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Federal Criminal Forfeiture and Third-Party Property Claims

Federal criminal forfeiture can reach far beyond cash found in a defendant’s possession. The government may seek forfeiture of real estate, vehicles, bank accounts, businesses, firearms, jewelry, and other property allegedly connected to criminal activity.

But what happens when someone other than the defendant claims to own the property?

Federal law provides procedures allowing third parties to assert legitimate ownership interests in property ordered forfeited as part of a criminal case. These proceedings can become complicated because simply claiming that property belongs to someone else may not be enough.

The Seventh Circuit’s decision in United States v. Bowser, 834 F.3d 780 (7th Cir. 2016) provides an interesting example involving property associated with the Outlaws Motorcycle Club.

Federal criminal defense attorney Michael J. Petro has more than 35 years of criminal defense experience representing individuals in serious federal criminal investigations and prosecutions, including cases involving asset seizure and forfeiture.

What Is Federal Criminal Forfeiture?

Criminal forfeiture allows the federal government to obtain property connected to certain criminal offenses following a defendant’s conviction.

Unlike a traditional fine, forfeiture targets specific property or proceeds that federal law makes subject to forfeiture.

Depending upon the statute involved, prosecutors may seek property alleged to represent:

  • Proceeds of criminal activity
  • Property obtained through criminal conduct
  • Property used to commit or facilitate an offense
  • Property involved in money laundering
  • Property connected with racketeering activity
  • Substitute assets when statutorily authorized

The precise forfeiture rules depend on the criminal offense and the forfeiture statute in use.

Criminal Forfeiture Is Part of the Defendant’s Criminal Case

Federal criminal forfeiture is generally an in personam proceeding against the defendant.

That distinguishes it from civil forfeiture, which is ordinarily an action directed against the property itself.

In a criminal case, forfeiture generally follows a conviction for an offense authorizing forfeiture.

The indictment may contain a forfeiture allegation identifying property the government intends to seek if the defendant is convicted.

After a conviction, the court determines which property is subject to forfeiture and may enter a preliminary forfeiture order.

That does not necessarily resolve the rights of innocent third parties.

What Happens When Someone Else Owns the Property?

A criminal defendant may possess or control property in which another person claims an ownership interest.

Examples might include:

  • A jointly owned home
  • A vehicle titled to another person
  • Money belonging to a spouse
  • Business property
  • Property held in trust
  • Family assets
  • Property belonging to an organization
  • Property purchased by more than one person

The government cannot necessarily extinguish a legitimate third party’s ownership rights merely because the property was found in the defendant’s possession or became subject to a preliminary forfeiture order.

Federal forfeiture statutes therefore provide a process through which third parties can assert their interests.

What Is an Ancillary Forfeiture Proceeding?

Third-party ownership claims are generally resolved through an ancillary proceeding after the court enters a preliminary forfeiture order.

For many federal criminal forfeitures, the procedure is governed by 21 U.S.C. § 853(n) and Federal Rule of Criminal Procedure 32.2.

RICO contains a closely related procedure in 18 U.S.C. § 1963(l).

The ancillary proceeding functions somewhat like a separate lawsuit concerning ownership of the forfeited property.

The issue is not whether the defendant is guilty.

The issue is whether the third party has a legal interest in the property that prevents the government from taking that interest through criminal forfeiture.

A Third Party Cannot Usually Intervene in the Criminal Trial

An important feature of criminal forfeiture is the separation between the defendant’s criminal proceeding and third-party ownership claims.

A person claiming an interest in property generally does not intervene in the defendant’s criminal trial to litigate ownership.

Instead, the third party waits until the court enters the preliminary order of forfeiture and then uses the statutory ancillary process.

This procedure is intended to prevent the criminal trial from becoming a multiparty dispute over ownership of every asset the government seeks to forfeit.

The Deadline for Filing a Third-Party Petition Matters

Federal forfeiture statutes impose strict procedural requirements.

Under 21 U.S.C. § 853(n), a person asserting a legal interest in forfeited property generally must petition the court within 30 days of the final publication of notice or receipt of notice, whichever is earlier, as provided by the statute.

RICO’s forfeiture provision contains a similar 30-day procedure under 18 U.S.C. § 1963(l).

Missing the deadline can create serious problems.

A person who receives notice that property he or she owns has been ordered forfeited should therefore act promptly.

What Must a Third-Party Petition Contain?

A valid petition requires more than saying:

“That property belongs to me.”

Under the federal forfeiture statutes, a petition generally must describe:

  • The nature of the petitioner’s right, title, or interest in the property
  • The time and circumstances under which the interest was acquired
  • Additional facts supporting the claim
  • The relief requested

The petition must also satisfy applicable verification requirements.

These details matter because the court must determine whether the claimant has a legally recognized interest in the specific property.

Two Principal Ways a Third Party Can Prevail

Under 21 U.S.C. § 853(n)(6), a third-party claimant generally has two principal statutory paths.

The claimant may establish that:

First, the claimant had a legal right, title, or interest in the property that rendered the forfeiture order invalid in whole or in part because the interest was vested in the claimant rather than the defendant—or was superior to the defendant’s interest—when the acts giving rise to forfeiture occurred.

Or:

Second, the claimant was a bona fide purchaser for value who was reasonably without cause to believe that the property was subject to forfeiture when the interest was acquired.

RICO’s § 1963(l)(6) uses a similar framework.

These statutory requirements make the timing and origin of the claimed ownership interest extremely important.

United States v. Bowser and the Outlaws Motorcycle Club

The Seventh Circuit confronted an unusual third-party forfeiture claim in United States v. Bowser.

The underlying prosecution involved members of the Outlaws Motorcycle Club.

Federal investigators seized numerous items associated with the Outlaws, including club insignia and other property displaying Outlaws symbols.

The government sought forfeiture under the federal RICO statute.

A third party, Bradley Carlson, attempted to assert an ownership interest in some of the property on behalf of himself and the organization.

The dispute eventually reached the Seventh Circuit. (law.justia.com)

The Property Included Outlaws Insignia

The property at issue included items displaying Outlaws Motorcycle Club insignia.

Carlson contended that certain Outlaws insignia belonged collectively to the organization rather than individually to the defendants from whom the property had been seized.

That presented an interesting forfeiture question.

If an organization owns property rather than the criminal defendant, can the government forfeit that property as part of the defendant’s criminal case?

Potentially not—but the third party must properly establish the ownership interest recognized by the forfeiture statute.

Simply Claiming Ownership Was Not Enough

Carlson’s claim encountered a fundamental problem.

The Seventh Circuit concluded that the petition did not adequately establish the required legal interest in the property.

The court explained that a third-party petition must contain information concerning the nature and extent of the claimant’s right, title, or interest and the time and circumstances under which that interest was acquired.

A generalized assertion that the Outlaws collectively owned club insignia did not adequately establish those facts.

The court therefore rejected the claim.

The Origin of Ownership Matters

Bowser illustrates an important principle in federal forfeiture proceedings:

How the claimant acquired the property matters.

Suppose a third party claims ownership of $100,000 found in a defendant’s home.

The court may need to know:

  • Where did the money come from?
  • When did the claimant acquire it?
  • How was it acquired?
  • Why was the defendant holding it?
  • What documents establish ownership?
  • Did the defendant have an ownership interest?
  • Did the claimant’s interest exist before the criminal conduct?
  • Was the claimant a bona fide purchaser?

A bare assertion of ownership may not answer those questions.

Title Does Not Always Resolve Ownership

Another important issue is the difference between legal title and the actual ownership interest.

For example, the fact that a vehicle is titled in another person’s name does not necessarily end a forfeiture inquiry.

The government may attempt to show that the titled owner was merely a nominee and that the defendant actually purchased, controlled, and beneficially owned the vehicle.

Conversely, property found in the defendant’s possession may genuinely belong to someone else.

Courts, therefore, may examine the substance of the ownership arrangement rather than relying solely upon whose name appears on a document.

Jointly Owned Property Can Create Difficult Issues

Federal forfeiture can become particularly complicated when the defendant and an innocent person jointly own property.

A common example is a residence owned by a married couple.

Questions may include:

  • What interest does each spouse possess under state property law?
  • When was the property acquired?
  • Who supplied the purchase money?
  • Did the innocent spouse’s interest predate the criminal activity?
  • Was criminal money used to acquire or improve the property?
  • Is only the defendant’s interest forfeitable?
  • Can the property be sold while protecting the innocent owner’s share?

Because property rights are often created by state law while forfeiture consequences arise under federal law, the analysis can require consideration of both.

Property Purchased With Criminal Proceeds

Third-party claims can become especially difficult when the government alleges that property was purchased with proceeds of crime.

For example, a defendant may purchase a vehicle with allegedly fraudulent proceeds and later transfer title to a family member.

The government may argue that the defendant never possessed a transferable interest free from forfeiture or that the later recipient does not qualify for statutory protection.

The claimant may need to establish both the legitimacy and timing of the ownership interest.

Bona Fide Purchasers for Value

Federal forfeiture law provides protection for certain bona fide purchasers for value.

Generally, the claimant must establish that the property interest was acquired for value and that the claimant was reasonably without cause to believe the property was subject to forfeiture.

This provision can protect legitimate commercial transactions.

It is substantially different from simply receiving property as a gift after criminal conduct occurred.

Whether someone qualifies as a bona fide purchaser depends upon the circumstances surrounding the transaction.

Gifts and Transfers to Family Members

Transfers to spouses, children, relatives, friends, or associates are frequently subject to close scrutiny in forfeiture proceedings.

If a defendant transfers valuable property after an investigation begins—or after the criminal conduct giving rise to forfeiture—the government may contend that the transfer was designed to place the asset beyond the government’s reach.

A recipient cannot necessarily defeat forfeiture merely by producing a document showing that title was transferred.

The court may examine:

  • When the transfer occurred
  • Whether the value was paid
  • Who continued to control the property
  • Who used the property
  • Why did the transfer occur
  • Whether the recipient knew about the criminal investigation
  • Whether the transaction was genuine

These facts can determine whether the claimant possesses a protected interest.

Substitute Assets in Federal Criminal Forfeiture

Federal forfeiture law may also permit the government to seek substitute property under certain circumstances.

For example, directly forfeitable property may have been:

  • Transferred to another person
  • Sold
  • Dissipated
  • Placed beyond the court’s jurisdiction
  • Substantially diminished in value
  • Commingled with other property

When the statutory requirements are satisfied, the government may seek other property belonging to the defendant as substitute assets.

This can substantially expand the financial consequences of a federal criminal case.

Criminal Forfeiture Versus Restitution

Forfeiture and restitution are different.

Restitution generally seeks to compensate victims for losses caused by the defendant’s offense.

Forfeiture generally requires the defendant to surrender property or proceeds connected to criminal activity as authorized by statute.

A defendant can potentially face both.

The existence of a restitution obligation does not necessarily prevent the government from pursuing forfeiture, and forfeited property does not automatically satisfy restitution unless applicable procedures result in money being applied for victims.

Understanding the distinction is important when evaluating the financial consequences of a federal prosecution.

Criminal Forfeiture Versus Civil Forfeiture

Criminal forfeiture should also be distinguished from civil asset forfeiture.

Criminal forfeiture generally occurs as part of the prosecution of a defendant and ordinarily depends upon conviction.

Civil forfeiture is generally directed against the property itself and can sometimes proceed even when the property owner has not been criminally convicted.

The procedures, burdens, defenses, and deadlines can differ substantially.

A person whose property has been seized should therefore first determine what type of forfeiture proceeding the government is pursuing.

Challenging Federal Criminal Forfeiture

Forfeiture issues should be examined early in a federal criminal case.

Potential issues can include:

  • Whether the charged offense authorizes forfeiture
  • Whether the property constitutes proceeds
  • Whether the property facilitated the offense
  • Whether the government can trace the property
  • Whether substitute-asset requirements are satisfied
  • Whether the defendant actually owns the property
  • Whether a third party possesses a superior interest
  • Whether the notice was legally sufficient
  • Whether the third-party petition was timely
  • Whether the government’s requested forfeiture exceeds statutory authority

The appropriate challenge depends upon the property and forfeiture statute involved.

Records Can Be Critical to a Third-Party Claim

A person asserting ownership should consider what evidence establishes the claim.

Relevant records may include:

  • Purchase agreements
  • Bank statements
  • Cancelled checks
  • Wire-transfer records
  • Titles
  • Deeds
  • Loan documents
  • Tax records
  • Business records
  • Trust documents
  • Insurance records
  • Receipts
  • Correspondence
  • Evidence showing possession and control

The objective is to establish not merely that the claimant says the property belongs to him or her, but how and when the legally protected ownership interest arose.

That is one of the principal lessons of Bowser.

Do Not Ignore a Federal Forfeiture Notice

A third party who receives notice concerning federal forfeiture should not assume that ownership will be obvious to the court.

The ancillary process contains deadlines and pleading requirements.

Failure to properly assert the ownership interest may result in the government’s forfeiture becoming final without the merits of the claim ever being fully litigated.

Prompt attention is particularly important when valuable property such as a home, business, bank account, or vehicle is involved.

The Lesson From United States v. Bowser

Bowser involved unusual property—Outlaws Motorcycle Club insignia—but the legal lesson applies much more broadly.

A third party seeking to prevent criminal forfeiture must establish a legally cognizable interest in the specific property.

General assertions of ownership may be insufficient.

The claimant should be prepared to establish:

What property is claimed, what legal interest the claimant possesses, when that interest arose, how it was acquired, and why that interest is protected under the federal forfeiture statute.

The details matter.

Experienced Federal Criminal Forfeiture Attorney

Michael J. Petro has more than 35 years of criminal defense experience representing individuals facing serious federal criminal investigations and prosecutions.

Federal forfeiture can threaten property belonging not only to defendants but also to spouses, family members, businesses, and other third parties.

When the government seeks forfeiture, the defense should carefully examine the statutory basis for forfeiture, the connection between the property and the alleged offense, ownership of the property, tracing of criminal proceeds, and any legitimate third-party interests.

If you are facing a federal criminal case involving asset forfeiture—or the government is attempting to forfeit property in which you claim an ownership interest—contact federal criminal defense attorney Michael J. Petro to discuss the case.