE OPERATIONS OF THE COSA NOSTRA, AS LONG AS THE FLOW OF MONEY CONTINUES, SUCH PROSECUTIONS WILL ONLY RESULT IN A COMPULSORY RETIREMENT AND PROMOTION SYSTEM AS NEW PEOPLE STEP FORWARD TO TAKE THE PLACE OF THOSE CONVICTED."

S. REP. NO. 91-617, 91ST CONG., 1ST SESS. 78 (1969). THE SENATE REPORT REFLECTED THE SAME POINT OF VIEW:

"WHAT IS NEEDED HERE, THE COMMITTEE BELIEVES, ARE NEW APPROACHES THAT WILL DEAL NOT ONLY WITH INDIVIDUALS, BUT ALSO WITH THE ECONOMIC BASE THROUGH WHICH THESE INDIVIDUALS CONSTITUTE SUCH A SERIOUS THREAT TO THE WELL-BEING OF THE NATION. IN SHORT, AN ATTACK MUST BE MADE ON THEIR SOURCE OF ECONOMIC POWER ITSELF, AND THE ATTACK MUST TAKE PLACE ON ALL AVAILABLE FRONTS."

ID. AT 79. THE LANGUAGE AND LEGISLATIVE HISTORY OF CCE INDICATE THAT IT WAS MODELED UPON THE RICO STATUTE, WHICH HAD BEEN ENACTED INTO LAW SHORTLY BEFORE.

IT IS DEPARTMENT POLICY THAT FORFEITURE SHOULD BE VIGOROUSLY SOUGHT IN EVERY RICO OR CCE PROSECUTION WHERE SUBSTANTIAL FORFEITABLE PROPERTY EXISTS AND THERE IS A REASONABLE LIKELIHOOD OF SUCCESS. ALTHOUGH PROSECUTORS AND ENFORCEMENT OFFICIALS ALSO AGREE THAT THE MOST EFFECTIVE MEANS OF ELIMINATING CRIME IS TO REMOVE ITS PROFITABILITY, THE FEDERAL GOVERNMENT HAS MADE ONLY A LIMITED EFFORT AND ACHIEVED LITTLE SUCCESS IN THE FORFEITURE AREA.

RECENTLY, THE DEPARTMENT OF JUSTICE ACKNOWLEDGED INADEQUATE USE OF THE FORFEITURE STATUTES AND THE NEED TO INCREASE FINANCIAL EXPERTISE IN TRACING THE FLOW OF ILLEGAL MONEY; ADDITIONALLY, THE ADMINISTRATOR OF THE DRUG ENFORCEMENT ADMINISTRATION HAS EXPRESSED HIS COMMITMENT TO CERTAIN TYPES OF FINANCIAL INVESTIGATIONS. THOUGH GOVERNMENT EFFORTS IN THE FORFEITURE AREA SHOW SIGNS OF IMPROVEMENT, THERE IS A LONG WAY TO GO BEFORE ANYONE CAN CLAIM THAT THE USE OF FORFEITURE HAS HAD AN IMPACT ON CRIMINAL ENTERPRISES.

WHY MORE FORFEITURES HAVE NOT TAKEN PLACE

THE REASONS FOR THE GOVERNMENT'S LIMITED SUCCESS IN THE FORFEITURE AREA ARE MANY; ONE GENERAL REASON IS PROGRAMMATIC, ANOTHER IS LEGAL.

PROGRAMMATIC SHORTCOMINGS

THE GOVERNMENT LACKS THE MOST RUDIMENTARY INFORMATION NEEDED TO MANAGE THE FORFEITURE EFFORT. NO ONE KNOWS HOW MANY RICO OR CCE CASES HAVE BEEN ATTEMPTED, THE DISPOSITION OF ALL THE CASES, HOW MANY CASES INVOLVED FORFEITURE ATTEMPTS, AND WHY THOSE ATTEMPTS EITHER FAILED OR SUCCEEDED. PROBLEMS EXTEND ACROSS THE INVESTIGATIVE, PROSECUTIVE, AND LEGAL AREAS.

BOTH INVESTIGATORS AND PROSECUTORS NEED TO IMPROVE THEIR PERFORMANCE IN CONDUCTING FINANCIAL INVESTIGATIONS OF SUFFICIENT SCOPE TO OBTAIN NOT ONLY LONG-TERM INCARCERATION, BUT ALSO FORFEITURE OF DERIVATIVE PROCEEDS. INVESTIGATORS GENERALLY ARE NOT TRAINED IN FINANCIAL INVESTIGATIONS; AND MANY FEDERAL PROSECUTORS SAID THEY WERE NOT SUFFICIENTLY FAMILIAR WITH THE FORFEITURE STATUTES TO USE THEM. OTHERS SAID JUDGES DISLIKE THE CONCEPT OF FORFEITURE, OR ARE NOT FAMILIAR WITH THE STATUTES INVOLVED.

INVESTIGATORS AND PROSECUTORS HAVE HAD LITTLE INCENTIVE TO GO BEYOND INCARCERATING CRIMINALS TO SEEK FORFEITURE OF THEIR ILLICITLY ACQUIRED ASSETS; INVESTIGATORS OF MAJOR DRUG TRAFFICKERS LACKED EXPERTISE IN TRACING FINANCIAL TRANSACTIONS; SCHEMES TO LAUNDER DIRTY MONEY ARE COMPLEX AND AIDED BY BANK SECRECY LAWS OF SOME COUNTRIES; AND OUR OWN LAWS AND ADMINISTRATIVE PROCEDURES HAVE HINDERED THE DISCLOSURE OF FINANCIAL DATA TO FEDERAL LAW ENFORCEMENT AGENCIES.

FINALLY, CASE REMEDY RECEIVED VERY LITTLE ATTENTION DURING THE PREINDICTMENT STAGE OF ANY OF THE CASES REVIEWED. FOR OPERATIONAL, LEGAL, AND PRACTICAL REASONS, INTENSE AND TIMELY DELIBERATION ON CASE REMEDY IS INDISPENSABLE TO ANY MEANINGFUL EFFORT TO ERADICATE ORGANIZED CRIME. UNLESS REMEDIES LIKE FORFEITURE RECEIVE INVESTIGATIVE AND PROSECUTORIAL ATTENTION WELL BEFORE INDICTMENT, ASSETS SUBJECT TO FORFEITURE MAY ESCAPE IDENTIFICATION, BE TRANSFERRED WITHOUT THE GOVERNMENT'S KNOWLEDGE TO NOMINEES OR INNOCENT THIRD PARTIES, AND BE REMOVED FROM THE JURISDICTION OF THE COURTS. CURRENTLY AVAILABLE ASSET IDENTIFICATION TECHNIQUES - THE BANK SECRECY ACT IS AN EXAMPLE - MAY GO UNUSED, AND THE GOVERNMENT MAY BE PLACED IN A POSITION WHERE PURSUIT OF FORFEITURE IN A GIVEN CASE BECOMES POINTLESS, LEGALLY AND PRACTICALLY.

LEGAL UNCERTAINTIES

WHILE CRIMINAL FORFEITURE WOULD SEEM TO HOLD SPECIAL PROMISE FOR THE GOVERNMENT'S EFFORTS TO COMBAT ORGANIZED CRIME, FORFEITURE UNDER RICO AND CCE IS A RARELY USED REMEDY. CASE LAW ON RICO'S FORFEITURE PROVISION IS ONLY NOW BEGINNING TO EMERGE - NEARLY 10 YEARS AFTER ENACTMENT OF RICO. THERE IS VIRTUALLY NO SUBSTANTIVE CASE LAW ON THE CCE FORFEITURE AUTHORIZATION.

RICO'S FORFEITURE PROVISIONS ARE NOT FARING WELL IN THE COURTS. DECISIONS OF SEVERAL COURTS SUGGEST A NEED FOR CLOSE EXAMINATION OF THE ADEQUACY OF RICO'S FORFEITURE AUTHORIZATION IN THE ORGANIZED CRIME CONTEXT. THE DECISIONS TO WHICH WE REFER COVER FIVE BASIC AREAS: (1) SCOPE OF THE FORFEITURE PROVISIONS; (2) COVERAGE OF INDIVIDUALS WHO ASSOCIATE TO ENGAGE IN EXCLUSIVELY ILLEGAL ACTIVITIES; (3) TRACING OF ASSETS; (4) PRECONVICTION TRANSFERS OF ASSETS; AND (5) FORFEITURE PROCEDURES.

SCOPE OF FORFEITURE PROVISIONS

THE PRECISE SCOPE OF THE RICO AND CCE FORFEITURE AUTHORIZATIONS IS NOT KNOWN. THE CCE AUTHORIZATION SPEAKS IN TERMS OF FORFEITURE OF, AMONG OTHER THINGS, "PROFITS" - A TERM COMMONLY DEFINED AS THE PROCEEDS OF A TRANSACTION LESS ITS COST. SINCE CCE DOES NOT EXPLICITLY DEFINE "PROFIT," QUESTIONS HAVE BEEN RAISED WHETHER PROCEEDS ALLOCABLE TO OPERATING OVERHEAD OR TO THE COST OF NARCOTICS TO THE DEALER ARE "PROFITS," AND HENCE FORFEITABLE IN CRIMINAL LITIGATION. SEE UNITED STATES V. MANNINO, 79 CR. 744 (S.D.N.Y. 1980). RICO, ON THE OTHER HAND, DOES NOT EXPLICITLY MENTION PROFITS, BUT SPEAKS IN TERMS OF FORFEITING "INTERESTS" IN AN ENTERPRISE. SEVERAL COURTS HAVE QUESTIONED WHETHER PROFITS GENERATED BY A RICO VIOLATION QUALIFY AS AN INTEREST IN AN ENTERPRISE, THUS SUBJECTING THE PROFITS TO FORFEITURE. SEE UNITED STATES V. MARUBINI, 611 F.2D 763 (9TH CIR. 1980).

DECISIONS OF COURTS IN THE SECOND, THIRD, FOURTH, FIFTH, AND NINTH CIRCUITS INDICATE THAT ASSETS FORFEITABLE UNDER RICO EXTEND ONLY TO ACTUAL HOLDINGS OF THE DEFENDANT IN CORPORATE-LIKE ENTITIES (E.G., PARTNERSHIP INTEREST, UNION OFFICE HELD BY DEFENDANT, STOCK, DEBT, OR CLAIM OWNERSHIP). UNITED STATES V. MARUBINI, 611 F.2D 763 (9TH CIR. 1980); UNITED STATES V. THEVIS, 474 F. SUPP. 134 (N.D.GA. 1979); UNITED STATES V. MANNINO, 79 CR. 744 (S.D.N.Y. 1980); UNITED STATES V. MEYERS, 432 F. SUPP. 456, 461 (W.D.PA. 1971); UNITED STATES V. FORSYTHE, 560 F.2D 1127 (3D CIR. 1977); UNITED STATES V. GRANDE, 620 F.2D 1026 (4TH CIR. 1980). AS A GENERAL PROPOSITION, SO-CALLED FRUITS, PROFITS, OR DISTRIBUTED RETURNS ON INVESTMENTS ARE NOT FORFEITABLE UNDER THIS VIEW. CORPORATELY DISTRIBUTED PROFITS, DIVIDENDS, NON-STOCK PURCHASES MADE WITH DIVIDENDS, CASH RECEIVED ON THE SALE OF STOCK, AND THE LIKE WOULD THEREFORE BE IMMUNE FROM FORFEITURE. FN2

THE ANALYTICAL BASIS FOR THESE DECISIONS IS THAT THE "INTERESTS" FORFEITABLE UNDER RICO ARE LIMITED STRICTLY TO THE DEFENDANT'S INTERESTS IN AN ENTERPRISE; THESE DECISIONS THUS REJECT THE NOTION THAT ALL ASSETS TRACEABLE TO AN ILL-GOTTEN GAIN ARE FORFEITABLE. COURTS HOLDING THIS VIEW POINT TO RICO'S LEGISLATIVE HISTORY TO SHOW THAT FORFEITURE, TOGETHER WITH A COMBINATION OF OTHER CRIMINAL AND CIVIL SANCTIONS, WAS DESIGNED TO RID COMMERCIAL ENTERPRISES OF ORGANIZED CRIME. WHEN, FOR EXAMPLE, A RACKETEER RECEIVES CASH IN EXCHANGE FOR HIS INTEREST IN AN ENTERPRISE (E.G., CASH IN EXCHANGE FOR STOCK OR OTHER PROPRIETARY HOLDING), THE "INTEREST" IN THE ENTERPRISE CEASES TO EXIST AND FORFEITURE CAN NO LONGER SERVE A USEFUL PURPOSE WITHIN THE FRAMEWORK OF RICO'S LEGISLATIVE SCHEME. COURTS ALSO HAVE NOTED THAT, UNLIKE CCE, RICO DOES NOT PROVIDE EXPLICIT COVERAGE OF PROFITS. FN3

REASONING THAT RETENTION OF ILL-GOTTEN GAIN PROVIDES THE RACKETEER WITH A SOURCE OF POTENTIAL CONTROL OR INFLUENCE OVER AN ENTERPRISE, THE JUSTICE DEPARTMENT HAS ARGUED, TO DATE UNSUCCESSFULLY, THAT ALL INTERESTS ACQUIRED IN VIOLATION OF RICO ARE FORFEITABLE, REGARDLESS WHETHER THE ASSETS INVOLVED ARE TECHNICALLY INTERESTS IN AN ENTERPRISE OR INTERESTS DERIVED FROM THAT ENTERPRISE. WEINER, CRIMINAL FORFEITURES UNDER THE RICO AND CONTINUING CRIMINAL ENTERPRISE STATUTES, CRIMINAL DIVISION, U. S. DEPARTMENT OF JUSTICE AT 23 (1980).

COVERAGE OF INDIVIDUALS ASSOCIATED IN FACT

A RELATED POINT OF CONTROVERSY IS WHETHER RICO CAN REACH ANY OF A DEFENDANT'S ILL-GOTTEN GAINS WHEN A DE FACTO COMBINATION OF INDIVIDUALS CONSTITUTES THE ONLY ENTERPRISE THROUGH WHICH THE DEFENDANT ENGAGES IN RACKETEERING ACTIVITY. RICO COVERS FORFEITURE OF "INTERESTS" IN THE ENTERPRISE, BUT A DE FACTO ENTERPRISE LACKS THE ATTRIBUTES OF A CORPORATE ENTITY, AND HENCE, IS NOT CAPABLE OF OWNING, PURCHASING, HOLDING, OR TRANSFERRING ANY PROPERTY IN ITS OWN RIGHT.

THIS RAISES THE VERY TROUBLESOME ISSUE WHETHER THERE EXISTS ANY INTEREST IN A DE FACTO ENTERPRISE THAT ADMITS OF FORFEITURE UNDER RICO. SEE UNITED STATES V. THEVIS, 474 F. SUPP. 134 (N.D.GA. 1979); WEINER, RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS, ANNUAL PROSECUTORS WORKSHOP AT 287, 302 (P.L.I. 1976). IF THERE IS NOT, THE ASSETS OF INDIVIDUALS INFORMALLY ASSOCIATED TO ENGAGE IN NARCOTICS TRAFFICKING OR OTHER ILLICIT ACTIVITY WOULD BE EXEMPT FROM FORFEITURE UNDER RICO. CCE WOULD COVER FORFEITURE OF "PROFITS" DERIVED FROM NARCOTICS TRAFFICKING, BUT THIS AUTHORIZATION WOULD BE REPEALED BY PENDING CRIMINAL CODE REFORM LEGISLATION.

ASIDE FROM COVERAGE OF THE FORFEITURE REMEDY IN THIS AREA, THERE IS THE MORE FUNDAMENTAL AND PERPLEXING QUESTION WHETHER RICO AUTHORIZES THE PROSECUTION OF INDIVIDUALS ASSOCIATED IN FACT TO ENGAGE IN EXCLUSIVELY ILLEGAL ACTIVITY UNRELATED TO A LEGITIMATE BUSINESS ENTERPRISE. TO THE EXTENT THE STATUTE DOES NOT, AND THAT IS THE VIEW OF SEVERAL COURTS, FORFEITURE CLEARLY IS NOT AN AVAILABLE REMEDY. ACCORD SEE UNITED STATES V. TURKETTE, ET AL., CRIM. NO. 79-1545 AND 79-1446 (1ST CIR., DECIDED SEPTEMBER 23, 1980); UNITED STATES V. ANDERSON, 626 F.2D 1358 (8TH CIR. 1980); CONTRA., SEE UNITED STATES V. WHITEHEAD, CRIM. NO. 78-5160 (4TH CIR., DECIDED MARCH 20, 1980); UNITED STATES V. DIECIDUE, 603 F.2D 535 (5TH CIR. (1979), CERT. DENIED, U. S. , 100 S.CT. 1345 (1980)); UNITED STATES V. SUTTON, 605 F.2D 260 (6TH CIR. 1979), REVERSED EN BANC, CRIM. NO. 78-5134-39, DECEMBER 3, 1980.

TRACING ILL-GOTTEN GAINS

A THIRD PROBLEM AREA IS THAT CONFUSION EXISTS ABOUT THE DEGREE TO WHICH ASSETS MUST BE FOLLOWED TO THEIR ILLICIT ORIGIN TO BE FORFEITED. UNLIKE COMMON LAW FORFEITURE OF ESTATE, RICO REQUIRES A NEXUS OTHER THAN MERE OWNERSHIP BETWEEN THE DEFENDANT'S MISCONDUCT AND THE PROPERTY TO BE FORFEITED.

IF THE FORFEITABLE PROPERTY REPRESENTS IMMEDIATE CASH PROCEEDS SEIZED AT THE SCENE OF AN ILLICIT TRANSACTION, THERE IS LITTLE DIFFICULTY IN SHOWING ITS ORIGIN. ALSO, WHERE THE MEDIUM OF EXCHANGE IN A DRUG TRANSACTION IS CASH, AND THE CASH IS LATER COMINGLED WITH OTHER CASH ASSETS, SOME AUTHORITIES BELIEVE THE GOVERNMENT COULD OBTAIN A CASH FORFEITURE UNDER CCE SIMPLY BY SHOWING THAT THE DEFENDANT'S NET WORTH WAS NECESSARILY SWOLLEN AS A RESULT OF THE TRAFFICKING.

FOR FORFEITURE OF NON-CASH ASSETS, HOWEVER, SERIOUS ASSET IDENTIFICATION PROBLEMS MAY ARISE IF THE PROPERTY SUBJECT TO FORFEITURE HAS CHANGED HANDS IN MULTIPLE TRANSFERS, OR CHANGED FORM, OR BOTH. THIS IS SO BECAUSE RICO AND CCE REQUIRE A RELATIONSHIP BETWEEN THE PROPERTY TO BE FORFEITED AND THE OFFENSE OF CONVICTION. AS BOTH A LEGAL AND PRACTICAL MATTER, THIS IMPOSES AN OBLIGATION ON THE PROSECUTION TO SHOW, THROUGH ASSET IDENTIFICATION AND TRACING, THAT THE PROPERTY TO BE FORFEITED WAS ITSELF PURCHASED, ACQUIRED, OR MAINTAINED WITH ILLICITLY DERIVED FUNDS. ALTHOUGH RICO AND CCE PROVIDE ALMOST NO GUIDANCE ON THE AMOUNT OF TRACING REQUIRED TO SUSTAIN A CRIMINAL FORFEITURE, THE JUSTICE DEPARTMENT IS OF THE VIEW THAT BECAUSE FORFEITURE UNDER BOTH STATUTES IS A CRIMINAL SANCTION, THE TIE BETWEEN THE PROPERTY AND THE WRONGDOING MUST BE PROVEN BEYOND A REASONABLE DOUBT. WE BELIEVE THIS VIEW IS CORRECT. FOR CASES INVOLVING CAREFULLY HIDDEN OR LAUNDERED ASSETS, APPLICATION OF THE "BEYOND A REASONABLE DOUBT" STANDARD WOULD SUGGEST THAT A NET WORTH ANALYSIS WOULD BE INSUFFICIENT TO SUSTAIN A FORFEITURE, AND THAT A MUCH MORE THOROUGH AND COMPREHENSIVE FINANCIAL INVESTIGATION WOULD BE ESSENTIAL.

PRECONVICTION TRANSFER OF ILL-GOTTEN GAINS

A FOURTH PROBLEM AREA DEALS WITH THE UNCERTAIN STATUS OF ASSETS THAT WOULD OTHERWISE BE SUBJECT TO FORFEITURE, BUT WHICH, FOR ANY OF A VARIETY OF REASONS, ARE TRANSFERRED BEFORE FORFEITURE CAN BE ACCOMPLISHED.

THESE TRANSFERS MAY OCCUR IN THREE BASIC WAYS. ONE IS FOR THE PROPERTY TO BE TRANSFERRED TO A THIRD PARTY, WITH OR WITHOUT CONSIDERATION. THE DIFFICULTY WITH TRANSFERS OF THIS TYPE IS THAT A CRIMINAL TRIAL UNDER RICO AND CCE DETERMINES THE GUILT OR INNOCENCE OF THE DEFENDANT AND, BY IMPLICATION, THE DEFENDANT'S RIGHTS IN THE PROPERTY. ONCE THE PROPERTY IS TRANSFERRED, THERE ARE SERIOUS CONCEPTUAL AND LEGAL DIFFICULTIES IN REQUIRING THE DEFENDANT TO FORFEIT PROPERTY HE NO LONGER HAS OR, ALTERNATIVELY, IN REQUIRING THIRD PARTIES TO FORFEIT PROPERTY WITHOUT A TRIAL. A SECOND TYPE OF TRANSFER OCCURS WHEN A DEFENDANT PLACES ILL- GOTTEN GAINS IN FOREIGN DEPOSITORIES BEYOND THE JURISDICTION OF THE UNITED STATES, YET RETAINS SO-CALLED "CLEAN" MONEY IN DOMESTIC DEPOSITORIES AND DOMESTIC INVESTMENTS. NEITHER RICO NOR CCE MAKES EXPLICIT PROVISION FOR FORFEITURE OF CLEAN ASSETS IN SUBSTITUTION FOR ILLICIT ASSETS, THE LATTER BEING BEYOND THE REACH OF THE UNITED STATES. YET A THIRD TYPE OF TRANSFER IS FOR A LIEN TO BE FILED AGAINST THE PROPERTY BY, FOR EXAMPLE, THE DEFENDANT'S ATTORNEYS. AFTER DEFENSE COUNSEL'S FEES ARE DEDUCTED, THE REMAINDER OF THE PROPERTY IS FORFEITED TO THE GOVERNMENT. SEE UNITED STATES V. MEINSTER, ET AL., CRIM. NO. 79-79-165-CR-JLK (S.D.FLA. 1980), HOLDING THAT FORFEITABLE ASSETS MAY BE USED TO PAY DEFENDANT'S ATTORNEYS' FEES. BUT SEE UNITED STATES V. BELLO, 470 F. SUPP. 723 (S.D.CAL. 1979), HOLDING INFERENTIALLY TO THE CONTRARY.

PRECONVICTION TRANSFERS OF ASSETS RAISE TWO FUNDAMENTAL LEGAL QUESTIONS. THE FIRST IS WHETHER THE GOVERNMENT MAY SEEK FORFEITURE OF "CLEAN" ASSETS ONCE A TRANSFER HAS OCCURRED. THE SECOND IS WHETHER TRANSFERRED ASSETS IN THE HANDS OF A THIRD PARTY ARE FORFEITABLE. THERE IS VERY LITTLE CASE LAW ON EITHER ISSUE.

RICO AND CCE CLEARLY REQUIRE A CONNECTION BETWEEN THE PROPERTY TO BE FORFEITED AND THE OFFENSE FOR WHICH THE DEFENDANT IS CONVICTED. NEITHER STATUTE CONTAINS LANGUAGE, EXPRESSLY OR BY CLEAR IMPLICATION, THAT AUTHORIZES THE SUBSTITUTION OF SO-CALLED "CLEAN" ASSETS. THIS ACCOUNTS FOR THE DEPARTMENT'S VIEW THAT REMEDIAL LEGISLATION WOULD BE A NECESSARY PRECONDITION TO A SUCCESSFUL SUBSTITUTE ASSETS FORFEITURE. WEINER, CRIMINAL FORFEITURE UNDER RICO AND CONTINUING CRIMINAL ENTERPRISE STATUTES, PREVIOUSLY CITED AT 28.

THE LEGAL STATUS OF ASSETS IN THE POSSESSION OF A TRANSFEREE IS CONSIDERABLY MORE CONFUSED. JUSTICE HAS ARGUED THAT PROPERTY BECOMES TAINTED AT THE MOMENT IT IS CONNECTED WITH OR GENERATED BY ILLEGAL ACTIVITY. REASONING THAT RICO (EXPLICITLY) AND CCE (INFERENTIALLY) DIRECT THE ATTORNEY GENERAL TO MAKE "DUE PROVISION FOR THE RIGHTS OF INNOCENT PERSONS," JUSTICE SUGGESTS THAT A THIRD PARTY TRANSFEREE'S RECOURSE IS TO PETITION THE JUSTICE DEPARTMENT FOR MITIGATION/REMISSION AFTER HE HAS FORFEITED HIS ASSETS. THIS THEORY WAS REJECTED IN UNITED STATES V. THEVIS, 474 F. SUPP. 134, 145 (N.D.GA. 1979), AT LEAST AS IT MIGHT APPLY TO UNINDICTED TRANSFEREES WHO RECEIVE THE PROPERTY PRIOR TO INDICTMENT OF THE DEFENDANT. THE RESULT IN A SECOND CASE, UNITED STATES V. MANNINO, 79 CR. 744 (S.D.N.Y., DECIDED APRIL 21, 1980), SUGGESTS THE TAINT THEORY MIGHT BE VIABLE WHEN APPLIED TO TRANSFEREES WHO ARE MERELY HOLDING THE PROPERTY AS NOMINEES OF THE DEFENDANT OR WHO RECEIVE THE PROPERTY WITH CONSTRUCTIVE NOTICE (PRESUMABLY BY INDICTMENT OR RESTRAINING ORDER) OF ITS FORFEITABLE STATUS. SEE UNITED STATES V. MANDEL, 408 F. SUPP. 679 (D.MD. 1976); UNITED STATES V. BELLO, 470 F. SUPP. 723 (S.D.CAL. 1979).

BEYOND SITUATIONS OF THIS TYPE, NEITHER CASE LAW NOR THE FORFEITURE STATUTES PROVIDE CLEAR GUIDANCE ON CRIMINAL FORFEITURE OF TRANSFERRED ASSETS. ALTHOUGH THE TAINT THEORY HAS BEEN SUCCESSFULLY APPLIED TO CERTAIN TYPES OF ASSETS IN CIVIL FORFEITURE CASES, A TOPIC DISCUSSED LATER IN THIS REPORT, WE KNOW OF NO REPORTED CASE, CIVIL OR CRIMINAL, WHERE IT HAS BEEN SUCCESSFULLY ARGUED TO OBTAIN FORFEITURE OF DIRECT OR DERIVATIVE PROCEEDS TRANSFERRED TO ANOTHER PARTY. SEE CALERO-TOLEDO V. PEARSON YACHT LEASING CO., 416 U. S. 663 (1974), AND CASES CITED THEREIN. WE MIGHT ALSO POINT OUT THAT THE DEFENDANT IN A CRIMINAL FORFEITURE CASE FORFEITS NOTHING UNTIL HE HAS BEEN TRIED AND FOUND GUILTY. UNDER THE TAINT THEORY, HOWEVER, THIRD PARTIES COULD BE CALLED UPON TO FORFEIT ASSETS, POSSIBLY MADE ILLICIT WITHOUT THEIR KNOWLEDGE, IN THE ABSENCE OF A TRIAL AND WITHOUT AN ADJUDICATION OF PERSONAL GUILT. JUSTICE RECOGNIZES THAT THE ULTIMATE EFFECTIVENESS OF FORFEITURE UNDER RICO AND CCE MAY WELL DEPEND ON THE JUDICIARY'S ACCEPTANCE OF THIS LEGAL THEORY. WEINER, CRIMINAL FORFEITURE UNDER THE RICO AND CONTINUING CRIMINAL ENTERPRISE STATUTES, PREVIOUSLY CITED AT 25.

INADEQUATE PROCEDURES

A FOURTH PROBLEM AREA DEALS WITH THE PROCEDURES THAT MUST BE FOLLOWED TO ACCOMPLISH A CRIMINAL FORFEITURE. THE FEDERAL RULES OF CRIMINAL PROCEDURE WERE AMENDED IN 1970 TO MAKE PROVISION FOR THE INCLUSION IN THE INDICTMENT OF A FORFEITURE COUNT, AND THE RETURN OF A SPECIAL JURY VERDICT ON SUCH COUNT. SEE FEDERAL RULES OF CRIMINAL PROCEDURE, RULES 7(C)(2), 31(E), 32(B)(2). IF THE INDICTMENT DOES NOT CONTAIN A FORFEITURE COUNT, CRIMINAL FORFEITURE AUTOMATICALLY CEASES TO BE AN AVAILABLE REMEDY. UNITED STATES V. HALL, 521 F.2D 406 (9TH CIR. 1975). ONCE AN INDICTMENT IS OBTAINED, RICO AUTHORIZES THE COURT WHERE THE ACTION IS PENDING TO ISSUE A RESTRAINING ORDER PROHIBITING THE TRANSFER OF ASSETS SUBJECT TO FORFEITURE, REQUIRE A PERFORMANCE BOND, OR TO TAKE SUCH OTHER ACTION AS IT MAY CONSIDER APPROPRIATE. 18 U.S.C. SEC. 1963(B).

BEYOND THESE BASIC PROCEDURES, CONGRESS DID NOT SPECIFICALLY ADDRESS THE ISSUES OF OBTAINING CONTROL OF THE PROPERTY, TAKING CARE OF IT, SETTLING THE RIGHTS OF THIRD PARTIES, AND SELLING THE PROPERTY. IN THE RICO STATUTE, CONGRESS SIMPLY PROVIDED THAT CUSTOMS LAW PROCEDURES SHOULD BE FOLLOWED "INSOFAR AS APPLICABLE AND NOT INCONSISTENT WITH THE PROVISIONS OF RICO." SEE 18 U.S.C. SEC. 1963(C). CCE IS SILENT ON THE MATTER. THE LACK OF CLEAR PROCEDURES GIVES RISE TO CONSIDERABLE UNCERTAINTY. ALSO, CUSTOMS PROCEDURES ARE DIFFICULT TO APPLY IN THE CONTEXT OF CRIMINAL FORFEITURE FOR FOUR BASIC REASONS.

FIRST, CUSTOMS PROCEDURES WERE INTENDED TO COVER CIVIL FORFEITURE IN REM, WHERE IT IS THE USE, ORIGIN, OR CHARACTER OF THE PROPERTY THAT IS AT ISSUE - NOT THE GUILT OF THE PROPERTY HOLDER. THE DUE PROCESS PROCEDURES FOR HANDLING A CIVIL FORFEITURE IN REM ARE NOT AS STRINGENT AS THOSE REQUIRED FOR CRIMINAL FORFEITURE.

SECOND, CUSTOMS PROCEDURES PERMIT BUY-BACKS OF FORFEITED PROPERTY. THE APPLICATION OF THIS PROCEDURE TO CRIMINAL FORFEITURE HAS RESULTED IN AT LEAST ONE CONVICTED RICO DEFENDANT "BUYING BACK" INTERESTS OF AN ENTERPRISE ORDERED FORFEITED. SEE UNITED STATES V. HUBER, 603 F.2D 387 (2D CIR. 1979). THIS SEEMS TO FLY IN THE FACE OF A PRIMARY RICO OBJECTIVE, NAMELY, TO REMOVE RACKETEERS FROM THEIR SOURCES OF COMMERCIAL INFLUENCE.

THIRD, CUSTOMS PROCEDURES ARE TAILORED TO FORFEITURES INVOLVING TANGIBLE OBJECTS - AUTOMOBILES, JEWELRY, AND THE LIKE - AND OFFER ALMOST NO GUIDANCE REGARDING THE PROCEDURES FOR DISPOSING OF A CORPORATION, STOCK, OR OTHER PROPRIETARY HOLDING, THE LATTER BEING A MORE LIKELY OBJECT OF FORFEITURE UNDER RICO AND CCE.

AND FOURTH, THE INNOCENCE OF THIRD PARTY TRANSFEREES IS LARGELY IRRELEVANT FOR PURPOSES OF CIVIL FORFEITURE, WHICH IS THE TYPE OF FORFEITURE CUSTOMS PROCEDURES WERE DESIGNED FOR. CONSEQUENTLY, CUSTOMS PROCEDURES DEAL WITH THIRD PARTIES AS IF THEY HAD ALREADY FORFEITED ASSETS, NOT IN TERMS OF ASSET FORFEITABILITY. HOWEVER, THE STATUS OF THIRD PARTIES IS A HOTLY CONTESTED ISSUE IN CRIMINAL FORFEITURE.

JUSTICE IS AWARE OF THESE PROBLEMS, AND OBSERVES THAT THERE ARE NO REPORTED CASES TO WHICH ONE CAN LOOK FOR GUIDANCE. HOWEVER, THE REASON FOR THE DEARTH OF CASES IS NOT BECAUSE THERE IS A LACK OF CONCERN OVER THE PROCEDURES TO BE FOLLOWED, BUT BECAUSE SO FEW RICO/CCE FORFEITURE CASES HAVE BEEN INITIATED. THE DEPARTMENT'S ADVICE TO ATTORNEYS IS TO "DEVISE PROCEDURES ON A CASE-BY-CASE BASIS, USING THE CUSTOMS LAW PROCEDURES AS A GUIDE OR ANALOGY BUT ADAPTING THEM TO THE DIFFERENT CIRCUMSTANCES OF A RICO OR CCE CASE." IF FORFEITURE IS TO BE A FREQUENTLY USED REMEDY, WE DOUBT THE RELIABILITY OF THE AD HOC, CASE-BY CASE APPROACH ADVANCED BY JUSTICE. AS EXPERIENCE IS ACQUIRED WITH RICO AND CCE, THERE MAY WELL BE A DEMONSTRABLE NEED FOR PRESCRIBING UNIFORM AND COMPREHENSIVE FORFEITURE PROCEDURES.

CIVIL REMEDIES AND CIVIL FORFEITURE

BOTH THE CONTROLLED SUBSTANCE LAWS AND RICO PROVIDE FOR THE IMPOSITION OF CIVIL SANCTIONS. THE AVAILABLE CIVIL REMEDIES VARY MARKEDLY, DEPENDENT UPON WHETHER THE GOVERNMENT PROCEEDS UNDER RICO OR THE CONTROLLED SUBSTANCE STATUTES.

CIVIL REMEDIES UNDER RICO

SECTION 1964(A) OF TITLE 18, U.S. CODE, AUTHORIZES CIVIL ACTIONS TO PREVENT AND RESTRAIN VIOLATIONS OF RICO. THE BURDEN OF PROOF IN A CIVIL CASE IS BY "PREPONDERANCE OF THE EVIDENCE" AS CONTRASTED WITH THE MORE DEMANDING "BEYOND A REASONABLE DOUBT" STANDARD APPLICABLE IN A RICO CRIMINAL CASE. BROAD RULES OF DISCOVERY ARE AVAILABLE IN A RICO CIVIL SUIT, AND THE CONTEMPT POWERS OF THE COURT CAN BE APPLIED AGAINST RECALCITRANT SUBJECTS OF A CIVIL DEPOSITION OR INTERROGATORY. EXCEPT FOR PRIVATE TREBLE DAMAGE CIVIL SUITS UNDER SECTION 1964(C) OF RICO, RICO'S CIVIL PROVISIONS CAN ONLY BE USED TO OBTAIN EQUITABLE RELIEF IN THE FORM OF INJUNCTIONS AND LIKE ORDERS.

FORM OF INJUNCTIVE RELIEF UNDER RICO

RICO DESCRIBES THE VARIOUS FORMS OF CIVIL INJUNCTIVE RELIEF THE DISTRICT COURTS MAY GRANT:

"THE COURT MAY ORDER ANY PERSON TO DIVEST THEMSELVES OF ANY INTEREST, DIRECT OR INDIRECT, IN ANY ENTERPRISE; IMPOSE A REASONABLE RESTRICTION ON THE FUTURE ACTIVITIES OR INVESTMENTS OF ANY PERSON, INCLUDING BUT NOT LIMITED TO PROHIBITING ANY PERSON FROM ENGAGING IN THE SAME TYPE OF ENDEAVOR AS THE ENTERPRISE IS ENGAGED IN, THE ACTIVITIES OF WHICH AFFECT INTERSTATE OR FOREIGN COMMERCE; OR ORDER DISSOLUTION OR REORGANIZATION OF ANY ENTERPRISE, MAKING DUE PROVISIONS FOR THE RIGHTS OF INNOCENT PERSONS."

18 U.S.C. 1964(A). ALL OF THESE REMEDIES HAVE THEIR ORIGIN IN ANTITRUST LAW, AND CLOSELY PARALLEL THOSE AVAILABLE UNDER THE SHERMAN AND CLAYTON ANTITRUST ACTS.

DIVESTITURE IS THE MOST IMPORTANT CIVIL REMEDY IN ANTITRUST LAW, AND POSSIBLY THE MOST SIGNIFICANT CIVIL REMEDY UNDER RICO. THE TERM DIVESTITURE REFERS TO SITUATIONS WHERE INDIVIDUALS OR ORGANIZATIONS ARE REQUIRED TO RID THEMSELVES OF PROPERTY, SECURITIES, OR OTHER INTERESTS. DIVESTITURE DIFFERS FROM FORFEITURE BECAUSE IN THE FORMER THE OWNER OF THE PROPERTY ORDERED DIVESTED CAN RECEIVE COMPENSATION THEREFOR. SEE UNITED STATES V. DUPONT & CO., 366 U. S. 316, 330 (1961).

OTHER INJUNCTIVE RELIEF, SUCH AS PROHIBITIONS AGAINST ENGAGING IN CERTAIN TYPES OF COMMERCIAL ACTIVITY, ALSO IS AVAILABLE UNDER RICO. SOME COMMENTATORS BELIEVE INJUNCTIVE RELIEF IN THE FORM OF DISSOLUTION MAY BE USED TO DESTROY AN ALLEGEDLY ILLEGAL ORGANIZATION OR ASSOCIATION. SEE INTERNATIONAL BOXING CLUB OF NEW YORK V. UNITED STATES, 358 U. S. 242 (1959). OTHER POSSIBILITIES SUGGESTED BY JUSTICE INCLUDE ORDERING THE FILING OF REPORTS ON EMPLOYMENT, INCOME SOURCES, RESIDENCE ADDRESS, THE DISCLOSURE OF COHORTS, AND "SUCH OTHER RELIEF AS A COURT DEEMS JUST."

PRIVATE ACTIONS

BOTH THE GOVERNMENT AND PRIVATE PARTIES MAY AVAIL THEMSELVES OF RICO'S CIVIL REMEDIES. ADDITIONALLY, ANY PERSON INJURED IN HIS BUSINESS OR PROPERTY BY REASON OF A RICO VIOLATION MAY SUE, AND, IF SUCCESSFUL, RECOVER THREEFOLD THE DAMAGES SUSTAINED, INCLUDING REASONABLE ATTORNEY FEES.

CIVIL INVESTIGATIVE DEMANDS

SECTION 1968 OF TITLE 18, U.S. CODE, AUTHORIZES THE ATTORNEY GENERAL TO ISSUE A "CIVIL INVESTIGATIVE DEMAND" (CID) DIRECTING THE PRODUCTION OF ANY DOCUMENTARY MATERIALS RELEVANT TO A RACKETEERING INVESTIGATION. THE CID DISCOVERY DEVICE IS THE CIVIL EQUIVALENT OF A GRAND JURY SUBPOENA. CID'S ALSO ARE AVAILABLE FOR USE IN ANTITRUST INVESTIGATIONS. SECTION 1968 STATES THAT IN A RACKETEERING INVESTIGATION, A CID MAY BE USED PRIOR TO THE INSTITUTION OF A CIVIL OR CRIMINAL PROCEEDING.

LIMITED USE OF RICO CIVIL REMEDIES

IN THE RICO STATUTE'S 10-YEAR HISTORY, ONLY A HANDFUL OF CIVIL ACTIONS HAVE BEEN INITIATED BY THE DEPARTMENT. THERE IS BUT ONE REPORTED DECISION INVOLVING A PRIVATE TREBLE-DAMAGE LAWSUIT, AND, TO OUR KNOWLEDGE, THE DEPARTMENT HAS NEVER USED ITS CID AUTHORITY. IT IS DEPARTMENT POLICY THAT BEFORE INITIATING A RICO CIVIL ACTION, PRIMARY CONSIDERATION BE GIVEN TO INCARCERATION, FINES, AND FORFEITURE UNDER RICO'S CRIMINAL PROVISIONS. SOME COMMENTATORS ARE OF THE VIEW THAT IN CERTAIN CASES A CIVIL ACTION IS PREFERABLE TO CRIMINAL PROSECUTION DUE TO THE LESSER BURDEN OF PROOF REQUIRED, THE LIMITED IMPACT OF INCARCERATION, AND THE FACT THAT RICO'S CIVIL INJUNCTIVE REMEDIES PROVIDE FOR THE APPLICATION OF ECONOMIC SANCTIONS THAT ARE NOT AVAILABLE IN CRIMINAL LITIGATION. HOWEVER, IT IS NOT OUR PURPOSE TO QUARREL WITH THE DEPARTMENT'S BASIC POLICY; RATHER, OUR CONCERN LIES WITH THE MANNER IN WHICH THAT POLICY HAS BEEN IMPLEMENTED.

AS THE DEPARTMENT ITSELF ACKNOWLEDGES, FINES AND INCARCERATION PRIMARILY ADDRESS THE MISBEHAVIOR OF A GIVEN DEFENDANT. STANDING ALONE, FINES AND INCARCERATION HAVE LITTLE MEASURABLE IMPACT OR DETERRENT EFFECT ON THE ACTIVITIES OF THE ORGANIZATION OF WHICH THE DEFENDANT IS A PART. NOR DO THESE TRADITIONAL REMEDIES INCAPACITATE OR FORECLOSE THE DEFENDANT FROM EXERCISING CONTROL OR INFLUENCE OVER HIS ORGANIZATION.

STRIKING AT THE ECONOMIC POWER OF THE DEFENDANT COULD HELP ACCOMPLISH THESE OTHER OBJECTIVES, THUS ACCOUNTING FOR THE DEPARTMENT'S STATED EMPHASIS ON CRIMINAL FORFEITURE. BUT DESPITE THIS POLICY, FORFEITURE IS A RARELY USED REMEDY. MOREOVER, IN THE FEW CASES WHERE THE DEPARTMENT HAS SUCCESSFULLY OBTAINED FORFEITURE THE AMOUNT FORFEITED WAS SMALL IN RELATION TO THE ALLEGED ECONOMIC IMPACT OF THE DEFENDANT'S CRIMES OR, ALTERNATIVELY, THE DEFENDANT'S ALLEGED RETURN ON ILLICIT ACTIVITY WAS DE MINIMUS. AS FOR THE PROSPECTS OF A FOLLOW-ON CIVIL ACTION - ALSO A COMPONENT OF THE DEPARTMENT'S STATED POLICY - WE FOUND LITTLE EVIDENCE THAT ONE IS CONSIDERED.

THERE IS AN UNMISTAKABLE PARALLEL BETWEEN RICO'S CIVIL REMEDIES AND THOSE AVAILABLE UNDER ANTITRUST LAW. RICO'S LEGISLATIVE HISTORY REFLECTS A CONGRESSIONAL SENTIMENT THAT THOSE REMEDIES COULD BE APPLIED TO THE ANTICOMPETITIVE, IF NOT ILLEGAL, ACTIVITIES OF RACKETEERS, ESPECIALLY WHEN ORGANIZED CRIME MAKES INCURSIONS INTO COMMERCIAL BUSINESSES. THESE REMEDIES ARE NOT AVAILABLE IN CRIMINAL LITIGATION. THE FACT THAT THE REMEDIES ARE AVAILABLE IN A CIVIL ACTION BUT ARE NOT BEING USED SUGGESTS EITHER THAT THEY ARE GIVEN SHORT SHRIFT BY THE DEPARTMENT OR THAT THE CONGRESSIONAL JUDGMENT ON THEIR POTENTIAL WAS MISTAKEN. SEE IN THIS REGARD UNITED STATES V. CAPPETTO, 502 F.2D 1351 (7TH CIR. 1974), WHICH IS THE ONLY REPORTED DECISION WHERE THE GOVERNMENT INITIATED A CIVIL ACTION UNDER RICO.

CIVIL FORFEITURE

ALTHOUGH RICO'S CIVIL REMEDIES PROVIDE FOR DIVESTITURE AND DISSOLUTION, THEY DO NOT AUTHORIZE CIVIL FORFEITURE. BUT THE CIVIL COUNTERPART TO CCE, THOUGH NOT AUTHORIZING THE INJUNCTIVE REMEDIES AVAILABLE UNDER RICO, DOES MAKE PROVISION FOR CIVIL FORFEITURE.

THERE ARE FUNDAMENTAL LEGAL DIFFERENCES BETWEEN CIVIL AND CRIMINAL FORFEITURE. CRIMINAL FORFEITURE IS BASED ON A DETERMINATION OF PERSONAL GUILT; THE RIGHT OF THE GOVERNMENT IN THE PROPERTY SUBJECT TO FORFEITURE STEMS FROM AN IN PERSONUM CRIMINAL JUDGMENT AGAINST THE OFFENDER. SEE UNITED STATES V. RUBIN, 559 F.2D 975 (5TH CIR. 1977). ALMOST ALL OTHER FORFEITURES ARE CONSIDERED CIVIL FORFEITURES. CIVIL FORFEITURE CASES USUALLY ARISE INCIDENT TO VIOLATIONS OF THE CUSTOMS, REVENUE, AND NAVIGATION LAWS; THE PROPERTY SUBJECT TO CIVIL FORFEITURE IS CONSIDERED "TAINTED." THE LEGAL PROCEEDING IN SUCH CASES IS THEORETICALLY AGAINST THE PROPERTY ITSELF; THE FORFEITURE STEMS FROM THE "GUILT" OF THE PROPERTY, OR THE PROPERTY'S USE IN OR RELATIONSHIP TO ILLEGAL ACTIVITY. THE RIGHTS OF THE GOVERNMENT IN THE PROPERTY DERIVE FROM AN IN REM JUDGMENT AGAINST THE OFFENDING ARTICLES OF PROPERTY. CONVICTION OF THE PROPERTY HOLDER FOR A CRIME IS RARELY A PREREQUISITE FOR THE IMPOSITION OF CIVIL FORFEITURE. AS A GENERAL PROPOSITION, THE INNOCENCE OF THE PROPERTY'S OWNER IS LEGALLY IRRELEVANT. IF THE TAINT IN THE PROPERTY EXISTS, THE RIGHTS OF THE PROPERTY HOLDER ARE EXTINGUISHED. CALERO-TOLEDO V. PEARSON YACHT LEASING CO., 416 U. S. 663 (1974).

DEA'S CIVIL FORFEITURE STATUTE, SEE 21 U.S.C. SEC. 881, WAS AMENDED IN 1978 TO COVER PROCEEDS AND DERIVATIVE PROCEEDS. IN ADDITION TO AUTHORIZING FORFEITURE OF CONTRABAND AND DERIVATIVE CONTRABAND, THE STATUTE NOW PROVIDES FOR THE FORFEITURE OF:

"ALL MONEY, NEGOTIABLE INSTRUMENTS, SECURITIES, OR OTHER THINGS OF VALUE FURNISHED OR INTENDED TO BE FURNISHED BY ANY PERSON IN EXCHANGE FOR A CONTROLLED SUBSTANCE ***, ALL PROCEEDS TRACEABLE TO SUCH AN EXCHANGE, AND ALL MONEYS, NEGOTIABLE INSTRUMENTS, AND SECURITIES USED TO FACILITATE ANY CONTROLLED SUBSTANCE VIOLATION ***."

U.S.C. SEC. 881(A)(6). THE 1978 AMENDMENTS PROVIDED CONSIDERABLE IMPETUS TO FORFEITURE IN THE NARCOTICS AREA. IF READ LITERALLY, DEA'S CIVIL FORFEITURE STATUTE GENERALLY SEEMS TO HAVE A BROADER REACH THAN EITHER THE CCE OR RICO CRIMINAL FORFEITURE AUTHORIZATIONS. FOR EXAMPLE, SECTION 881, UNLIKE RICO, DOES NOT LIMIT THE PROPERTY SUBJECT TO FORFEITURE TO INTERESTS IN AN ENTERPRISE. NOR, UNLIKE THE CCE STATUTE, IS FORFEITURE KEYED TO PROFITS REALIZED. SECTION 881 AUTHORIZES FORFEITURE OF, AMONG OTHER THINGS, "PROCEEDS." JUSTICE BELIEVES THAT IT GENERALLY IS EASIER TO SHOW PROCEEDS THAN PROFITS, AND THAT THE TOTAL FORFEITURE WOULD OBVIOUSLY BE GREATER WHERE IT ENCOMPASSES ALL PROCEEDS RATHER THAN MERELY PROFITS AND INTERESTS IN AN ENTERPRISE. SEE UNITED STATES V. JEFFERS, 532 F.2D 1101, 1117 (7TH CIR. 1976) AFF'D IN PART, VACATED IN PART, 432 U. S. 127 (1977); SEE WEINER, CRIMINAL FORFEITURE, PREVIOUSLY CITED AT 4. OTHER ADVANTAGES TO CIVIL FORFEITURE ARE THE LOWER STANDARDS OF PROOF AND THE FACT THAT SECTION 881 AUTHORIZES SEIZURE OF THE PROPERTY TO BE FORFEITED PRIOR TO JUDICIAL PROCEEDINGS, THUS REDUCING POSSIBILITIES OF ASSET TRANSFER OR DISSIPATION. SEE 21 U.S.C. SEC. 881(B)(4).

THE MOST FREQUENT APPLICATIONS OF SECTION 881 HAVE BEEN AGAINST CONTRABAND AND DERIVATIVE CONTRABAND, NOT TO PROCEEDS OF CONTROLLED SUBSTANCE TRANSACTIONS. ALTHOUGH THIS STATUTE HAS ON OCCASION BEEN USED, IN SOME CASES SUCCESSFULLY, TO REACH THE IMMEDIATE CASH PROCEEDS SEIZED AT THE SCENE OF A DRUG TRANSACTION, IT HAS NEVER BEEN APPLIED, TO OUR KNOWLEDGE, TO OTHER DIRECT, DERIVATIVE, OR SECONDARY PROCEEDS. DESPITE THE SEEMINGLY BROAD REACH OF SECTION 881, HOWEVER, WE THINK IT WOULD BE PREMATURE TO RAISE EXPECTATIONS ABOUT THE POTENTIAL OF CIVIL FORFEITURE TO REACH THE ASSETS OF TRAFFICKERS. THIS POTENTIAL WOULD BE MOST IN DOUBT WHERE THE GOVERNMENT PROSECUTES AN INDIVIDUAL CRIMINALLY UNDER CCE, RICO, OR BOTH, AND CONCURRENTLY SEEKS A CIVIL FORFEITURE UNDER SECTION 881.

FROM A LEGAL POINT OF VIEW, THE EXTENSION OF CIVIL FORFEITURE TO REACH PROCEEDS RAISES A WIDE VARIETY OF DUE PROCESS QUESTIONS ABOUT THE EXTENT TO WHICH THE CIVIL PROCESS MAY BE USED TO ADMINISTER SANCTIONS ALSO AVAILABLE UNDER A CRIMINAL STATUTE LIKE CCE AND RICO, AND TO ACCOMPLISH A PROCEEDS FORFEITURE WITHOUT REGARD TO THE CONSTITUTIONAL SAFEGUARDS AND BURDEN OF PROOF APPLICABLE IN A CRIMINAL PROSECUTION. THE ISSUE UNDERLYING THESE QUESTIONS IS WHETHER THE COURTS WILL VIEW A SECTION 881 FORFEITURE AS THE FUNCTIONAL EQUIVALENT OF CRIMINAL PUNISHMENT. IF THEY DO, SECTION 881, AS APPLIED TO PROCEEDS, WOULD LIKELY BE CONSIDERED THE LEGAL AND FUNCTIONAL EQUIVALENT OF CRIMINAL FORFEITURE, THUS TRIGGERING SOME OR ALL OF THE CONSTITUTIONAL REQUIREMENTS, BURDEN OF PROOF STANDARDS, SAFEGUARDS, AND PROCEDURES USUALLY ASSOCIATED WITH CRIMINAL PROSECUTIONS UNDER CCE AND RICO. SEE UNITED STATES V. ONE CADILLAC EL DORADO, 453 F.2D 396 (9TH CIR. 1971); UNITED STATES V. UNITED STATES COIN & CURRENCY, 401 U. S. 715 (1971); ONE 1958 PLYMOUTH SEDAN V. PENNSYLVANIA, 380 U. S. 693 (1965). THESE ISSUES CLEARLY CANNOT BE AVOIDED SIMPLY BY ATTACHING A CIVIL LABEL TO FORFEITURE PROCEEDINGS, OR BY INITIATING THE FORFEITURE UNDER SECTION 881 RATHER THAN CCE OR RICO. SEE BOYD V. UNITED STATES, 116 U. S. 616 (1886).

RECOMMENDATION TO THE CONGRESS

WE RECOMMEND THAT THE CONGRESS AMEND THE CRIMINAL FORFEITURE PROVISIONS OF THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS STATUTE, 18 U.S.C. SECS. 1961 ET SEQ., TO:

- MAKE EXPLICIT PROVISION FOR THE FORFEITURE OF PROFITS AND PROCEEDS THAT ARE (1) ACQUIRED, DERIVED, USED, OR MAINTAINED IN VIOLATION OF RICO; OR (2) ACQUIRED OR DERIVED AS A RESULT OF A RICO VIOLATION;

- AUTHORIZE FORFEITURE OF SUBSTITUTE ASSETS, BUT ONLY TO THE EXTENT THAT ASSETS FORFEITABLE UNDER RICO: (1) CANNOT BE LOCATED; (2) HAVE BEEN TRANSFERRED OR SOLD TO, OR DEPOSITED WITH THIRD PARTIES; OR (3) PLACED BEYOND THE GENERAL TERRITORIAL JURISDICTION OF THE UNITED STATES. THIS AUTHORIZATION WOULD BE LIMITED TO THE VALUE OF THE ASSETS DESCRIBED IN (1), (2), AND (3), ABOVE;

- CLARIFY THAT INTERESTS FORFEITABLE UNDER RICO INCLUDE ASSETS ILLICITLY DERIVED, MAINTAINED, OR ACQUIRED THAT ARE HELD OR OWNED IN AN INDIVIDUAL CAPACITY BY DEFENDANTS CONVICTED OF USING A DE FACTO ASSOCIATION/ENTERPRISE TO VIOLATE RICO;

- AUTHORIZE, IN THE DISCRETION OF THE SENTENCING COURT, REDEMPTION OR BUY-BACKS OF FORFEITED ASSETS UPON PAYMENT OF A SUM REPRESENTING THE APPRAISED VALUE OF SUCH ASSETS. THIS AUTHORIZATION WOULD EXTEND ONLY TO CASES INVOLVING FORFEITURE OF SUBSTITUTE ASSETS.

WE RECOMMEND THAT THE CONGRESS AMEND THE CRIMINAL FORFEITURE PROVISIONS OF THE CONTINUING CRIMINAL ENTERPRISE (CCE) STATUTE, 21 U.S.C. SEC. 848, TO:

- CLARIFY THAT ASSETS FORFEITABLE UNDER CCE INCLUDE THE GROSS PROCEEDS OF CONTROLLED SUBSTANCE TRANSACTIONS;

- AUTHORIZE FORFEITURE OF SUBSTITUTE ASSETS, BUT ONLY TO THE EXTENT THAT ASSETS FORFEITABLE UNDER RICO

(1) CANNOT BE LOCATED; (2) HAVE BEEN TRANSFERRED OR SOLD TO, OR DEPOSITED WITH THIRD PARTIES; OR (3) PLACED BEYOND THE GENERAL TERRITORIAL JURISDICTION OF THE UNITED STATES. THIS AUTHORIZATION WOULD BE LIMITED TO THE VALUE OF THE ASSETS DESCRIBED IN (1), (2), AND (3), ABOVE.

FORFEITURE OF ILLICITLY DERIVED ASSETS UNDER THE ORGANIZED CRIME STATUTES

DIGESTS:

1. DECISIONS OF SEVERAL CIRCUITS VIEW RACKETEER INFLUENCED AND CORRUPT ORGANIZATION (RICO) STATUTE, 18 U.S.C. 1963(A), AS AUTHORIZING FORFEITURE OF DEFENDANT'S ACTUAL HOLDINGS IN AN ENTERPRISE (E.G., STOCK), BUT NOT PROFITS, SUCH AS DIVIDENDS, DERIVED FROM SUCH ENTERPRISE. SEE CASES CITED.

2. CONTINUING CRIMINAL ENTERPRISE (CCE) STATUTE, 21 U.S.C. SEC. 848, DOES AUTHORIZE FORFEITURE OF "PROFITS" REALIZED FROM DRUG TRAFFICKING, BUT COURTS DO NOT AGREE WHETHER CCE ALSO REACHES TRAFFICKING PROCEEDS ALLOCABLE TO THE COST OF NARCOTICS TO THE DEALER. SEE CASES CITED.

3. NEITHER CASE LAW NOR FORFEITURE STATUTES PROVIDE GUIDANCE WHETHER ASSETS TRANSFERRED TO THIRD PARTY BY RICO OR CCE DEFENDANT PRIOR TO INDICTMENT ARE FORFEITABLE. ALSO, WHERE DEFENDANT PLACES ILL GOTTEN GAINS IN FOREIGN DEPOSITORY BEYOND JURISDICTION OF UNITED STATES, NO COURT HAS SUSTAINED FORFEITURE OF SO-CALLED "CLEAN" OR "SUBSTITUTE" ASSETS HELD BY DEFENDANT IN DOMESTIC DEPOSITORIES AND CORPORATIONS. SEE CASES CITED.

4. EXTENSION OF CIVIL FORFEITURE TO REACH RICO DEFENDANT'S ILL GOTTEN GAINS, SEE 21 U.S.C. SEC. 881, RAISES WIDE VARIETY OF DUE PROCESS QUESTIONS ABOUT EXTENT TO WHICH CIVIL PROCESS MAY BE USED TO ADMINISTER FORFEITURE SANCTIONS ALSO AVAILABLE UNDER A CRIMINAL STATUTE, AND TO ACCOMPLISH A PROCEEDS FORFEITURE WITHOUT REGARD TO CONSTITUTIONAL SAFEGUARDS AND BURDEN OF PROOF APPLICABLE IN A CRIMINAL PROSECUTION. SEE CASES CITED.

FN1 THE LEGISLATIVE HISTORY OF RICO'S FORFEITURE PROVISION CONSISTS IN PART OF CORRESPONDENCE BETWEEN THE THEN DEPUTY ATTORNEY GENERAL AND THE SENATE. THE DEPUTY ATTORNEY GENERAL DESCRIBED RICO'S FORFEITURE PROVISION AS BEING DERIVED FROM ENGLISH COMMON LAW WHEREBY FELONS FORFEITED PROPERTY TO THE CROWN. THIS CONCEPT, THE DEPUTY ATTORNEY GENERAL CONTINUED, WAS ABOLISHED BY STATUTE, SEE QUOTE OF 18 U.S.C. SEC. 3563, SO THAT RICO WOULD PARTIALLY REPEAL THAT STATUTE BY IMPLICATION. DUE TO THE CONNECTION RICO REQUIRES BETWEEN THE PROPERTY FORFEITED AND THE CRIMINAL ACT - A CONNECTION NOT REQUIRED BY "FORFEITURE OF ESTATE" - SEVERAL COURTS HAVE DISCREDITED THE PARTIAL REPEALER THEORY. UNITED STATES V. THEVIS, 474 F. SUPP. 134 N.D.GA. 1979); UNITED STATES V. GRANDE, 620 F.2D 1026 (4TH CIR. 1980); BUT SEE UNITED STATES V. PILSIC, 559 F.2D 975, 991 (5TH CIR. 1977), WHERE THE FIFTH CIRCUIT SUGGESTED THAT SECTION 3563 WAS PARTIALLY REPEALED BY RICO.

FN2 ONE CIRCUIT SUGGESTS THAT CORPORATE STOCK ALSO IS IMMUNE FROM FORFEITURE, UNLESS THE CORPORATION IN WHICH THE DEFENDANT'S STOCK IS INVESTED IS ITSELF ILLICIT OR USED AND CONDUCTED IN VIOLATION OF LAW. THE EXTENT THAT THIS MAY BE A PROPER CONSTRUCTION OF RICO, IT IMPLIES THAT FOR PURPOSES OF FORFEITURE ILLICITLY ACQUIRED ASSETS CAN BE "CLEANSED" UPON INVESTMENT IN A WHOLLY LEGITIMATE CORPORATION. GRANDE, PREVIOUSLY CITED.

FN3 ONE COMMENTATOR BELIEVES THAT THE EIGHTH AMENDMENT'S PROHIBITION AGAINST "CRUEL AND UNSUAL PUNISHMENT" IS YET ANOTHER GROUND FOR NARROWING THE SCOPE OF FORFEITURE UNDER RICO. THIS COMMENTATOR OPINES THAT TWO MINOR MAIL FRAUD VIOLATIONS COULD CONSTITUTE A PATTERN OF RACKETEERING ACTIVITY, AND PROVIDE A BASIS FOR FORFEITURE OF A SOLE PROPRIETOR'S ENTIRE BUSINESS. HE CONCLUDES THAT THE REVENUES DERIVED FROM THE FRAUD COULD BE VERY SMALL IN RELATION TO THE COMPANY'S NET WORTH, THUS RESULTING IN A FORFEITURE SO OUT OF PROPORTION TO THE OFFENSE THAT IT WOULD BE CRUEL AND UNUSUAL. TAYLOR, FORFEITURE UNDER 18 U.S.C. SEC. 1963 - RICO'S MOST POWERFUL WEAPON, 17 AM. CRIM. L. REV. 379, 382-387, 389-390 (1980).