Civil Forfeiture of Cash: It Could Happen to You

If you don't trust U.S. banks to protect the monies you've deposited with them, you're hardly alone.

Once you deposit money in a bank, from a legal standpoint, that money is no longer yours. Instead, the bank owns it. You are an unsecured creditor. What's more, in the event of future bank failures, the U.S. government has now confirmed that rather than paying off depositors, it may instead force them to submit to a "bail-in" regime similar to what recently transpired in Cyprus.

Only a few years ago, U.S. banks paid interest rates of 4% or higher on savings accounts and certificates of deposit. If it were still possible to obtain these returns today, U.S. depositors might decide that the risk of becoming a "bail-in" victim would be worth it. However, the typical interest rate on a U.S. savings account today hovers around 0.25%. This paltry return hardly compensates for the risks associated with a possible bank failure and subsequent bail-in.

Because of the skewed risk-reward ratio associated with deposits in U.S. banks, many depositors have decided to redeploy these assets. Some depositors have moved their savings to stronger banks. Others have decided to save the old-fashioned way. They now keep at least some of the money that they once deposited in banks in cash stored in a safe at home or other secure location.

Unfortunately, this strategy poses its own risks due to federal and state civil forfeiture laws. Law enforcement agencies consider cash holdings inherently suspicious. Under the topsy-turvy legal process of civil forfeiture, they can seize your cash if they believe that it's somehow connected to a crime.

Proving that your cash is connected to a crime is surprisingly easy to demonstrate. That's because 97% or more of cash circulating today contains tiny concentrations of narcotics residues—primarily cocaine. All police need to do is to bring in a drug-sniffing dog to inspect the cash.  If the dog alerts, police seize the cash. And, under civil forfeiture rules, it's up to you to prove that the cash has a legitimate origin.

Consider the case of Emiliano Gomez Gonzolez. During a traffic stop, Nebraska state troopers asked Gonzolez for permission to search his vehicle. During the search, the troopers found bundles of currency totaling $124,700. Based on a dog sniff, police seized all the money.

Gonzolez contested the forfeiture in court. Prosecutors neither convicted nor accused Gomez or any of the other owners of the seized cash of any crime. Nor did police find any drugs, drug paraphernalia, or drug records connected to the cash. Despite these facts, a federal appeals court upheld the confiscation of every dollar found in the vehicle.

In thousands of cases across the United States each year, police follow the same pattern. In a search of someone's home or vehicle, they discover a significant quantity of cash. They then bring in a dog to sniff the cash for the presence of drug residues. The dog alerts virtually 100% of the time. This supposedly gives police probable cause to seize the cash under state or federal civil forfeiture laws.

Owners of property subject to civil forfeiture find themselves in an Alice-in-Wonderland legal landscape where the property seized is accused of a crime, rather than the owner. The owners must follow obscure rules that originate in Admiralty law, with which most attorneys aren't familiar. Under these rules, the seized property is presumed guilty, and it's up to its owner to demonstrate that the property is innocent. (Yes, it's bizarre, but it's the law!) Since obtaining legal representation in a civil forfeiture case typically requires a legal retainer of $10,000 or more, most victims of this vicious procedure never contest the seizure.

In an era of across-the-board cutbacks in public spending, civil forfeitures are a lucrative funding source for cash-strapped agencies and states. Last year, the federal government seized more than $4 billion under civil forfeiture laws, more than twice the take in 2011.

Fortunately, you can reduce the likelihood that law enforcement agencies will try to confiscate your cash under civil forfeiture laws. The most important precaution is to insure the cash you hold contains no narcotics residues. That's difficult to guarantee, but if you insist on withdrawing new bank-wrapped bills from your bank account, the likelihood of contamination drops considerably. Also, keep a withdrawal slip with the cash to prove its origin in a bank account.

Cash withdrawals over $10,000 from a U.S. bank require that the bank file a form with the Treasury Department informing them of the transaction. Don't try to "structure" multiple transactions less than $10,000 that eventually exceed $10,000 to avoid this requirement. Such "structuring" can result not only in the civil forfeiture of your cash, but also a prison sentence up to five years. There is no requirement that the cash have an illegal origin for the government to prevail in a criminal structuring prosecution.

The continued use of dog sniffs to justify the seizure of cash is unconscionable. Yet it continues and is likely to escalate in the years ahead. Make certain that you can prove your cash isn't tainted—and that you can prove it has a legitimate origin.

(For more tips on how to avoid civil forfeitures and other types of government confiscation, consult my book The Lifeboat Strategy. For more information, click here.)

Mark Nestmann

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