Civil asset recovery

Parallel proceedings

Is there any restriction on civil proceedings progressing in parallel with, or in advance of, criminal proceedings concerning the same subject matter?

Although there are no categorical restrictions on civil cases proceeding in parallel with criminal cases, civil cases may be postponed should they pose substantial prejudice to the defendant’s right against self-incrimination. The management of parallel civil and criminal proceedings presents challenges. For example, the assertion of Fifth Amendment privileges against self-incrimination can slow down civil proceedings. Additionally, to comply with the requirements of the Speedy Trial Act, the civil proceedings could be delayed to allow the criminal proceeding to proceed first, if the proceedings cannot occur concurrently.

Given these impediments, it is not uncommon for prosecutors to seek a stay of private civil litigation pending the conclusion of criminal proceedings. Nevertheless, normally, civil litigants should neither delay in bringing the civil proceeding in anticipation of such a stay, nor rely on the outcome of the criminal case to bring them relief. Not only could such a delay potentially cause the statute of limitations for any claim to expire, but even if a sentence is imposed on the debtor in the criminal case, the creditor’s recovery in the criminal proceeding may be lower.

Forum

In which court should proceedings be brought?

The United States is a common law jurisdiction with a dual court system. Federal courts have a limited jurisdiction authorised by the Constitution and federal statute. Each of the 50 states, plus the District of Columbia, also has its own courts of general jurisdiction. Both state and federal courts offer an independent and skilled judiciary, broad discovery and significant mechanisms for enforcing judgments.

Generally, counsel should consider all relevant state and federal courts in which a particular action may be brought. Often, more than one court may be available and the decision on where to file depends on many factors. Considerations in determining a particular forum include: whether the facts of the case justify a federal action; the states in which the defendant has assets; and where the activity at issue took place. If the defendant is a business entity, counsel should determine the jurisdiction under which the entity was formed and where its principal operations are located. A key consideration is whether filing in a particular court affords advantages not available elsewhere. The available causes of action and related remedies vary by state. Because material differences can exist among jurisdictions, counsel should analyse the pertinent laws of the considered jurisdictions in determining where to pursue asset recovery. The common law governing fraud is generally a matter of state law, although it has been incorporated into many federal fraud statutes. Fraud claims are generally heard in state courts unless a federal law applies or the plaintiff can invoke federal court jurisdiction based on the ‘diverse’ residence of the parties.

Limitation

What are the time limits for starting civil court proceedings?

Time limitations on initiating civil court proceedings vary widely depending on the type of action sought as well as the jurisdiction in which the action is brought. Counsel should conduct a thorough statutes of limitations analysis on applicable causes of action in the relevant jurisdiction as soon as practicable in anticipation of litigation. As explained above, the law governing fraud is generally a matter of state law, and the statute of limitations can vary. For example, New York state law requires a fraud claim to be brought within six years of the event or within two years of its discovery. Alternatively, a number of states have a three-year statutes of limitations. Claimants may also consider filing a civil action under the federal Racketeering Influenced Corrupt Organization (RICO) Act (18 USC section 1962). The statute of limitations for civil RICO claims is generally four years from the date a claimant knew or should have known of his or her injury.

Jurisdiction

In what circumstances does the civil court have jurisdiction? How can a defendant challenge jurisdiction?

Jurisdiction questions can be broken down into three elements-whether the court has jurisdiction (i) over the person (or property in certain cases); (ii) over the subject matter; and (iii) to render the decision sought. Jurisdiction in a civil case is determined by considering a series of factors from the main elements above, including the following:

  • the location of the at-issue assets, transactions or defendants;
  • the citizenship of the defendant(s);
  • the defendant’s contacts with the particular jurisdiction;
  • contractual agreements regarding venue; and
  • the subject matter of the action.

Defendants may challenge jurisdiction by calling into question the factors that were considered in making the jurisdiction determination. Such objections are most typically raised at the outset of an action. Failure to timely object to jurisdiction can result in a waiver of any challenge to jurisdiction.

Time frame

What is the usual time frame for a claim to reach trial?

The time frame to reach trial on a private civil asset recovery case depends on a variety of factors, including the court in which the case is pending and the complexity of the claims. The overwhelming majority of civil cases never reach trial, and are instead resolved on a motion to dismiss or a motion for summary judgment, or settled. According to the statistics compiled by the federal judiciary, in 2018, federal cases took on average 26 months to proceed through trial.

See https://www.uscourts.gov/statistics/table/c-5/statistical-tables-federal-judiciary/2018/12/31.

Admissibility of evidence

What rules apply to the admissibility of evidence in civil proceedings?

For actions in federal courts, litigants should consult the Federal Rules of Evidence and the Federal Rules of Civil Procedure. If an action is brought in a state court, litigants should consult the applicable rules of evidence in the particular jurisdiction, although the evidentiary rules of many states closely follow the Federal Rules of Evidence. Relevant case law provides insight into how the applicable evidentiary rules have been interpreted by courts in the relevant jurisdiction.

Witnesses

What powers are available to compel witnesses to give evidence?

The ability of a litigant to compel witnesses to give testimony depends on whether the case is pending in a state or federal court, and whether the testimony would infringe on a witness’s rights under the Fifth Amendment to refrain from self-incrimination. Assuming that Fifth Amendment rights are not implicated, litigants should consult the applicable rules of procedure governing procuring deposition and trial testimony from adversaries and third parties, as well as mechanisms available to enforce court orders compelling testimony.

For matters in federal court, the Federal Rules of Civil Procedure govern whether a witness will be compelled to provide testimony. Subject to certain restrictions, Federal Rule of Civil Procedure 30 allows a party to a civil action to depose any person, including a party to the litigation. Federal Rule of Civil Procedure 45 provides a mechanism by which a party may command attendance at a trial, hearing or deposition. In practice, a party to a litigation may be deposed in the federal district where the case is pending and may be ordered to attend a trial or evidentiary hearing. Unless they consent, third parties may only be deposed or ordered to attend within 100 miles of where the third party resides or is employed or regularly transacts business in person. Any person ordered to appear at a deposition may object on the grounds that his or her deposition testimony would not be relevant to any party’s claim or defence, or proportional to the needs of the case. If the objection cannot be resolved without judicial intervention, the party seeking the deposition may move to compel attendance at the deposition.

Publicly available information

What sources of information about assets are publicly available?

Various public offices collect information on assets and, in some cases, that information is available to the public. Depending on the jurisdiction and the type of asset, various public records may be available. For examples, public records include: lien filings; real estate records; property tax records; automobile and aircraft filings; and business entity registration filings. Often, it is helpful to investigate the relevant federal and state agencies charged with regulating certain asset types and enquiring about their records. Many investigative services and databases are available to assist counsel in identifying assets.

Cooperation with law enforcement agencies

Can information and evidence be obtained from law enforcement and regulatory agencies for use in civil proceedings?

US financial reporting requirements may provide valuable information for asset collection. These requirements implement stringent record-keeping from account opening until long after the account is closed, thus, preserving an effective asset tracing tool. Civil litigants can attempt to secure relevant information by US discovery mechanisms. Three major types of required reports from financial institutions that may be of use to asset recovery practitioners are suspicious activity reports, currency transaction reports and ‘know your customer’ requirements.

As for criminal investigative information, such information is confidential, even from the victim of the crime. There are limited exceptions that may permit a crime victim to access certain types of information in the government’s possession. Evidence entered in criminal proceedings may also be useful for civil proceedings, and litigants should utilise discovery mechanisms to gather information.

Third-party disclosure

How can information be obtained from third parties not suspected of wrongdoing?

Discovery from third parties is available by subpoena, which can be issued by the claimant’s attorney, although third parties are not expected to provide the same broad discovery required of the parties themselves.

Rule 45 of the Federal Rules of Civil Procedure governs discovery, including gathering documents or taking testimony from non-parties to a federal action. A plenary or substantive action must already be pending before a district court before employing Rule 45. Additionally, Rule 69 of the Federal Rules of Civil Procedure permit discovery in aide of a judgment or execution, including from third parties.

Assuming the claimant obtains a judgment, additional discovery, including third-party discovery, is permitted in aid of judgment enforcement. A claimant may seek discovery from the defendant or third parties such as banks (where the defendant may keep cash and other assets). If the defendant is an entity, discovery may include its owners and subsidiaries in an effort to locate assets (or information leading to assets) that could be executed against. Notably, the United States’ Supreme Court has held that sovereign immunity does not restrict the normal post-judgment discovery available in United States courts, meaning that broad discovery should be available to claimants even if their judgments involve foreign sovereigns.

Interim relief

What interim relief is available pre-judgment to prevent the dissipation of assets by, and to obtain information from, those suspected of involvement in the fraud?

State law governs the procedure for securing assets, either before or after a judgment. Even if the litigation occurs in federal court, the federal rules provide that state law governs enforcement remedies (Fed R Civ P 64 and 69). State laws are not uniform on these remedies, and a claimant should consider the remedies available under the laws of the forum state before determining whether to seek interim relief.

As a general rule, prejudgment restraints of assets are available in state or federal court as long as certain conditions are met. Those conditions are typically as follows:

  • the existence of a cause of action;
  • a probability that the claimant will succeed on the merits;
  • that any judgment will be rendered ineffectual without relief;
  • that the public interest will be served; and
  • the amount demanded from the defendant exceeds all counterclaims known to the claimant.

We note, however, that injunctive relief in the United States is somewhat limited. The courts are without authority to issue any sort of worldwide freezing order restraining a defendant’s assets pending adjudication of a claim.

Pre-judgment discovery, on the other hand, is broadly available both from the defendants and from non-parties. Defendants may be subject to document requests, depositions, written interrogatories and requests for admission. Non-parties may be subpoenaed for documents and deposition testimony.

Non-compliance with court orders

How do courts punish failure to comply with court orders?

Failure to comply with court orders can result in the non-compliant party being held in contempt of the court, which may have consequences ranging from monetary fines to imprisonment. If the non-compliant party is one of the fraudsters, the court may use its equitable powers to fashion remedies that make the claimant whole notwithstanding the non-compliance.

Obtaining evidence from other jurisdictions

How can information be obtained through courts in other jurisdictions to assist in the civil proceedings?

The first consideration is whether the other jurisdictions have procedures designed to permit the discovery of information in aid of civil proceedings in foreign jurisdictions. In the United States, for example, Congress has authorised the federal courts to permit claimants to obtain discovery in aid of legal proceedings outside the United States. See 28 U.S.C. § 1782.

If this avenue is not available, the ordinary means of obtaining discovery in other jurisdictions is through the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters 1970. The United States is a party to the Convention, along with more than 60 other countries. Each member state will have its own procedure for evidence requests, including document requests and requests for witness testimony. For jurisdictions that are not parties to the Convention, the claimant should explore the availability of evidence requests through either diplomatic channels or letters rogatory.

If law enforcement is involved in the matter, it may be possible to obtain evidence in other jurisdictions that have mutual legal assistance treaties with the United States. However, these treaties typically are not available to private litigants.

Assisting courts in other jurisdictions

What assistance will the civil court give in connection with civil asset recovery proceedings in other jurisdictions?

US federal district courts have the power to order discovery for use in a foreign legal proceeding (28 USC section 1782). The district court must find that:

  • the party from whom discovery is sought can be found in the district where the application is made;
  • the discovery will be used in a proceeding before a foreign or international tribunal;
  • the party applying for discovery is an interested person in the foreign proceeding; and
  • the balance of public and private interest factor favours granting discovery (see Intel Corp v Advanced Micro Devices, 542 US 241, 248-49 (2003)).

Notably, eligible foreign legal proceedings include proceedings in foreign courts, as well as administrative proceedings and government investigations (Intel Corp v Advanced Micro Devices Inc, 542 US 241, 258 (2004). The proceeding must be within reasonable contemplation but is not required to be ‘pending’ or ‘imminent’ (Intel Corp, 542 US at 259).

Discovery under section 1782 includes both deposition testimony and document production (See Intel Corp, 542 US at 249). It may be obtained by first filing an application and supporting memorandum and affidavit with the federal district court (or courts) where the subjects of the discovery are located. If the application is granted, the applicant may serve requests for documents and depositions. A federal district court may allow broad discovery, and the fact that such discovery may be broader than the discovery authorised by the foreign forum - or may not be admissible evidence in the foreign forum - is typically not relevant. The ultimate decision whether to order discovery is within the discretion of the federal district court.

A claimant that has a foreign judgment may be able to enforce the judgment in state or federal court, particularly if the court has jurisdiction over persons or assets that are subject to the foreign judgment. Most states have adopted some version of the Uniform Foreign-Country Money Judgments Recognition Act, which permits foreign judgments to be enforced in domestic courts, at least to the extent that they involve an award of monetary damages to the claimant. If the foreign judgment is recognised, the claimant will then be entitled to use the same enforcement mechanisms that are available for domestic judgments. However, it is unlikely that a domestic court would enforce the non-monetary aspects of a foreign judgment, such as specific performance, equitable remedies or punitive damages.

Causes of action

What are the main causes of action in civil asset recovery cases, and do they include proprietary claims?

The United States has robust civil remedies available to claimants, and as a result, the causes of action in civil asset recovery cases are varied. As a general rule, there are four primary legal bases for seeking recovery of assets:

  • Fraud: there are a variety of state and federal statutes that create civil remedies for fraud, including in the areas of securities, banking, consumer finance, sales of goods and real estate transactions, to name a few. Additionally, fraud claims are recognised under the common law, where a defendant intentionally makes a material and false representation or omission, on which the claimant justifiably relies in choosing to act or refrain from acting. Most jurisdictions also have laws that permit courts to unwind fraudulent transfers of assets.
  • Fiduciary duty: certain defendants - such as senior management, trustees and some agents - have fiduciary duties that are violated if they engage in self-dealing or other mismanagement of assets. Violations are typically actionable under either applicable statutes or the common law.
  • Contract: when a defendant breaches a contractual obligation, a claimant may need to seek recovery of assets impacted by the breach or may need to seek asset recovery as a means to enforce a judgment obtained against the defendant.
  • Common law: state-specific common law claims are often available as a means of recovering assets. Examples include conversion and replevin. Conversion is a more common claim that seeks damages for interference with claimant’s ownership or possession of personal property. Replevin is an infrequently used remedy that a claimant may invoke to recover specific property that has been wrongfully taken and may be appropriate in situations where a defendant has wrongfully taken unique, high-value property.
Remedies

What remedies are available in a civil recovery action?

The available remedies depends on a variety of factors. As a general rule, a claimant can seek actual, incidental and consequential damages. It may also be possible to recover punitive damages in cases of egregious fraud or wrongdoing that threatens the public interest.

Courts in the United States also have the power to award equitable remedies, including specific performance, rescission and injunctive relief. These remedies are useful when money damages are insufficient to compensate the claimant. Courts may also impose constructive trusts to manage assets for the benefit of the claimant and may order an accounting, which may be useful when assets have been wasted or fraudulently transferred.

Judgment without full trial

Can a victim obtain a judgment without the need for a full trial?

Yes. A victim may seek a default judgment if the defendant does not appear after being served with process in the civil action. A default judgment may be requested by filing a motion with the court, along with any evidence necessary to support the default judgment.

If the defendant appears in the action, the litigation will likely proceed through discovery, after which the victim may file a motion for summary judgment against the defendant. A court may grant summary judgment if there is no genuine dispute of material facts and the victim is entitled to judgment as a matter of law. A summary judgment motion typically requires extensive briefing and evidence submitted by affidavit.

Post-judgment relief

What post-judgment relief is available to successful claimants?

Post-judgment relief in the United States varies according to the subject matter of the case, the language of the relevant statute and the jurisdiction in which the underlying action is brought. Depending on these factors, there may be a wide variety of options available for post-judgment relief.

Successful claimants will frequently request post-judgment asset discovery. Asset discovery is widely available against both the defendant and any non-parties that have information about the defendant’s assets.

US courts are without authority to issue any sort of worldwide freezing order restraining a defendant’s assets pending adjudication of a claim. Post-judgment remedies are far broader and a claimant may seek a general injunction against the judgment debtor and its assets.

Enforcement

What methods of enforcement are available?

The methods of enforcement are varied and depend on state law. A US federal court will look to the enforcement laws of the forum state to determine what methods are available to a claimant.

Garnishment is typically the means by which payments owed to the judgment debtor by non-parties can be re-directed to the claimant. It is accomplished by the court issuing a writ of garnishment, which the claimant then serves on the affected non-parties.

If the judgment debtor’s assets can be found, asset seizure is usually accomplished by obtaining a writ of execution from the court, which can be enforced by local law enforcement authorities that are authorised to seize the assets, sell them and deliver the proceeds (less fees and costs) to the claimant. Notably, a judgment obtained in one federal or state court generally is enforceable in other US jurisdictions where the judgment debtor’s assets may be found.

Funding and costs

What funding arrangements are available to parties contemplating or involved in litigation and do the courts have any powers to manage the overall cost of that litigation?

In the US, funding arrangements can be tailored to the needs and preferences of the claimant. In addition to traditional hourly arrangements, alternative fee arrangements are sometimes used. For example, it is common for claimants to enter into contingency fee arrangements with counsel. A hybrid version of the contingency fee is sometimes used to give counsel a fixed fee component and a success fee.

Third-party funding is available, though the terms of such funding vary greatly and in some cases, funders are unwilling to undertake the risk of a particular case. The requirements for third-party funding vary by state, and some states prohibit or restrict the practice owing to concerns with champerty.

US courts have some power to control costs of litigation, though the usual rule is that each side must bear its own attorney’s fees. An exception arises in cases that involve fee-shifting provisions in the applicable statutes or contract terms, in which case the prevailing party may be able to recover its attorney’s fees in addition to costs. Claimants should keep in mind that costs can be higher in the US due to the availability of broad discovery. However, in that respect, courts can and often do impose limits designed to prevent undue burden and expense.

Criminal asset recovery

Interim measures

Describe the legal framework in relation to interim measures in your jurisdiction.

Certain of the US statutes that address criminal and civil forfeiture authorise a wide variety of interim measures, including but not limited to restraining orders, injunctions and seizures.

For example, pursuant to 21 USC § 853, governing forfeitures relating to controlled substances, a court may ‘enter a restraining order or injunction, require the execution of a satisfactory performance bond, or take any other action’ where the court determines that ‘there is a substantial probability’ that the government will prevail on the issue of forfeiture; that absent an order, the property will become unavailable for forfeiture; and that the need to preserve the availability of the property outweighs the hardship imposed (21 USC § 853(e)). See also 18 USC § 983(j) (authorising restraining orders in relation to civil forfeitures). Interim measures may include orders to repatriate assets located outside of the United States. See 21 USC § 853(e)(4).

Certain statutes authorise courts to grant temporary restraining orders on an ex parte basis where the government demonstrates probable cause that forfeiture will result if the defendant is convicted and that notice will jeopardise the availability of the property for forfeiture. See 21 USC § 853(e)(2).

Where the court determines that there is probable cause that the property will be subject to forfeiture, the court may authorise seizure of the property. See, 18 USC 981 (b)(2). Pretrial restraint of untainted substitute property is not permitted. See US v Chamberlain, 868 F.3d 290, 291 (C.A. 4 (N.C.), 2017).

Proceeds of serious crime

Is an investigation to identify, trace and freeze proceeds automatically initiated when certain serious crimes are detected? If not, what triggers an investigation?

No. An investigation into the proceeds of crime may be initiated following requests by the victim’s counsel. Asset forfeiture specialists may be assigned to the matter and may coordinate further with the victim’s counsel in conducting their investigation. Depending on the facts at issue, a party could also seek to trigger an investigation into the proceeds of crime by requesting a preliminary injunction with an asset freeze.

Confiscation – legal framework

Describe the legal framework in relation to confiscation of the proceeds of crime, including how the benefit figure is calculated.

Federal law provides for three types of asset confiscation (ie, forfeiture) actions: administrative, civil and criminal.

An administrative forfeiture action is an uncontested action in rem (against the property). The property that may be subject to administrative forfeiture is limited to monetary instruments; personal property less than or equal to $500,000 in value; conveyances used to import, transport or store controlled substances; and merchandise the importation of which is prohibited. See 19 U.S.C. § 1607. Following seizure of the property, the government must provide notice to interested parties of its intent to seek confiscation. See 18 USC § 983(a). If a claim contesting the forfeiture is subsequently filed with the seizing agency, the agency seeking forfeiture must return the property, commence a civil forfeiture action or include the property in criminal indictment.

A civil forfeiture action is also an action in rem. Unlike administrative forfeiture, civil forfeiture is a judicial process that begins with the government filing a complaint against the property. No conviction of the defendant is required for a judgment of civil forfeiture to be entered. A claimant may challenge the seizure of the property on various grounds, including that he or she is an ‘innocent owner’. See 18 USC § 983(d) (elaborated in question 27). Claimants may also petition for a reduction in the amount of the property forfeited. See 18 USC § 983(g). Various federal statutes authorise civil forfeiture, including 21 USC § 881 (controlled substances) and 18 USC § 981 (money laundering, mail and wire fraud, other crimes). The procedures for civil forfeitures are provided in 18 USC § 983 and Supplemental Rule G of the Federal Rules of Civil Procedure.

A criminal forfeiture action is in personam (against the person). for the defendant’s interest in the property to be forfeited, the government must first obtain a criminal conviction. Forfeiture is determined at the sentencing stage. Because criminal forfeiture is action against the defendant’s interest in the property, third-party interests in the property must be resolved at an ancillary hearing prior to the entry of a final order of forfeiture. See 21 USC § 853(n). When all third-party claims have been resolved, title to the property is transferred to the government. Various federal statutes authorise criminal forfeiture, including 21 USC § 853 (controlled substances); 18 USC § 981 (money laundering, mail and wire fraud, other crimes); 28 USC § 2461(c) (terrorism); 18 USC § 1963 (racketeering); and 28 USC § 2461(c) (authorising the government to seek criminal forfeiture whenever civil forfeiture is available and the defendant pleads guilty to the offense giving rise to the forfeiture). The procedures for criminal forfeitures are provided in Rule 32.2 of the Federal Rules of Criminal Procedure.

The method of calculating the benefit unlawfully obtained varies depending on the property at issue. For example, where the defendant is convicted of selling contraband, the benefit obtained may be calculated based on the money received by the defendant for the illegal sales.

Confiscation procedure

Describe how confiscation works in practice.

The seizing agency will commence an administrative forfeiture proceeding or pursue forfeiture civilly or criminally in federal or state court.

In criminal forfeiture actions, the government will include a forfeiture allegation in the indictment or charging document identifying the property allegedly subject to forfeiture. If the defendant is convicted and the court determines that the elements of forfeiture are satisfied, the defendant’s property will be forfeited to the government at sentencing. In the case of forfeited funds, the government may agree to a payment plan whereby the funds are transferred in instalments rather than a lump sum. Forfeited property may then be transferred to third-party claimants that establish a valid ownership interest, restored to victims or transferred to the Asset Forfeiture Fund or government agencies that contributed to the forfeiture (see question 28).

Agencies

What agencies are responsible for tracing and confiscating the proceeds of crime in your jurisdiction?

The Department of Justice (DOJ) is the primary federal government agency charged with tracing and confiscating the proceeds of crime. Relevant components within DOJ include the Litigating Divisions; Criminal Division, Money Laundering and Asset Recovery Section (MLARS); Criminal Division, Office of International Affairs; Federal Bureau of Investigation; Bureau of Alcohol, Tobacco, Firearms and Explosives; and Drug Enforcement Administration. Other government agencies responsible for tracing and confiscating the proceeds of crime include:

  • Bureau of Diplomatic Security;
  • Department of Agriculture, Office of Inspector General;
  • Department of Defense, Defense Criminal Investigative Service;
  • Department of Homeland Security;
  • ICE Homeland Security Investigations (ICE-HIS);
  • Customs and Border Protection (CBP);
  • Department of State;
  • Food and Drug Administration, Office of Criminal Investigations;
  • Internal Revenue Service (IRS);
  • Department of Treasury, Financial Crimes Enforcement Network (FinCEN);
  • Securities and Exchange Commission; and
  • US Postal Inspection Service.

State and local law enforcement agencies are also generally authorised to trace and confiscate the proceeds of crime within their jurisdictions pursuant to state law.

Secondary proceeds

Is confiscation of secondary proceeds possible?

Yes, when authorised by the relevant statute. For example, individuals convicted of certain criminal offences may be required to forfeit ‘any property constituting, or derived from, proceeds the person obtained directly or indirectly, as the result of such violation’ (18 USC § 982(a)(2)(B)). In general, where secondary proceeds are subject to forfeiture, the government must establish that they are ‘traceable’ (see, eg, 18 USC § 982(a)(1)(B)) to or ‘derived from’ (see, eg, 21 USC § 853 (a)(1)) the underlying crime. This may be challenging in cases involving co-mingled funds. Various methodologies for distinguishing tainted from non-tainted funds may be deployed. See US v Miller, 911 F.3d 229, 234 (C.A.4 (Va), 2018) (applying the ‘lowest intermediate balance’ tracing rule to identify proceeds of crime in defendant’s bank account).

Third-party ownership

Is it possible to confiscate property acquired by a third party or close relatives?

Yes, depending on the nature of the property at issue and the third-party’s ownership interest in that property. Confiscation may be possible where the government establishes that the property at issue was involved in or traceable to the criminal activity or where the third-party claimant cannot establish a valid ownership or legal interest in the property due to, for example, knowingly participating in a fraudulent conveyance.

A third-party claimant in civil forfeiture proceedings may prevail upon establishing that the property was not involved in the criminal conduct or that it is an ‘innocent owner’. The ‘innocent owner’ defence may apply (i) where the third party’s ownership interest arose after the conduct giving rise to the forfeiture had taken place and the third-party was a bona fide purchaser for value or (ii) where the third party’s ownership was in existence prior to the unlawful conduct, and the third party was either unaware of the criminal conduct or acted to halt criminal use of the property after learning of the conduct. To prevail in criminal forfeiture proceedings, a third-party claimant must similarly establish, by a preponderance of the evidence, a superior interest in the forfeited property relative to that held by the defendant or that he or she is a bona fide purchaser for value. See 21 U.S.C. § 853(n).

In regard to procedures, civil forfeiture proceedings, third parties with an ownership or legal interest in the property must file a claim to the property and answer the government’s forfeiture complaint. In criminal forfeiture proceedings, any claims by third parties are resolved in an ancillary proceeding following the entry of a preliminary order of forfeiture. The procedures for commencing an ancillary proceeding are governed by the provisions of 21 USC § 853. Ancillary proceedings are limited to proving the third party’s interests in the property subject to forfeiture - a third party may not challenge the underlying determination that the property is subject to forfeiture.

Expenses

Can the costs of tracing and confiscating assets be recovered by a relevant state agency?

Yes, depending on the seizing agency. The Asset Forfeiture Fund (AFF) established by the Comprehensive Crime Control Act of 1984 and managed by DOJ is available to finance expenses associated with the execution of asset forfeiture functions, including certain investigative expenses leading to seizures, if the seizing agency is a DOJ component or participant in the AFF programme. Investigative expenses include costs incurred in identifying and locating property subject to forfeiture, including the costs of investigative support contracts. The AFF is financed with the proceeds of forfeitures and forfeiture case settlements resulting from any law enforced or administered by DOJ. Investigative expenses are also recoverable by federal agencies that participate in the Treasury Department Forfeiture Fund. See 31 USC § 9703.

Financing for asset tracing and confiscation may also be available to federal, state and local law enforcement agencies via ‘equitable sharing’ payments. See Asset Forfeiture Manual, chapter 15. Payments vary depending on the nature of the agency’s participation in the law enforcement effort leading to forfeiture and the value of the forfeited property.

Non-DOJ component participants in the AFF include the US Department of Agriculture, Office of Inspector General; the US Department of Defense, Criminal Investigative Service; the US Department of State, Bureau of Diplomatic Security; the US Food and Drug Administration, Office of Criminal Investigations; and the US Postal Inspection Service.

Value-based confiscation

Is value-based confiscation allowed? If yes, how is the value assessment made?

Yes. Where tainted property is no longer available for forfeiture, untainted substitute property may be forfeited. For example, 21 USC § 853(p) provides that if forfeited property cannot be located through the exercise of due diligence or has been transferred or sold to, or deposited with, a third party; placed beyond the jurisdiction of the court; substantially diminished in value; or commingled with other property that cannot be divided without difficulty, ‘the court shall order the forfeiture of any other property of the defendant, up to the value of the relevant property.’ See also 18 USC § 1963(m). Expert testimony may be used to determine the value of the substitute property.

The government may also obtain a forfeiture money judgment where the defendant lacks sufficient assets at the time of sentencing. See Fed. R. Crim. P. 32.2(b) and (c); 31 USC § 5332(b)(4). A forfeiture money judgment can be enforced against any of the defendant’s property, including untainted assets, thereby eliminating the need for the government to trace the proceeds of crime to specific assets.

Pursuant to 18 USC § 981(k), the United States may ‘constructively’ restrain, seize and forfeit funds located in a foreign bank abroad by restraining, seizing and forfeiting an equivalent amount of funds from a corresponding or interbank account held in the US by the foreign financial institution with which the foreign bank account is maintained.

Burden of proof

On whom is the burden of proof in a procedure to confiscate the proceeds of crime? Can the burden be reversed?

The burden of proof in forfeiture proceedings is on the government. In civil forfeiture proceedings, the government must demonstrate by a preponderance of the evidence that the property is subject to forfeiture. See 18 USC 983(c)(1). Where the government’s theory of forfeiture is that the property was used to commit or facilitate the criminal offence, the government must also establish that ‘a substantial connection’ existed between the property and the offence, see 18 USC § 983.

In criminal forfeiture proceedings, the government first bears the burden of proving, beyond a reasonable doubt, that the accused committed the underlying crime. Forfeiture is not an element of the crime itself, therefore, at sentencing, the government’s burden shifts to demonstrating the ‘requisite nexus between the property and the offence’ by a preponderance of the evidence (Fed. R. Crim. P. 32.2).

Using confiscated property to settle claims

May confiscated property be used in satisfaction of civil claims for damages or compensation from a claim arising from the conviction?

Civil claims for damages are not satisfied using forfeited property, but confiscated property may be used to compensate victims of crime. See 18 USC § 981(e)(6) (authorising ‘the Attorney General, the Secretary of the Treasury, or the Postal Service … to transfer such property on … as restoration to any victim of the offense giving rise to the forfeiture …’); 21 USC §853(i) (authorising the Attorney General to ‘grant petitions for mitigation or remission of forfeiture, restore forfeited property to victims of a violation of this subchapter, or take any other action to protect the rights of innocent persons which is in the interest of justice …’).

There are several methods by which forfeited assets may be transferred to victims, including remission and restoration. See 28 C.F.R. Part 9. Restoration procedures, which are available where there is a court order of restitution and forfeiture, permit the government to transfer forfeited funds to a court to satisfy a criminal restitution order for victims that do not have a present ownership interest in the forfeited property, but who otherwise qualify for remission under the applicable regulations. See Asset Forfeiture Policy Manual, chapter 14. Compensation may be remitted to victims up to the fair market value of the pecuniary loss caused by the criminal offence underlying the forfeiture, not exceeding the victim’s share of the net proceeds associated with the forfeiture. See 28 CFR § 9.8.

Confiscation of profits

Is it possible to recover the financial advantage or profit obtained through the commission of criminal offences?

Yes, depending on the applicable statute and underlying offence. In general, the government may recover all proceeds of crimes, including any property or interest in property that is traceable, directly or indirectly, to the illegal activity, including dividends on securities, appreciation of real property and interest on money. See US v St Pierre, 809 F.Supp.2d 538, 544 (E.D.La., 2011) (finding defendant’s share of revenue from contracts obtained through bribery was subject to forfeiture). Depending on the statute, ‘proceeds’ may be defined as either the gross proceeds (ie, all money received from the illegal activity (see 18 USC § 981(a)(2)(A))) or net proceeds (money acquired minus direct costs incurred in providing the goods or services). See 18 USC § 981(a)(2)(B).

Non-conviction based forfeiture

Can the proceeds of crime be confiscated without a conviction? Describe how the system works and any legal challenges to in rem confiscation.

Yes, see question 23.

Management of assets

After the seizure of the assets, how are they managed, and by whom? How does the managing authority deal with the hidden cost of management of the assets? Can the assets be utilised by the managing authority or a government agency as their own?

The US Marshals Service (USMS) manages and disposes of assets in its custody that have been seized for forfeiture or forfeited by DOJ (and other federal law enforcement agencies by agreement). In the case of complex assets, business enterprises or international seizures, a third-party expert may be appointed (ie, a trustee, business monitor, property manager or custodian). The seizing agency may be responsible for management costs, such as property taxes and interest payments. For example, it is DOJ policy to pay state and local property taxes up to the date of entry of the final order or judgment of forfeiture. See Asset Forfeiture Manual, chapter 4.

In general, property that has been seized pending forfeiture may not be utilised by the government, including for official use, until a final order of forfeiture is issued. In certain circumstances, assets may be utilised by the managing authority where use is necessary to preserve the value of the asset (eg, a ranch). Following a final order of forfeiture, the Attorney General may exercise his authority to transfer property to a federal agency for official use, or to state and local agencies, including law enforcement agencies, for public use (eg, crime prevention, improved housing, etc). There are also limitations on the ability of DOJ employees to purchase forfeited property sold by the government. See Asset Forfeiture Manual, chapter 10.

In addition to DOJ, the Treasury Department also administers the Treasury Forfeiture Fund, which is the recipient account for forfeitures made pursuant to laws enforced or administered by participating Treasury and Department of Homeland Security agencies.

Making requests for foreign legal assistance

Describe your jurisdiction’s legal framework and procedure to request international legal assistance concerning provisional measures in relation to the recovery of assets.

The United States has entered into Mutual Legal Assistance Treaties (MLATs) with over 70 countries. Pursuant to these treaties, the government may submit requests for assistance. The United States may also submit requests pursuant to multilateral treaties and letters rogatory. See, for example, 28 USC § 1781.

The office of Internal Affairs (OIA) serves as the channel for all formal requests by the United States to foreign governments for legal assistance. It is DOJ policy to obtain a probable cause finding prior to submitting an MLA request. Asset Forfeiture Manual, chapter 8.

The United States is also partner to other networks related to recovery of proceeds of crime, including the Camden Asset Recovery Inter-Agency Network, the Stolen Asset Recovery Initiative and Asset Recovery Focal Point Initiative. Requests for information and investigation support relating to asset recovery may be sent through these initiatives.

Complying with requests for foreign legal assistance

Describe your jurisdiction’s legal framework and procedure to meet foreign requests for legal assistance concerning provisional measures in relation to the recovery of assets.

The US government is authorised by statute to respond to requests for assistance from foreign governments with which it has a treaty or other formal agreement concerning provisional measures relating to recovery of assets. See 28 U.S.C. § 2467 (providing that ‘[t]o preserve the availability of property subject to civil or criminal forfeiture under foreign law, the government may apply for, and the court may issue, a restraining order at any time before or after the initiation of forfeiture proceedings by a foreign nation’); see also 18 U.S.C. § 3512 (authorising issuance of ‘such orders as may be necessary to execute a request from a foreign authority for assistance … in proceedings related to the prosecution of criminal offenses, including proceedings regarding forfeiture, sentencing, and restitution’).

Incoming requests for forfeiture assistance from foreign nations are addressed by MLARS in coordination with OIA and implemented by the relevant law enforcement agencies. The responses to such requests will vary depending on the requirements of the relevant treaty. In response to a request for assistance, MLARS may initiate a forfeiture action. The US government can also enforce foreign restraining orders and forfeiture judgments pursuant to international treaties, conventions and MLATs under 28 USC § 2467.

The United States participates in intelligence sharing networks with foreign governments that facilitate asset recovery relating to criminal and terrorist activities (Camden, Egmont, etc).

Treaties

To which international conventions with provisions on asset recovery is your state a signatory?

The United States is party to multiple international conventions with provisions on asset recovery. Significant conventions include:

  • the Inter-American Convention Against Corruption;
  • the Inter-American Convention on Mutual Assistance in Criminal Matters;
  • the Inter-American Convention Against Terrorism and Inter-American Convention on Letters Rogatory as well as Additional Protocol;
  • the International Convention for the Suppression of the Financing of Terrorism;
  • the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions;
  • the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances;
  • the UN Convention against Corruption; and
  • the UN Convention against Transnational Organized Crime.

A full list of international conventions to which the United States is party is available at: https://www.state.gov/treaties-in-force/.

Private prosecutions

Can criminal asset recovery powers be used by private prosecutors?

No. However, private victims may still recover forfeited property where the government exercises its remission or restoration authority (see question 31).

Update and trends

Emerging trends

Are there any emerging trends or hot topics in civil and criminal asset recovery in your jurisdiction?

Emerging trends39 Are there any emerging trends or hot topics in civil and criminal asset recovery in your jurisdiction?

Third-party litigation funding (TPLF) is a major trend in the United States that affects all stages of the litigation process, including asset recovery. TPLF is the ‘funding of litigation activities by entities other than the parties themselves, their counsel or other entities with a pre-existing contractual relationship with one of the parties, such as an indemnitor or a liability insurer’ (Comm’n on Ethics 20/20, Am. Bar Ass’n (2012)). Interest in TPLF on the part of litigants and investors continues to grow, fuelled by the high costs and potentially large rewards that accompany litigation in US courts. TPLF is controversial owing to its ability to influence what cases are heard by the courts and how they proceed.

TPLF can affect the scope, process and outcome of litigation. It is typically provided to individual consumer or corporate plaintiffs on a contingent basis, although defendants may also enter into TPLF agreements. TPLF investors may proactively seek out plaintiffs for potential cases, which critics argue results in frivolous lawsuits. TPLF also increases the amount of resources available for discovery and asset-tracing, which may influence the scope of the plaintiff’s discovery requests and increase costs for the defendant. Third-party litigation funders may also exercise influence, directly or indirectly, over the evidence presented, particularly with respect to damages, and whether and when a party chooses to agree to a settlement and on what terms. Because TPLF agreements are typically confidential, it is not always possible to confirm whether the third-party funder is, in fact, exercising control over the litigation strategy of the funded party. See Third Party Litigation Funding: Civil Justice and the Need for Transparency (DRI, 2018).

In certain states, courts have refused to enforce TPLF agreements on the grounds of champerty or barratry (legal doctrines that bar improper meddling and assistance in lawsuits and related agreements). See Malowski v Prospect Funding Partners LLC, 890 N.W.2d 756 (Minn. App. 2017); Boling v Prospect Funding Holdings, LLC, No. 1:14-CV-00081-GNS-HBB, 2017 US Dist. LEXIS 48098 (W.D. Ky. 30 March 2017). Other courts have concluded that TPLF is permitted under state law. See, eg, Anglo-Dutch Petroleum Int’l, Inc v Haskell, 193 S.W.3d 87, 101, 104-05 (Tex. App. 2006).

At present, no federal rules require disclosure of the use of TPLF. Some consider that TPLF agreements should be discoverable in the same manner as insurance policies held by the defendant pursuant to Rule 26(a)(1)(A)(iv) of the Federal Rules of Civil Procedure. See Renewed Proposal to Amend Fed. R. Civ. P.26(a)(1)(A), US Chamber Institute for Legal Reform, US Courts (1 June 2017), https://www.uscourts.gov/sites/default/files/17-cv-o-suggestion_ilr_et_al_0.pdf. Judges have the authority to determine that information relating to TPLF is relevant to a case and, depending on their assessment of any applicable privilege issues, order disclosure.

As the TPLF industry has grown, the number of disputes involving TPLF companies as litigants has grown as well. Investors in TPLF have filed cases against plaintiffs and/or plaintiff law firms for failure to repay advanced funds and investors in TPLF have filed lawsuits against TPLF companies. See DRI, 2018.

Recent legislative efforts to introduce federal regulation of TPLF have been unsuccessful. See Grassley, Tillis, Cornyn Introduce Bill to Shine Light on Third Party Litigation Financing Agreements (10 May 2018) https://www.grassley.senate.gov/news/news-releases/grassley-tillis-cornyn-introduce-bill-shine-light-third-party-litigation (last visited 1 August 2019). The persistent debate over the public policy implications of TPLF and divergent state practices, however, suggest that such efforts will continue.

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