Perhaps the most troubling type of criminal forfeiture is the pretrial restraint of untainted assets. The Department of Justice will seize assets, before proving a single allegation of wrongdoing, even where those assets are not linked to the wrongdoing.
This is troubling because the government hasn’t proven that the defendant did anything wrong or that the assets being seized can be traced to the supposed crime.
That practice may have changed in the Fourth Circuit (the only circuit to allow pretrial seizure of untainted assets).
The Seizure of Insurance Money
After indicting Dr. Atif Babar Malik in the District of Maryland in mid-2016 for various health-care fraud charges, the government filed a motion seeking to restrain the proceeds of a $5 million insurance policy. Sadly, the policy was payable only because Dr. Malik’s business partner (and co-defendant) had passed away. It was a “key man” policy.
There are several statutes that permit seizure of assets by the government on the criminal and civil side. Here, the government sought the seizure of the assets under 21 U.S.C. § 853(e)(1)(A). This statute provides:
(e) Protective Orders. (1) Upon application of the United States, the court may enter a restraining order or injunction, require the execution of a satisfactory bond, or take any other action to preserve the availability of property described in section (a) for forfeiture under the section—(A) upon the filing of an indictment or information charging a violation of this subchapter or subchapter II for which criminal forfeiture may be ordered under this section and alleging that the property with respect to which the order is sought would, in the event of conviction, be subject to forfeiture under this section.
A long line of Fourth Circuit cases permitted the use of this section to restrain untainted assets before trial.
In light of that, the court granted the motion, although it did permit the release of $1.75 million to his defense counsel. It also required an additional $630,000 in security in the form of a lien on certain real property owned by Dr. Malik.
The Solicitor General’s Concession in Honeycutt v. United States
On June 5, 2017, the Supreme Court issued its decision in Honeycutt v. United States. That decision abolished joint-and-several liability for criminal forfeiture.
It’s an important decision, to be sure. What matters here, though, is not the decision itself. What matters is the SG’s brief and what the government’s attorney said during oral argument in that case.
In the SG’s brief, the government conceded that § 853(e) does not permit pretrial restraint of untainted assets for potential forfeiture as substitute assets. It argued that
By their terms, Sections 853(c) and (e) are limited to property “described in” Section 853(a) – that is, to the traceable proceeds of the offense. See Luis v. United States, 136 S. Ct. 1083, 1091-1092 (2016) (opinion of Breyer, J.). Those provisions thus do not apply to substitute assets the government could recover under Section 853(p), which by definition reaches “other property of the defendant” if the property “described in subsection (a)” is not available. 21 U.S.C. 853(p) (emphasis added). And Sections 853(c) and (e) likewise do not apply to untainted assets that a defendant might use to satisfy a forfeiture money judgment.
Br. of United States at 36, Honeycutt v. United States, No. 16-142, available at http://www.scotusblog.com/wp-content/uploads/2017/02/16-142-us-merits-response.pdf.
The government confirmed the point during oral argument. As quoted in Dr. Malik’s brief, the attorney stated:
853(e) only “talk[s] about restraining a tainted property before trial”;
“subsection[s] (c) and (e) [of § 853], which deal with pretrial restraints and relation back are limited to the property described in subsection (a)” – viz., “specific tainted property”;
“Section 853(e) is the provision that allows pretrial restraints” and “it’s the government’s position that that does not apply to untainted assets”; and
“[Section 853](e) refers only to property that’s described in subsection (a), and that’s the specific tainted proceeds.”
Tr. of Oral Argument at 29:2-4, 40:23 – 41:6, 44:4-25, Honeycutt v. United States, No. 16-142, available at https://www.supremecourt.gov/oral_arguments/argument_transcripts/2016/16-142_4gc5.pdf.
In addition, in a case in the Fourth Circuit, United States v. Chamberlain, the government filed a motion representing that after the SG’s concession in Honeycutt, it would “no longer take the position [in Chamberlain] that pretrial restraint of untainted assets is authorized under § 853(e).” [Note: the Fourth Circuit has decided to hear Chamberlain en banc without the panel issuing an opinion.]
Using the Government’s Concession Against It
No party—even the government—can take one position in one case and a different position in another case. Principles of estoppel apply to prevent that kind of gamesmanship.
After Dr. Malik’s lawyer saw these concessions, he brought them to the attention of the prosecutors handling the case. The prosecutors realized they had a problem and threatened to bring a separate action to seize assets under 18 U.S.C. § 1345.
This section allows for seizure where there is evidence that the defendant is “alienating or disposing of property, or intends to alienate or dispose of property.” It is limited to certain banking law and health care law violations.
In his motion to release the assets, Dr. Malik pointed out that not only did section 853 no longer apply but also the government had no evidence that he was trying to dispose (or “alienate”) his property under section 1345.
The Government’s (Interesting) Response
The government filed a brief in response. In short, it conceded that it could no longer rely on § 853(e) to restrain these assets. It also admitted that it had no evidence that Dr. Malik was “dissipating, or prospectively intending to dissipate, assets derived from or traceable from the charged fraud,” so it could not rely on § 1345 either.
What’s interesting about the government’s brief is that it goes well beyond taking these straightforward positions. Instead, it goes into some detail about the government’s decision-making process to reach these positions. It describes conference calls about these issues and what steps the government took to figure out its position and why it took some time to reach this position. (Query whether there is some waiver of privilege here.)
I can’t think of another government brief in which the prosecutors felt the need to explain just why it had taken them a while to reach a specific decision. It appears the prosecutors thought they had lost some credibility with the court by taking their initial position to seize the assets and wanted to show their good faith in deciding to reverse that position.
I’m just reading the tea leaves here.
Court Frees the Assets
It won’t come as any surprise that the district court ordered that the assets be released. It didn’t even hold a hearing.
The government conceded the main point. Once the government gave up the fight—which it had to—then there was no basis to continue to restrain these assets. (The court did decide that the lien on the $630,000 property would remain in place.)
The Chamberlain case may decide this issue once and for all in the Fourth Circuit. Dr. Malik was represented in this motion by his incredible defense counsel, Josh Greenberg, along with Addy Schmitt, Barry Pollack, and Andrew C. White. Kudos to all of them for not giving up on what is often a losing issue (fighting forfeiture) and for paying attention to oral argument
I mean, who reads oral argument transcripts? (I will be, from here on out.)
Defendants in the Fourth Circuit can rest assured that their untainted assets won’t be seized until a jury has decided the case. We can also hope that the government’s concessions in Honeycutt will ensure that no other circuit will permit this kind of unfair seizure in the future.