FEDERAL ASSET SEIZURES RISE, NETTING INNOCENT WITH GUILTY
New York businessman James Lieto was an innocent bystander in a fraud
investigation last year. Federal agents seized $392,000 of his cash anyway.

An armored-car firm hired by Mr. Lieto to carry money for his
check-cashing company got ensnared in the FBI probe. Agents seized
about $19 million""including Mr. Lieto's money""from vaults belonging
to the armored-car firm's parent company.

He is one among thousands of Americans in recent decades who have had
a jarring introduction to the federal system of asset seizure. Some
400 federal statutes""a near-doubling, by one count, since the
1990s""empower the government to take assets from convicted criminals
as well as people never charged with a crime.

Last year, forfeiture programs confiscated homes, cars, boats and
cash in more than 15,000 cases. The total take topped $2.5 billion,
more than doubling in five years, Justice Department statistics show.

The expansion of forfeiture powers is part of a broader growth in
recent decades of the federal justice system that has seen hundreds
of new criminal laws passed. Some critics have dubbed the pattern as
the overcriminalization of American life. The forfeiture system has
opponents across the political spectrum, including representatives of
groups such as the American Civil Liberties Union on the left and the
Heritage Foundation on the right. They argue it represents a widening
threat to innocent people.

"We are paying assistant U.S. attorneys to carry out the theft of
property from often the most defenseless citizens," given that people
sometimes have limited resources to fight a seizure after their
assets are taken, says David Smith, a former Justice Department
forfeiture official and now a forfeiture lawyer in Alexandria, Va.

Backers of the system say there are adequate protections for the
innocent, and describe the laws as a powerful tool for returning
money to crime victims.

The government has recovered for eventual distribution to victims
more than $650 million from imprisoned swindler Bernard Madoff and
others who received money from his scheme. Federal officials are in
the process of recovering over $6.5 billion more from the Madoff fraud.

Last year, federal authorities say, some $293 million of forfeiture
proceeds were returned to crime victims nationally, nearly double the
amount in 2009. The Justice Department filed about 90,000 criminal
cases last year. There were forfeiture actions in a total of about
3,700 criminal cases, double the number of five years earlier.

Supporters further say there should be many more forfeiture actions.
Even an imprisoned criminal "can have a smile on his face because he
is going to be able to enjoy the proceeds of his crime when he gets
out," says Charles Intriago, a former federal prosecutor and now
president of the International Association for Asset Recovery, a
Miami organization for asset-recovery specialists.

Forfeiture law has its roots in the Colonial days, when it was used
to battle pirates and smugglers. In the 1970s and 1980s, Congress
began giving law-enforcement officials power to go after the assets
of other criminals, such as organized-crime figures.

The more than 400 federal statutes allowing for forfeiture range from
racketeering and drug-dealing to violations of the Northern Pacific
Halibut Act, according to a December 2009 Congressional Research
Service report. The report shows that seizure powers were extended to
about 200 of those laws in 2000 in a major congressional overhaul of
the forfeiture system.

Top federal officials are also pushing for greater use of
civil-forfeiture proceedings, in which assets can be taken without
criminal charges being filed against the owner. In a civil
forfeiture, the asset itself""not the owner of the asset""is
technically the defendant. In such a case, the government must show
by a preponderance of evidence that the property was connected to
illegal activity. In a criminal forfeiture, the government must first
win a conviction against an individual, where the burden of proof is higher.

Raul Stio, a New Jersey businessman, is caught up in the
civil-forfeiture world. Last October, the Internal Revenue Service,
suspicious of Mr. Stio's bank deposits, seized more than $157,000
from his account. Mr. Stio hasn't been charged with a crime.

In a court filing in his pending civil case, the Justice Department
alleges that Mr. Stio's deposits were structured to illegally avoid
an anti-money-laundering rule that requires a cash transaction of
more than $10,000 to be reported to federal authorities. Mr. Stio
made 21 deposits over a four-month period, each $10,000 or less, the
filing said.

Steven L. Kessler, Mr. Stio's attorney, says there was no attempt to
evade the law and that the deposits merely reflected the amount of
cash his client's businesses, a security firm and bar, had produced.
Mr. Stio was saving to buy a house, he says.

A Justice Department spokeswoman declined to comment on the case.

Speaking about civil forfeiture broadly, another Justice Department
official called it a tool of "critical" importance in taking away the
ill-gotten gains of international criminal organizations operating in
the U.S. Otherwise, participants in criminal operations such as these
might often be beyond federal authorities' reach, leaving asset
seizure as one of the ways authorities can target an operation.

In fiscal year 2010, there were more than 11,000 noncriminal
forfeiture cases, according to available federal statistics. That
figure has held fairly steady the past five years.

It's tough to know how many innocent parties may be improperly pulled
into the forfeiture system. Last year, claimants challenged more than
1,800 civil-forfeiture actions in federal court, Justice Department
figures show.

Justice Department officials say they rarely lose such cases, a fact
they cite as evidence the system is working properly. Forfeiture
attorneys counter that the government often settles cases, returning
at least part of the seized assets, if it thinks it might lose.

Part of the debate over seizures involves a potential conflict of
interest: Under a 1984 federal law, state and local law-enforcement
agencies that work with Uncle Sam on seizures get to keep up to 80%
of the proceeds.

Last year, under this "equitable-sharing" program, the federal
government paid out more than $500 million, up about 75% from a decade ago.

The payments give authorities an "improper profit incentive" to seize
assets, says Scott Bullock of the Institute for Justice, a
libertarian public-interest law firm in Arlington, Va. It's a
particular concern amid current state and local government budget
problems, he contends.

Justice Department officials say the 8,000 state and local agencies
in the equitable-sharing program have greatly expanded the federal
government's ability to go after criminal activities, particularly
the movement of drugs and drug cash along the nation's highways. The
program is monitored to ensure seizures are handled properly, they add.

Seeming abuses occasionally emerge. In 2008, federal Judge Joseph
Bataillon ordered the return of $20,000 taken from a man during a
traffic stop in Douglas County, Neb. Judge Battaillon quoted from a
recording of the seizure, in which a sheriff's deputy complained
about the man's attitude and suggested "we take his money and, um,
count it as a drug seizure."

The judge's order said the case produced "overwhelming evidence" that
the funds were clean.

Douglas County Sheriff Tim Dunning said the remarks made by his
officers on the recording were "uncalled for" and "had a potential
for tainting the case." But overall, he says, the seizure was handled
properly. Since 2002, he says, his department has earned $11 million
in equitable-sharing money.

A spokesman for the U.S. Attorney's office in Nebraska said the
deputy's remarks were "a rare and isolated event."

About a decade ago, the forfeiture system got a major overhaul. The
2000 Civil Asset Forfeiture Reform Act, or Cafra, put in protections
for individuals, including increasing the government's burden of
proof in many proceedings. Cafra also extended forfeiture powers to
additional crimes.

Cafra's new safeguards didn't go far enough, critics argue. For
instance, reformers failed to win a broad guarantee that poor people
would have access to a lawyer. "It isn't much good to say you have
the right to get your property back if you can't afford a lawyer,"
said the late Rep. Henry Hyde (R-Ill.) at a 1999 congressional hearing.

Jorge Jaramillo, a construction worker, says he couldn't afford a
lawyer after more than $16,000 was seized from him last year in a
traffic stop. "I had all of $20 left," he says.

In a Delaware federal-court filing, the Justice Department argued the
money was related to drug dealing. It pointed to air fresheners in
the car, which could mask the smell of drugs, and a fast-food bag
containing cigar tobacco, which the filing said was often a sign that
the cigar wrapper had been used to smoke marijuana.

The filing also said a police dog had signaled that the cash carried
residue of illegal drugs. Such "dog sniffs" are a common but
controversial feature in forfeitures.

Mr. Smith, the Virginia attorney, represented Mr. Jaramillo at no
upfront cost. In court documents, Mr. Jaramillo, who wasn't charged
with a crime, said he was carrying the money because he was traveling
to buy a car from a seller who wanted cash.

The government in May agreed to return Mr. Jaramillo's money, with
interest. Mr. Smith was also awarded $6,000 in attorney's fees. Under
Cafra, attorneys' fees in civil-forfeiture cases are at least
partially payable if the claimant wins.

The Cafra reforms helped Mr. Jaramillo find a lawyer even though he
says he had no money. Still, forfeiture attorneys say this feature of
the law is being eroded in some instances. In April, the U.S. Ninth
Circuit Court of Appeals found that the Cafra attorney's fee should
be paid to the client, not directly to the lawyer. Lawyers say this
makes it possible for the government to seize their fees if the
client has a tax lien or other obligation.

Mr. Lieto, the New York businessman, discovered the frustrations an
innocent party can face as he worked for months to keep open his
check-cashing business after federal agents seized his firm's working capital.

For years, according to court filings, Mr. Lieto used an armored-car
company to pick up cash from his bank for delivery to his
check-cashing outlets. The sealed bank bags were routinely stored
overnight in the car company's vault. In February 2010, the FBI raid
seized the $19 million as part of the fraud probe.

Under the law, an innocent third party generally can't seek an
asset's return until the underlying criminal case is resolved, which
can take time. In this case, two men pleaded guilty last fall to a
multi-million-dollar fraud.

An innocent party's money is returnable if it's clearly separate from
the fraud. Mr. Lieto's two sealed and marked bank bags with the
$392,000 qualified, his attorney, Mr. Kessler, argued in court
filings. Others among the scores of customers made similar claims.

The government countered that the crooks' operation, which included
the armored-car service, routinely commingled customers' money. Thus,
everyone had to get in line as fraud victims.

Court records indicate that fraud victims might get about 25 cents or
less on the dollar. However, in February the government agreed to
give Mr. Lieto's money back in full.

Mr. Lieto's lawyer, Mr. Kessler, had filed a deposition from a vault
manager who had watched Mr. Lieto's two still-sealed bags being
loaded onto the FBI's truck. If the bags were opened and commingled,
it was done by authorities, a Lieto court filing argued.