Property Owners Ask Federal Government to Return Money Wrongly Seized Under Civil Forfeiture Laws

Khalid (“Ken”) Quran, a North Carolina convenience store owner, and Randy Sowers, a Maryland dairy farmer, have a few things in common. They both work hard at their jobs, putting in long hours seven days a week. They both are honest, law-abiding citizens. And they both had their bank accounts seized by the IRS under the civil forfeiture laws.

The IRS seized Ken’s bank account because he withdrew money from the bank in amounts under $10,000. In Randy’s case, it was because he made deposits of under $10,000. In both cases, the IRS invoked so-called “structuring” laws, laws which were intended to target hardened criminals evading bank reporting laws but have been frequently applied against innocent small business owners guilty of nothing more than doing business in cash.

The IRS announced in the fall of 2014 that it will limit application of the structuring laws to real criminals. But that policy change came too late for Ken and Randy, who had their money forfeited before the change was announced.

So, in July 2015, Ken and Randy petitioned the government to get their money back. The papers they filed are called petitions for “remission or mitigation,” and they are requests for voluntary relief from the executive branch—akin to a pardon petition. Their claim was clear: Nobody should have their bank account taken just because they deposited or withdrew their own hard-earned money in the “wrong” amounts.

In February 2016, the IRS agreed and announced that it would return “in full” the money that it seized from Ken. Then, in June 2016, the Department of Justice followed suit and agreed to return all the money that it took from Randy.

IJ’s victory in this case set a precedent that made it possible for hundreds of other property owners to get their money back. In July 2016, the IRS announced that it was sending notice letters to hundreds of property owners, informing them of their right to file remission petitions. IJ provided resources to help those property owners get their petitions on file.

Ultimately, a total of 464 property owners filed petitions seeking the return of money forfeited under the structuring laws. The IRS granted 174 petitions, returning $9.9 million, and the DOJ granted 41 petitions, returning $1.9 million. In total, the agencies returned $11.8 million in forfeited funds.

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After a national outcry against its abusive policy, the IRS recently announced it would no longer seize the bank accounts of innocent, hardworking small business owners simply because they deposited or withdrew their own money in what the IRS perceived as the “wrong” amounts. But that announcement comes too late for innocent property owners who had their money taken before that change in policy.

Two such property owners are now petitioning the government to get their money back. The government has recognized that taking property in these kinds of cases is unjust and unnecessary; that is why the government announced its policy change. Now the government should do the right thing and give the money back to its rightful owners.

Ken Quran: An American Dream Abruptly Shattered

IFJ_7385Khalid (“Ken”) Quran moved to America in 1997, leaving behind a life as a fireman in a town ten miles north of Jerusalem near Ramallah.  Ken now lives in Greenville, N.C., with his wife, Dina, and their four kids.

Shortly after moving to this country, Ken purchased a small convenience store in Greenville, located on a dusty patch of land near the airport. Ken worked days and nights for years, often opening and closing the store, in order to build his business. He made a living selling goods at razor-thin margins and hardly ever taking a vacation.

Then, in June 2014, the government seized his entire bank account—more than $150,000. This was money that Ken worked for years to earn, and that he was counting on for his retirement. Ken had no prior warning before the government seized the account. The government told him they were taking the money because he withdrew cash from the bank in amounts under $10,000.

But the truly shocking thing is what happened next. A group of government agents—both from the IRS and local police—came to Ken’s store with an agreement already written up, under which Ken would agree to forever forfeit the money to the federal government. The agents searched his store with dogs, barred the entrance to keep out customers, and then demanded that he sign the paper. Ken initially refused, explaining that he did not read English well and did not want to sign an agreement he could not understand. Then, under compulsion—after one of the local police yelled and demanded that he sign, and after one of the IRS agents made clear that, otherwise, their next stop would be to talk to Ken’s wife to pressure her—Ken agreed to sign.

Randy Sowers: A Dairy Farmer Wrongly Targeted

Randy Sowers was born in Frederick County, Md., and he still lives there today in a house overlooking the dairy farm that he has owned and operated since 1981. Every day, Randy gets up just before midnight to begin milking the cows, and he works straight through to 4:30 or 5 in the morning before returning to bed. Since cows never take off weekends, Randy works seven days a week.

For years, Randy has been selling his milk at farmer’s markets—at one point, visiting as many as seven markets a week. Randy began selling at farmer’s markets because he was tired of selling through a generic middleman. Randy likes that his customers know where their milk has come from, and he likes that they can come out to visit the farm to see how well he treats the animals. In 2011 the farm was certified humane by Humane Farm Animal Care.

In February 2012, two government agents came to Randy’s farm. The IRS, they told him, had seized the farm’s entire bank account, containing more than $60,000. When Randy sold milk at farmer’s markets, customers often paid him in cash, and he and his wife, Karen, deposited those cash payments in the account. The government seized the account because the Sowers deposited the cash in amounts under $10,000.

The agents assured Randy they didn’t believe he was a criminal. But they told him it didn’t matter; the government was taking his money regardless.

Structuring Laws Sweep Up Small Business Owners

The government targeted Ken and Randy under so-called “structuring” laws, which make it a crime to avoid federal bank reporting requirements. Banks are required by federal law to report cash transactions over $10,000. And federal law also makes it a crime—structuring—to engage in transactions under $10,000 in order to avoid the filing of a report.

These laws were intended to target drug dealers, money launderers, and hardened criminals. But, as these cases demonstrate, these laws often sweep up legitimate businesses guilty of nothing more than doing business in cash. Ken withdrew cash in amounts under $10,000 simply because that was the amount of money that he needed to operate his business. Meanwhile, in Randy’s case, a bank teller told his wife that depositing less than $10,000 would make life easier for everyone at the bank by avoiding unnecessary paperwork. Neither Ken nor Randy had any interest in hiding their financial affairs from the IRS.

Randy and Ken are among the many legitimate businesses targeted under the structuring laws. In other cases handled by the Institute for Justice, the government seized more than $107,000 from another convenience store owner in North Carolina, more than $35,000 from the owner of a supermarket in Michigan, more than $32,000 from the owner of a small-town restaurant in Iowa and more than $446,000 from three brothers who operate a business distributing candy, food and cigarettes to convenience stores on Long Island.

Strong-Arm Tactics Compel Forfeiture

Neither Ken nor Randy had the forfeiture of their money approved by a judge.  Instead, the government used strong-arm tactics to compel both Ken and Randy to “voluntarily” forfeit their hard-earned money.

Ken signed a paper agreeing to forfeit his money only after state and federal agents came to his store, yelled in his face, and made veiled threats directed at his wife. The paper that Ken signed stated that he had been advised of his right to consult with an attorney, but in fact none of the agents said anything about a lawyer.  Then, when Ken went to an attorney after the seizure, the attorney advised him there was no use fighting because he had already agreed to the forfeiture of his bank account. So, when the government sent notice of the forfeiture to Ken, he did not contest the forfeiture.

Meanwhile, in Randy’s case, the government made him an offer he couldn’t refuse.  After seizing $60,000 of Randy’s money, the government offered to return a little more than half if Randy agreed to let the government keep the remainder. Otherwise, Randy would have to litigate for months or even years to fight to get the money back—likely paying more in attorney’s fees than the amount at issue. And, as if that weren’t enough, the government sent Randy a subpoena for criminal grand jury proceedings, but then told him they would not bring criminal structuring charges so long as Randy agreed to give up half his money. Although he had done nothing wrong, Randy felt he had no choice but to take the deal.

Notably, during settlement negotiations, Randy’s attorney sent an email to the federal prosecutor on the case asking why Randy was getting a less favorable settlement than some other property owners in similar circumstances. The prosecutor’s response:  Those other property owners “did not give an interview to the press.”

Civil Forfeiture Laws Treat Ordinary Small Business Owners Like Criminals

The government’s conduct in these cases has been made possible by civil forfeiture laws, which allow the government to take and keep property it merely suspects of being involved in a crime. This is different from criminal forfeiture, in which the proceeds of criminal activity may be seized after someone is convicted of a crime. To get their cash back, property owners must wage a lengthy and expensive legal battle against the U.S. Department of Justice to prove their own innocence.

Shockingly, the government uses the money that it seizes through civil forfeiture to pad the budgets of the very agencies that seize the money, giving it a perverse incentive to abuse this power.

To justify civil forfeiture, the government claims that forfeiture is used to take money from big-time criminal syndicates and cartels. But, in truth, civil forfeiture is often used against wholly innocent property owners like Ken and Randy. Their stories are neither unique nor surprising given the recent history of civil forfeiture.

In fact, between 2005 and 2012, the IRS alone seized more than $242.6 million under the structuring laws in more than 2,500 cases.[1] At least one-third of those seizures involved no allegations of criminal activity beyond the mere act of engaging in cash transactions involving less than $10,000.[2] Ken and Randy’s cases call attention to a far broader problem with the civil forfeiture laws.

A Government Policy Change, Too Late For Some

In response to a front-page New York Times article detailing similar cases—including IJ clients Carole Hinders and Jeff Hirsch—the government announced a policy change designed to limit enforcement of the structuring laws to “illegal-source” cases, meaning cases where the money involved in the allegedly structured transactions was derived from illegal activity.

The IRS first announced this policy change in October 2014, and the U.S. Department of Justice followed suit in March 2015. The IRS policy change applies to structuring seizures (like Ken and Randy’s) under the auspices of the IRS; the DOJ policy change expands the scope of that policy to cover all structuring seizures by the federal government.

Under these new policies, the government would not have seized Ken or Randy’s bank account. Ken and Randy are not criminals—they are legitimate, hard-working business owners.  They are exactly the kinds of people the government’s policy change was intended to protect.  However, because the government took their money before these policy changes were adopted, the policy changes have done nothing to help either of them. The IRS still has their money today.

A Modest Request: Give Our Money Back

Now, Ken and Randy are asking the government to do the right thing and give their money back. They have filed administrative petitions with the IRS and DOJ asking the agencies to return the money taken from their bank accounts. The message from the Institute for Justice, which represents Ken and Randy, to the IRS is simple and clear: If you took something that doesn’t belong to you, give it back.

Ken and Randy have filed what are called “petitions for remission and mitigation.” These are administrative filings—submitted to the IRS or DOJ, rather than to a court—asking the government to voluntarily return money that it has seized through civil forfeiture. In many ways, they are akin to a petition for a presidential pardon, except for civil forfeiture rather than the criminal law. The government has discretion to grant a petition for remission and mitigation, and thus to return money seized through civil forfeiture, whenever it determines that granting the petition would advance the interests of justice. The government would not take money from Ken and Randy today. So the government should now do the right thing, and give back the money that it took before its policy change was announced.

Invoking an Old Legal Tool

The history of the remission and mitigation procedure largely mirrors the history of civil forfeiture itself. In the country’s early years, civil forfeiture was limited to the customs context, where it was used to seize ships used for smuggling—a narrow application that was justified by the difficulty of obtaining jurisdiction over the ship’s owner, who was often located in an entirely different country. Petitions for remission and mitigation began in that context, as well. The First Congress, in 1790, enacted a law to authorize petitions for remission and mitigation requesting that the Secretary of the Treasury return property forfeited in connection with violations of the customs laws.[3]

Over the years, the scope of civil forfeiture has drastically expanded to encompass all manner of alleged criminal offenses—including many situations that lack the special circumstances that justified application of the civil forfeiture laws in the customs context. Today, civil forfeiture has grown into a multi-billion-dollar phenomenon that allows law enforcement to sidestep the basic protections afforded by the criminal law, including the requirement to prove guilt beyond a reasonable doubt.

As civil forfeiture has expanded, the remission and mitigation procedure has expanded along with it.[iv] And, now, Ken and Randy are invoking that legal tool in a new and different context by asking the IRS to use that legal tool to apply its recent policy change concerning application of the structuring laws retroactively to past forfeitures. Their petitions seek to adapt an old legal tool to a new context in order to achieve a just result for ordinary Americans who have seen their civil liberties trampled through the expansion of the civil forfeiture laws.

Blazing a Trail for Other Property Owners

If Ken and Randy are successful, they will not only get their own money back, but they will also set a precedent that can be invoked by other property owners.

The one-sided rules of civil forfeiture force many property owners into unjust and unconscionable settlement agreements. When the government takes a business’s entire bank account, it exerts extraordinary pressure to settle. Businesses may rely on seized funds to make payroll, pay vendors, and keep on the lights. And fighting a seizure can take months or even years: Between 2005 and 2012, the average structuring forfeiture took nearly a year to complete, and the longest case took more than 6.5 years.[5] The cost of litigating can be prohibitive, particularly as half of all seizures during that same period involved amounts under $34,000.[6] Many property owners cannot afford a prolonged legal struggle, and so are forced to agree to settlement terms similar to those accepted by Randy.

Hard statistics on the number of cases like Ken and Randy’s are not available, but the data that the Institute for Justice has uncovered suggest that there are potentially hundreds of people who have had millions of dollars taken under the structuring laws, but who would not be targeted for forfeiture under current IRS and DOJ policies. Between 2007 and 2013, the IRS forfeited about $43 million in 618 cases in which the IRS reported no suspicion of criminal activity other than the mere fact of sub-$10,000 cash deposits.[7] If successful, Randy and Ken will open up a possible remedy for those hundreds of property owners.

The Litigation Team

The Institute for Justice attorneys representing Ken and Randy are Robert Everett Johnson and Scott Bullock, who litigate economic liberty and property rights cases nationwide. In addition, Randy is represented by attorneys Dave Watt and Paul Kamenar as “of counsel” for the petitions.

The Institute for Justice

The Institute for Justice is the national law firm for liberty. IJ is a public interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society. Through litigation, communication, outreach and strategic research, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment is denied by the government. IJ is based in Arlington, Va., and has offices in Arizona, Florida, Minnesota, Texas and Washington, as well as a Clinic on Entrepreneurship at the University of Chicago Law School.

IJ has come to the defense of Americans nationwide to fight civil forfeiture, including the owners of the family-run Motel Caswell in Massachusetts, the owner of Marathon Gas in Michigan and a class of property owners in Philadelphia challenging that city’s forfeiture machine. In 2010, IJ published Policing for Profit, the landmark report on civil forfeiture. And in 2014, IJ published Seize First, Question Later, the definitive study on IRS structuring forfeitures.

[1] Dick M. Carpenter II, Ph.D and Larry Salzman, Seize First, Question Later, at 4 (2015).

[2] Id.

[3] Act of May 26, 1790, ch. 12, 1 Stat. 122.

[4] In the structuring context, a petition for remission and mitigation is authorized by 31 U.S.C. § 5321(c).

[5] Seize First, supra, at 19.

[6] Id. at 10.

[7] See id. at 17. While Seize First does not break down these specific figures, they are derived from the same data that forms the basis for Figure 3 in the report.

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