Tainted Funds-When Can the Government Go After Money in an Attorney Trust Account or Otherwise Forfeit Legal Fees?
Generally, precedent in the context of forfeiture has held that while a defendant has a constitutionally-protected right to an attorney and an attorney of course has a right to be compensated for their services, a defendant does not necessarily have a right to transfer an asset to their attorney as payment when the asset may be subject to forfeiture by the government.
So what does this mean for attorneys?
The confusion in this area comes about because there isn’t always a clear-cut answer. There are multiple federal statutes that deal with both civil and criminal forfeiture, dependent on the alleged crime. There are also several Supreme Court decisions that provide limited guidance, as well as more recent precedent from various jurisdictions.
With respect to legal representation in a criminal case, the Supreme Court in Caplin & Drysdale (1989) held that neither the Fifth nor the Sixth Amendment generally precluded pretrial seizure of tainted forfeitable property assets that might otherwise be used to pay attorney fees in a criminal case, using the relation-back doctrine as justification for forfeiture. However, this decision was arguably limited in that context by their subsequent holding in 92 Buena Vista Ave (1993) which at the least seems to insure that “attorneys are entitled to an opportunity to assert a defense of lack of knowledge before forfeiture can automatically take place”.
When does an asset become “tainted” and when does a lack of knowledge defense apply?
Generally speaking, an asset becomes subject to government forfeiture when it becomes tainted due to its connection with or because it is characterized as proceeds stemming from the crime at hand.
However, even tainted assets may be exempt from forfeiture once they are transferred to a third party, who can establish their status as “a bona fide purchaser for value of the right, title, or interest in the property and who were at the time of purchase reasonably without cause to believe that the property was subject to forfeiture” under 18 U.S.C.A. § 1963(l)(6)(B); 21 U.S.C.A. § 853(n)(6)(B).
Therefore, timing matters!
Federal forfeiture laws are premised on the notion that tainted assets belong to the government as of the date of the underlying offense. In order to protect attorney fees against government forfeiture, an attorney must be able to establish that they are in fact “a bona fide purchaser”.
This provision does not exempt assets given to secure the future performance of services, but it is broad enough to encompass attorney’s fees which have already been paid. Under the 11th Circuit, the attorney bears the burden of establishing his or her status as a bona fide purchaser for value under 18 U.S.C.A. § 1963(l)(6); 21 U.S.C.A. § 853(n)(6), and the court must look to pro rate the value of the services the attorney has rendered, immunizing from forfeiture only those fees earned during the period the attorney met the bona fide purchaser test as opposed to those simply provided for future legal services. U.S. v. McCorkle, 321 F.3d 1292 (11th Cir. 2003).
Furthermore, in order to forfeit assets, the government must show that the asset was subject to forfeiture at the time that it was transferred.
Money Laundering Implications for Attorney Fees
There is also the implication of forfeiture of legal fees stemming from allegedly tainted assets under the federal money laundering statutes (18 U.S.C. §1956 and 1957), however even where congressional Safe Harbor Provisions do not apply, the Department of Justice has generally recognized that a rigid application of forfeiture laws to attorney fees “may prevent the free and open exchange of information between attorney and client” and therefore utilized a heighted requirement in such instances. USAM 9-120.100. That heightened standard being that tainted assets paid as legal fees in the course of either civil or criminal representation may only be subject to forfeiture when there are reasonable grounds to believe that the attorney had actual knowledge as opposed to mere reasonable cause to believe that the asset was subject to forfeiture at the time of the transfer. Absent gross attorney misconduct or participation in the illegal actions of their clients, this standard generally applies.
So practically, where a client for example pays legal fees before an indictment or civil forfeiture proceeding is commenced, the attorney has a stronger position to argue bona fide purchaser status with regard to those funds. The absence of an indictment goes toward minimizing the argument that the attorney had actual knowledge or reason to believe said asset would be subject to forfeiture in the future.