Asset Confiscation and Asset Forfeiture

The abuse of asset confiscation and forfeiture statutes by governments, law enforcement agencies, and political appointees and cronies throughout the world is well-documented. In many developing countries and countries in transition, assets confiscated from real and alleged criminals and tax evaders are sold in fake auctions to party hacks, cronies, police officers, tax inspectors, and relatives of prominent politicians at bargain basement prices.

That the assets of suspects in grave crimes and corruption should be frozen or "disrupted" until they are convicted or exonerated by the courts - having exhausted their appeals - is understandable and in accordance with the Vienna Convention. But there is no justification for the seizure and sale of property otherwise.

In Switzerland, financial institutions are obliged to automatically freeze suspect transactions for a period of five days, subject to the review of an investigative judge. In France, the Financial Intelligence Unit can freeze funds involved in a reported suspicious transaction by administrative fiat. In both jurisdictions, the fast track freezing of assets has proven to be a more than adequate measure to cope with organized crime and venality.

The presumption of innocence must fully apply and due process upheld to prevent self-enrichment and corrupt dealings with confiscated property, including the unethical and unseemly use of the proceeds from the sale of forfeited assets to close gaping holes in strained state and municipal budgets.

In the United States, according to The Civil Asset Forfeiture Reform Act of 2000 (HR 1658), the assets of suspects under investigation and of criminals convicted of a variety of more than 400 minor and major offenses (from soliciting a prostitute to gambling and from narcotics charges to corruption and tax evasion) are often confiscated and forfeited ("in personam, or value-based confiscation").

Technically and theoretically, assets can be impounded or forfeited and disposed of even in hitherto minor Federal civil offenses (mistakes in fulfilling Medicare or tax return forms)

The UK's Assets Recovery Agency (ARA) that is in charge of enforcing the Proceeds of Crime Act 2002, had this chilling statement to make on May 24, 2007:

Drug dealing and illegal fishing in the same sentence.

The British firm Bentley-Jennison, who provide Forensic Accounting Services, add:

"In some cases the defendants will even have their assets seized at the start of an investigation, before any charges have been considered. In many cases the authorities will assume that all of the assets held by the defendant are illegally obtained as he has a “criminal lifestyle”. It is then down to the defendant to prove otherwise. If the defendant is judged to have a criminal lifestyle then it will be assumed that physical assets, such as properties and motor vehicles, have been acquired through the use of criminal funds and it will be necessary to present evidence to contradict this.

The defendant’s bank accounts will also be scanned for evidence of spending and any expenditure on unidentified assets (and in some cases identified assets) is also likely to be included as alleged criminal benefit. This often leads to the inclusion of sums from legitimate sources and double counting both of which need to be eliminated."

Under the influence of the post-September 11 United States and the FATF (Financial Action Task Force on Money Laundering), Canada, Australia, the United Kingdom, Greece, South Korea, and Russia have similar asset recovery and money laundering laws in place.

International treaties (for instance, the 1959 European Convention on Mutual Legal Assistance in Criminal Matters, the 1990 Convention of the Council of Europe on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (ETS 141), and The U.N. Convention against Corruption 2003- UNCAC) and European Union Directives (e.g., 2001/97/EC) allow the seizure and confiscation of the assets and "unexplained wealth" of criminals and suspects globally, even if their alleged or proven crime does not constitute an offense where they own property or have bank accounts.

This abrogation of the principle of dual criminality sometimes leads to serious violations of human and civil rights. Hitler could have used it to ask the United Kingdom's Assets Recovery Agency (ARA) to confiscate the property of refugee Jews who committed "crimes" by infringing on the infamous Nuremberg race laws.

Only offshore tax havens, such as Andorra, Antigua, Aruba, the British Virgin Islands, Guernsey, Monaco, the Netherlands Antilles, Samoa, St. Vincent, the US Virgin Islands, and Vanuatu still resist the pressure to join in the efforts to trace and seize suspects' assets and bank accounts in the absence of a conviction or even charges.

Even worse, unlike in other criminal proceedings, the burden of proof is on the defendant who has to demonstrate that the source of the funds used to purchase the confiscated or forfeited assets is legal. When the defendant fails to furnish such evidence conclusively and convincingly, or if he has left the United States or had died, the assets are sold at an auction and the proceeds usually revert to various law enforcement agencies, to the government's budget, or to good social causes and programs. This is the case in many countries, including United Kingdom, United States, Germany, France, Hong Kong, Italy, Denmark, Belgium, Austria, Greece, Ireland, New Zealand, Singapore and Switzerland.

According to a brief written by Jack Smith, Mark Pieth, and Guillermo Jorge at the Basel Institute on Governance, International Centre for Asset Recovery:

"Article 54(1)(c) of the UNCAC recommends that states parties establish non-criminal systems of confiscation, which have several advantages for recovery actions: the standard of evidence is lower (“preponderance of the evidence” rather than “beyond a reasonable doubt”); they are not subject to some of the more restrictive traditional safeguards of international cooperation such as the offense for which the defendant is accused has to be a crime in the receiving state (dual criminality); and it opens more formal avenues for negotiation and settlements. This is already the practice in some jurisdictions such as the US, Ireland, the UK, Italy, Colombia, Slovenia, and South Africa, as well as some Australian and Canadian States."

In most countries, including the United Kingdom, the United States, Austria, Germany, Indonesia, Macedonia, and Ireland, assets can be impounded, confiscated, frozen, forfeited, and even sold prior to and without any criminal conviction. 

In Australia, Austria, Ireland, Hong-Kong, New Zealand, Singapore, United Kingdom, South Africa, United States and the Netherlands alleged and suspected criminals, their family members, friends, employees, and partners can be stripped of their assets even for crimes they have committed in other countries and even if they have merely made use of revenues obtained from illicit activities (this is called "in rem, or property-based confiscation"). This often gives rise to cases of double jeopardy.

Typically, the defendant is notified of the impending forfeiture or confiscation of his or her assets and has recourse to a hearing within the relevant law enforcement agency and also to the courts. If he or she can prove "substantial harm" to life and business, the property may be released to be used, though ownership is rarely restored.

When the process of asset confiscation or asset forfeiture is initiated, banking secrecy is automatically lifted and the government indemnifies the banks for any damage they may suffer for disclosing confidential information about their clients' accounts.

In many countries from South Korea to Greece, lawyer-client privilege is largely waived. The same requirements of monitoring of clients' activities and reporting to the authorities apply to credit and financial institutions, venture capital firms, tax advisers, accountants, and notaries.

Elsewhere, there are some other worrying developments:

In Bulgaria, the assets of tax evaders have recently begun to be confiscated and turned over to the National Revenue Agency and the State Receivables Collection Agency. Property is confiscated even when the tax assessment is disputed in the courts. The Agency cannot, however, confiscate single-dwelling houses, bank accounts up to 250 leva of one member of the family, salary or pension up to 250 leva a month, social care, and alimony, support money or allowances.

Venezuela has recently reformed its Organic Tax Code to allow for:

" (P)re-judgment enforcement measures (to) include closure of premises for up to ten days and confiscation of merchandise. These measures will be applied in addition to the attachment or sequestration of personal property and the prohibition against alienation or encumbrance of realty. During closure of premises, the employer must continue to pay workers, thereby avoiding an appeal for constitutional protection."

Finally, in many states in the United States, "community responsibility" statutes require of owners of legal businesses to "abate crime" by openly fighting it themselves. If they fail to tackle the criminals in their neighborhood, the police can seize and sell their property, including their apartments and cars. The proceeds from such sales accrue to the local municipality.

In New-York City, the police confiscated a restaurant because one of its regular patrons was an alleged drug dealer. In Alabama, police seized the home of a senior citizen because her yard was used, without her consent, for drug dealing. In Maryland, the police confiscated a family's home and converted it into a retreat for its officers, having mailed one of the occupants a package of marijuana.

Also Read:

Corruption and Transparency

Legalizing Crime

The Greatest Savings Crisis in History

The Typology of Financial Scandals

The Bursting Asset Bubbles

(Case Studies: The Savings and Loans Crisis, Crash of 1929, British Real Estate)

The Shadowy World of International Finance

Hawala, or the Bank that Never Was

Money Laundering in a Changed World

The Varieties of Corruption

Straf - Corruption in CEE

The Criminality of Transition

The Kleptocracies of the East

The Enrons of the East

Bully at Work - Interview with Tim Field

The Economics of Conspiracy Theories

The Industrious Spies

The Business of Torture

Fimaco Wouldn't Die - Russia's Missing Billions

Treasure Island Revisited - Maritime Piracy

Organ Trafficking in Eastern Europe

Begging Your Trust in Africa

Slush Funds