The United States of America, Plaintiff, v. $107,702.66 in United States Currency, Defendant.
That's the Kafkaesque title of a civil asset forfeiture complaint filed in a U.S. District Court last December. The complaint, and the attendant peculiarity of the federal government filing suit against its own currency, illustrates the legal fiction at the heart of the civil asset forfeiture system. As a DEA agent succinctly described it to the Albuquerque Journal: "We don’t have to prove that the person is guilty. It’s that the money is presumed to be guilty."
Other asset forfeiture complaints read similarly:
The Department of Justice defines it like this: in civil forfeiture cases, "the property is the defendant and no criminal charge against the owner is necessary." Money, of course, can't actually be guilty of anything. But local, state and law enforcement agents use the convenient construct of monetary guilt to seize people's property without convicting them of a crime -- or even charging them.
In seizing property, law enforcement agencies tend to prefer these civil forfeitures to criminal ones, because the standard of proof is considerably lower in civil cases. Some numbers that speak to that point: in 2014, U.S. attorneys seized $679 million in assets through criminal actions, and $3.9 billion through civil actions.
Once seized, it can be prohibitively expensive to get your money back. Many asset forfeiture victims simply give up the fight completely, a Washington Post investigation found last year. But 41 percent of victims who challenged the government's actions were able to get some or all of their money back, suggesting that government agencies are casting a wide net when it comes to whom they target for these actions.
But in at least one case this week -- the case involving the $107,000 mentioned above -- the federal government relented and agreed to return all of the money it seized from a small business owner last summer.
Lyndon McLellan has owned and operated L&M Convenience Mart in rural Fairmont, N.C., for more than 10 years, according to the Institute for Justice. The institute is a national civil liberties law firm that advocates for asset forfeiture reform, and it represented McLellan pro bono in court. One day last July, a group of state and federal officers showed up at his store to inform him that they had emptied his entire bank account -- all $107,702.66 of it.
Like many small retail operations, McLellan conducts much of his business in cash. But the Internal Revenue Service didn't like the way he deposited it in his bank account. On the advice of a bank teller, McLellan made most of his cash deposits in chunks of $10,000 dollars or less. There's less paperwork involved with sub-$10,000 deposits, and some companies have insurance policies that only cover up to $10,000 in cash losses.
It is, quite obviously, 100 percent legal to make make deposits of less than $10,000. But it is illegal to do so with the express purpose of avoiding the closer IRS scrutiny that comes with larger deposits -- a practice known as "structuring." McLellan had no reason to want to hide his cash, or to avoid scrutiny. His business was completely legitimate, and he paid his taxes in full. He was just trying to avoid some hassle for the bank tellers and everyone else involved.
Had IRS officials spoken with McLellan before raiding his account, they probably would have realized right away that he had nothing to hide. But the IRS didn't speak with him, and instead went directly to a federal judge to obtain a seizure warrant.
In its complaint against McLellan, the IRS noted a pattern of bank deposits "which appeared to be structured to evade the Currency Transaction Report (CTR) threshold of $10,000" (emphasis added). The IRS also had informed McLellan several years prior that "structuring bank deposits to avoid federal reporting requirements was a violation of the law," and warned him that any future violations "could result in prosecution and/or seizure and forfeiture of all property involved in, or traceable to, such violations."
So McLellan was warned, but he continued to make smaller cash deposits: he believed he was in compliance with the law because he was not attempting to hide anything from the government. Note the key clause in the IRS letter: to avoid federal reporting requirements. If you're depositing sub-$10,000 amounts because that's all you have on you, or because you don't want to have big piles of cash sitting around your office, or for literally any reason other than "trying to hide it from the IRS," you are doing nothing wrong.
But the IRS took his money anyway. As McLellan put it, "It took me 13 years to save that much money, and 13 seconds for the government to take it away."
Practices like this one have come under intense scrutiny in the past year. The Washington Post ran a six-part series last summer on asset forfeitures on the nation's highways, where local police seize drivers' cash and goods, sometimes on as small a pretext as a broken taillight and an empty energy drink can. And last fall, the New York Times highlighted the IRS practice that Lyndon McLellan fell victim to.
To its credit, the federal government has been somewhat responsive to the public outcry over these policies. The IRS announced last fall that it would no longer pursue cases like McLellan's, where there was no indication of any wrongdoing other than the bank deposit amount. And this year, then-Attorney General Eric Holder announced modest restrictions on some types of asset forfeiture highlighted in the Washington Post series, and reemphasized the restrictions already put in place by the IRS.
But in spite of all this, the IRS continued to prosecute its claims against Lyndon McLellan's money. When the Institute for Justice publicized the case earlier this year, and it took front and center in a congressional hearing, the U.S. attorney in charge of McLellan's case sent a letter to his lawyers. It read, in part:
Whoever made [the case documents] public may serve their own interest but will not help this particular case. Your client needs to resolve this or litigate it. But publicity about it doesn’t help. It just ratchets up feelings in the agency. My offer is to return 50% of the money. The offer is good until March 30th COB.
When the government turns up no evidence of wrongdoing, it often attempts to settle with asset forfeiture victims, often for amounts far less than the original amount seized. Often, these settlements come with strings attached that prevent the victims from countersuing the federal government for damages or for the payment of lawyer and court fees.
Many people accept -- the Post investigation found more than 1,000 such settlements in its investigation of highway forfeitures alone -- because the cost of litigating against the federal government is prohibitively high. And almost by definition, asset forfeiture victims have been stripped of most or all of their wealth to begin with.
"Another word for it would be extortion," lawyer Robert Everett Johnson said in an interview. He's one of the Institute for Justice lawyers working on McLellan's case. The IRS has your money, but they realize you did nothing wrong. "'We're not going to prosecute,'" Johnson said, explaining the IRS' position in settlement offers, "'but we think you should give us half your money anyway.'"
McLellan decided not to settle. It was the right choice: this week, the U.S. attorney filed a motion to voluntarily dismiss the case, citing "no probable cause" that McLellan's money came from "unlawful activity."
"The big picture here is that we're elated that Lyndon is getting back his money," Johnson said. "The government's pursuit of this case was wrong and unconstitutional from the beginning, and we're glad that the government recognizes that and is giving Lyndon back his money."
But McLellan's court battles aren't over yet -- there's the tricky question of his legal fees to resolve. Shortly after having his money seized, he had hired a lawyer at a cost of several thousand dollars. He also hired an accountant to go through his financial records with a fine-toothed comb and demonstrate, without a doubt, that his money was obtained by legitimate means. All told, he's still out about $22,000.
In passing the Civil Asset Forfeiture Reform Act in 2000, Congress declared that when a government agency seizes a person's property wrongfully, it must also compensate that person for the interest, fees and other costs involved with getting the money back. But according to Johnson, the IRS has become adept at finding ways around this.
"The government will often seek to evade that obligation," he said. The details get really technical, but in McLellan's case, the IRS has filed a particular type of motion to give him back his money that allows it to sidestep the question of whether or not it needs to compensate him for his troubles.
"We're going to litigate that," Johnson said, "and make sure he does get that."