by Alun Milford and Alicyn Cooley

In Part One of this article, we described the history of Unexplained Wealth Orders (“UWOs”) in England and Wales, and their use by UK authorities to date. As litigation challenging UWOs already has shown, respondents against whom such orders are entered face a binding precedent to the contrary should they seek to persuade a court that a UWO violates their or their spouse’s privilege against self-incrimination. Although the self-incrimination concern presented by UWOs is just one of many reasons that this investigative tool is unlikely to be adopted in the United States, as we detail below, the UWO regime in the United Kingdom presents important considerations—and, potentially, applications—for U.S. authorities. At the same time, the U.S. example of targeted increases in transparency around real estate transactions might give the UK authorities food for thought.

Why UWOs Are Unlikely to Take Root in the United States

The efficacy of UWOs and, now, following the costs award in the Baker case, the willingness of the authorities to seek them, are open questions in the United Kingdom. But the United Kingdom is neither the first nor the only country in which UWOs have been introduced in some form,[1] and the United States has shown interest in the practice, sponsoring a study as early as 2012 to evaluate other jurisdictions’ use of UWOs.[2] While the United States undoubtedly will follow the United Kingdom’s UWO experience with interest, given the recent trajectory of forfeiture law’s evolution in the United States—toward limiting rather than broadening the government’s civil forfeiture powers—UWOs are unlikely to take root on American soil.  

The UK UWO model registers as in tension with U.S. constitutional principles of due process of law and the privilege against self-incrimination.[3] U.S. courts have held that the Fifth Amendment privilege against self-incrimination and the right to due process both apply in the civil forfeiture context,[4] and have recognized the impossible position in which forfeiture proceedings can place property owners who also have criminal exposure.[5] Although respondents in civil forfeiture actions can invoke their Fifth Amendment privilege against self-incrimination in those proceedings, they risk the court’s application of an adverse inference against them and, with it, potentially, the loss of their property.[6] However, the U.S. civil forfeiture regime at least generally places the burden on the government to establish a theory of property’s forfeitability at the outset of the proceedings, with no presumption of forfeitability attaching based on the property owner’s silence.

The United Kingdom’s creation of an investigative tool that demands an explanation for “unexplained wealth,” underpinned by a presumption of forfeitability in the case of non-compliance, stands in sharp contrast to the current U.S. civil forfeiture regime, born of the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”).[7] CAFRA itself represents a retreat from burden-shifting.

CAFRA was passed in response to “criticism of the broad scope of the government’s civil forfeiture authority,” and it “dramatically overhauled the procedures for civil judicial forfeiture proceedings.”[8] Most significantly, CAFRA heightened the standard by which the government must prove that property is subject to forfeiture[9] in most federal civil forfeiture actions—raising it from probable cause to a preponderance of the evidence[10]—and overhauled the prior burden-shifting regime so that “the burden of proof now rests solely with the government to show . . . that the property is subject to forfeiture.”[11] Proponents of the bill originally sought to raise the government’s burden of proof to the even more onerous standard of clear and convincing evidence, demonstrating just how galvanized U.S. members of Congress were to reform the civil forfeiture regime to the benefit of property owners.[12] As members of Congress argued on the floor of the House of Representatives in support of the legislation, CAFRA was intended “to restore due process for law-abiding citizens who are not accused of doing any wrongdoing.”[13] Further, CAFRA replaced the requirement that forfeitable property have merely a “nexus” to criminal activity with a more rigorous “substantial connection” test. CAFRA reformed civil forfeiture where the courts would not,[14] even when faced with compelling constitutional arguments that the system violated property owners’ due process rights.[15] 

The U.S. civil forfeiture system before CAFRA generally: (1) required the government to meet the less-stringent “probable cause” standard—in this context, “reasonable grounds” to believe the property is subject to forfeiture, rising above “mere suspicion”[16]; (2) required only a showing of a “nexus” between the relevant property and criminality; and (3) placed the ultimate burden of proof on the property owner by using a burden-shifting framework.[17] As a result of CAFRA, the system today is significantly more protective of property owners’ due process rights in civil forfeiture proceedings. That evolution may continue, as demonstrated by a bill introduced in the U.S. Senate in June that would increase the government’s standard of proof in civil forfeiture proceedings to clear and convincing evidence.[18]

Given that the UK UWO system recalls aspects of the pre-CAFRA U.S. regime that disadvantaged property owners, and applies to a broader swath of people and properties, the United States is not likely to follow the United Kingdom’s lead and embrace UWOs, especially when the U.S. Department of Justice (“DOJ”) is already making frequent and lucrative use of the current civil forfeiture system.[19]

Looking Ahead: Implications for the United States

The United States may not need to adopt its own system of UWOs in order to benefit from them. DOJ may seek statements made and documents produced in response to UWOs via a Mutual Legal Assistance Treaty (“MLAT”) request for evidence, for use in U.S. civil investigations and forfeiture proceedings, although the use of such evidence in U.S. criminal investigations and prosecutions is unlikely.[20]

With or without the benefit of UWOs, U.S. authorities are embracing investigative tools already at their disposal, such as Geographic Targeting Orders (GTOs), to address money laundering through high-end real estate—one of the very issues that drove the United Kingdom to adopt UWOs. Apart from being an important law enforcement issue, the problem is one of broad popular concern given its exacerbation of already prohibitive real estate prices in major American cities.[21]

Pursuant to authority granted by the Bank Secrecy Act, the Director of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a GTO in 2016 requiring title insurance companies in New York City and Miami to, within 30 days of closing: (1) report any non-financed residential real estate sales of $300,000 or more to corporate, LLC, or other business entity buyers (excluding U.S. public companies) that made the purchase all or in part with cash, monetary instruments, wire transfers, and/or virtual currency; (2) include in the report beneficial ownership information for the buyer (i.e., any owner of 25 percent or more of the purchasing entity); and (3) verify, using identifying documentation, the identities of the beneficial owners and their representatives.

Although GTOs are only a temporary measure, FinCEN has extended the 2016 GTO several times in six-month increments (with amendments that increasingly broadened the GTO’s scope and geographic reach[22]), including most recently on May 8, 2020 (PDF: 523.09 KB).[23] FinCEN Director Kenneth Blanco has explained the GTO’s value to FinCEN as providing key “insight into the ways that illicit actors move money in the U.S. residential real estate market and . . . how actors in markets with relatively fewer [anti-money laundering] protections respond to new reporting requirements.”[24] Despite the usefulness of the GTO, the United States could go considerably farther to detect and prevent money laundering through real estate, including by adopting the Financial Action Task Force’s recommendation (PDF: 1.68 MB) [25] to impose formal anti-money laundering measures on real estate agents, and requiring the collection by state incorporating authorities of business entities’ beneficial ownership information at the time of formation.[26]

Conclusion

Bonds between the United Kingdom and the United States based on, among other things, their common law heritage and shared interest in fighting money laundering, make it inevitable that any innovative new civil recovery or civil forfeiture measures will attract interest from across the pond. From a U.S. perspective, it is too soon to judge how useful UWOs will be. From a UK perspective, policy makers may care to note the U.S. ability successfully to pursue civil forfeiture litigation without burden shifting, and its example of focused intervention in the form of GTOs.

For Part I of this post, click here.

Footnotes

[1] See Jeremy Carver et al., Empowering the UK to Recover Corrupt Assets 24 (Transparency International UK 2016) (hereinafter “TI-UK Report”), available at https://issuu.com/transparencyuk/docs/march2016_uwo (explaining UWOs also have been used to varying degrees of success in Ireland, Columbia, and Australia); Booz Allen Hamilton, Comparative Evaluation of Unexplained Wealth Orders (Dep’t of Justice, unpublished, Doc. No. 237163) (2012), at 7, available at https://www.ncjrs.gov/pdffiles1/nij/grants/237163.pdf.

[2] See Booz Allen Hamilton.

[3] U.S. Const., Amend. V.

[4] See, e.g., United States v. James Daniel Good Real Prop., 510 U.S. 43, 52-53 (1993) (due process); Lefkowitz v. Turley, 414 U.S. 70, 77 (1973) (explaining that the Fifth Amendment permits an individual “not to answer official questions put to him in any . . . proceeding, civil or criminal, formal or informal, where the answer might incriminate him”).

[5] See, e.g., United States v. Certain Real Prop. & Premises Known as 4003-4005 5th Ave., Brooklyn, N.Y., 55 F.3d 78, 83-84 (2d Cir. 1995) (“The tension between self-incrimination concerns and the desire to testify may be especially acute for a claimant in a civil forfeiture proceeding. . . . The claimant [] ‘faces a dilemma: remain silent and allow the forfeiture or testify against the forfeitability of his property and expose himself to incriminating admissions.’” (quoting United States v. $250,000, 808 F.2d 895, 900–01 (1st Cir. 1987))).

[6] See, e.g., United States v. U.S. Currency in Amount of $119,984.00, More or Less, 304 F.3d 165, 177 (2d Cir. 2002) (citing cases holding that government may be able to obtain adverse inference against property owners in civil forfeiture proceedings if they invoke their Fifth Amendment privilege); but see In re 650 Fifth Ave. & Related Properties, 830 F.3d 66, 93 n.25 (2d Cir. 2016) (taking “exception” to district court’s suggestion in a civil forfeiture proceeding “that it could draw adverse inferences at summary judgment based on individuals’ invocation of their Fifth Amendment privilege,” because “a court may not draw negative inferences against a nonmoving party on a summary judgment motion” (citing Stichting Ter Behartiging Van de Belangen v. Schreiber, 407 F.3d 34, 55 (2d Cir. 2005)).

[7] Pub. L. No. 106–185, 114 Stat. 202 (codified principally at 18 U.S.C. § 983).

[8] United States v. Sum of $185,336.07 U.S. Currency Seized from Citizen’s Bank Account L7N01967, 731 F.3d 189, 195-96 (2d Cir. 2013) (citing United States v. Davis, 648 F.3d 84, 92–93 (2d Cir. 2011) and quoting United States v. $557,933.89, More or Less, in U.S. Funds, 287 F.3d 66, 76 n.5 (2d Cir. 2002) (internal quotation marks omitted)).

[9] Seizure or restraint—in contrast to forfeiture—of property generally requires the government to meet a standard of only probable cause. See 18 U.S.C. § 981(b); 21 U.S.C. §§ 853(e) & (f); see also U.S. Dep’t of Justice, Asset Forfeiture Policy Manual 2019, at 38, available at https://www.justice.gov/criminal-afmls/file/839521/download.

[10] CAFRA does not apply to forfeiture under certain U.S. statutes, including, for example, the Internal Revenue laws in Title 26, and the customs laws in Title 19, of the U.S. Code. See 18 U.S.C. § 983(i).

[11] Sum of $185,336.07 U.S. Currency Seized from Citizen’s Bank Account L7N01967, 731 F.3d at 196 (citing von Hofe v. United States, 492 F.3d 175, 179 (2d Cir. 2007)).

[12] See, e.g., 146 Cong. Rec. H2040-01, 146 Cong. Rec. H2040-01, H2052, 2000 WL 368969 (stating that the original version of H.R. 1658 “is a good bipartisan bill which now shifts the burden of proof to the government to prove by clear and convincing evidence when seizing property and permits the appointment of counsel for indigent claimants while protecting innocent owners”) (Rep. Jackson-Lee); 145 Cong. Rec. H4851-01, 145 Cong. Rec. H4851-01, H4853, 1999 WL 419754 (“This bill requires the government to prove by clear and convincing evidence that the property confiscated was subject to forfeiture because of illegal misuse. Under current law, the burden of proof lies with the person whose property was seized, and the government has only to show probable cause that the property is subject to forfeiture.”) (Rep. Pryce).

[13] 145 Cong. Rec. H4851-01, 145 Cong. Rec. H4851-01, H4852, 1999 WL 419754 (Rep. Pryce); see also id. (“Our current civil asset forfeiture laws, at their core, deny basic due process, and the American people have reason to be both offended and concerned by the abuse of individual rights which happens sometimes under these laws. . . . To reclaim his property, the owner must overcome a number of obstacles that turn the principles of presumed innocence on its head.”); 146 Cong. Rec. H2040-01, 146 Cong. Rec. H2040-01, H2051-52, 2000 WL 368969 (“[T]he bill places the burden of proof where it belongs, with the government agency that performed the seizure, and it protects individuals from the difficult task of proving a negative, in other words, proving that their property was not subject to forfeiture.”) (Rep. Jackson-Lee).

[14] See, e.g., United States v. Daccarett, 6 F.3d 37, 55-56 (2d Cir. 1993), abrogated by 18 U.S.C. § 983(c)(3).

[15] Although the Supreme Court has held that the Fifth Amendment’s due process clause applies to civil forfeiture proceedings, see James Daniel Good Real Prop., 510 U.S. at 53 (due process requires that a property owner receive prior notice and a hearing before the government civilly forfeits her real property), the Second Circuit declined to apply Good to hold that the burden-shifting framework of the pre-CAFRA civil forfeiture regime violated due process, see United States v. One Parcel of Prop. Located at 194 Quaker Farms Rd., Oxford, Conn., 85 F.3d 985, 988, 990-91 (2d Cir. 1996) (rejecting claimant’s argument that “the allocation of burdens of proof directed by [the then-operative civil forfeiture provision of the Controlled Substances Act] violates due process”). The Second Circuit did acknowledge in dicta, however, that, following the Supreme Court’s decisions in Good and Austin v. United States, 509 U.S. 602, 604 (1993) (Eighth Amendment’s excessive fines clause applied to civil forfeiture proceedings), it was “an open issue ‘whether the due process clause requires the government to sustain a burden falling between the extremes of probable cause and proof beyond a reasonable doubt’ before a seizure is made and a claimant is put to proof of the innocent owner defense.” Id. at 991 (quoting Peter Petrou, Note: Due Process Implications of Shifting the Burden of Proof in Forfeiture Proceedings Arising out of Illegal Drug Transactions, 1984 Duke L.J. 822, 827 (1984)).  

[16] See Sum of $185,336.07 U.S. Currency Seized from Citizen’s Bank Account L7N01967, 731 F.3d at 196 (citing Daccarett, 6 F.3d at 55).

[17] See United States v. Parcel of Prop., 337 F.3d 225, 230 (2d Cir. 2003) (under the pre-CAFRA regime, “once the government has established probable cause, the claimant has the burden of persuasion to show by a preponderance of the evidence that the property is not subject to forfeiture”).

[18] See Fifth Amendment Integrity Restoration Act of 2019 (“FAIR Act”), S. 4074, 116th Cong. (2020).

[19] The total net deposits to the U.S. Department of Justice’s Asset Forfeiture Fund for fiscal year 2019 were approximately $2.2 billion. See U.S. Dep’t of Justice, “FY2019 Asset Forfeiture Fund Reports to Congress – Total Net Deposits to the Fund by State of Deposit,” available at https://www.justice.gov/afp/page/file/1240516/download.

[20] Although a statement made in response to a UWO may not squarely fall within the definition of “compelled” testimony in Fifth Amendment jurisprudence, the holding of United States v. Allen, 864 F.3d 63 (2d Cir. 2017) (dismissing criminal case based on taint caused by a cooperating witness’s review, before testifying at defendants’ trial, of defendants’ compelled responses to questioning by the UK Financial Conduct Authority), remains a cautionary tale. U.S. criminal prosecutors would be reasonable, therefore, to avoid obtaining evidence generated in the United Kingdom pursuant to UWOs given the risk that a defendant successfully would challenge the use of such evidence in his or her U.S. prosecution. The language of the UWO statute does, however, seem to allow for use of such evidence in U.S. criminal trials on cross-examination and in the government’s rebuttal case, to the extent the defendant testifies inconsistently or offers evidence inconsistent with his or her UWO response.

[21] There already have been bipartisan legislative efforts to address this issue in bills introduced in both houses of Congress, including: H.R. Res. 206, 116th Cong. (2019) (noting, inter alia, that “money laundering in real estate (MLRE) has damaging effects on local economies by negatively impacting property prices and dislocating residents”); Illicit Cash Act of 2019, S. 2563, 116th Cong. § 402 (2019); and Defending American Security from Kremlin Aggression Act of 2019, S. 482, 116th Cong. § 702 (2019).

[22] The GTO now applies to several major U.S. metropolitan areas, including New York City, Miami, Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, San Antonio, San Diego, San Francisco, and Seattle.

[23] Fin. Crimes Enf’t Network: U.S. Dep’t of the Treasury, Geographic Targeting Order Covering Title Insurance Company (2020).

[24] Prepared Remarks of FinCEN Director Blanco at New York University School of Law’s Program on Corporate Compliance and Enforcement, Compliance & Enforcement (June 14, 2019), available at https://wp.nyu.edu/compliance_enforcement/2019/06/
14/prepared-remarks-of-fincen-director-blanco-at-the-nyu-law-program-on-corporate-compliance-and-enforcement/.

[25] See Fin. Action Task Force, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations 18 (updated June 2019), available at https://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf .

[26] This idea may be gaining legislative traction, as shown by the introduction of a bill in the U.S. Senate in June of last year. See Title Act, S. 1889, 116th Cong. (2019) (aimed at ensuring “that persons who form corporations in the United States disclose the beneficial owners of those corporations, in order to prevent the formation of corporations with hidden owners, stop the misuse of United States corporations by wrongdoers, and assist law enforcement in detecting, preventing, and punishing terrorism, money laundering, tax evasion, and other criminal and civil misconduct involving United States corporations”); see also U.S. Dep’t of the Treasury, National Strategy for Combating Terrorist & Other Illicit Financing 2020 (Feb. 6, 2020), at 40 (noting Treasury’s goal of working with Congress to “pass beneficial ownership legislation in 2020”).

Alun Milford is a partner at Kingsley Napley LLP, and previously served as General Counsel of the United Kingdom’s Serious Fraud Office, Head of Organised Crime and Head of Proceeds of Crime at the Crown Prosecution Service, and Head of the Asset Forfeiture Division at Revenue and Customs Prosecutions Office. Alicyn Cooley is an Adjunct Professor of Law and the Executive Director of the Program on Corporate Compliance and Enforcement at New York University School of Law, and a former federal prosecutor in the U.S. Attorney’s Office for the Eastern District of New York, where she served as Deputy Chief of the Business and Securities Fraud Section.

Disclaimer

The views, opinions and positions expressed within all posts are those of the author alone and do not represent those of the Program on Corporate Compliance and Enforcement (PCCE) or of New York University School of Law.  PCCE makes no representations as to the accuracy, completeness and validity of any statements made on this site and will not be liable for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with the author.