Jeffrey Alberts^[1]
Pryor Cashman, New York
jalberts@pryorcashman.com

The US government’s jurisdiction over assets it does not control

As part of its efforts to punish and deter criminal activity, the US government regularly seeks to forfeit assets that are derived from criminal activity through civil in rem forfeiture proceedings. These are brought against the property itself, rather than against a person. Under the ‘traditional paradigm’ of in rem jurisdiction, a ‘court must have actual or constructive control over the res when an in rem forfeiture suit is initiated’.^[2] The majority view among courts has long been that, when the property is located abroad, 28 USC section 1355(b), which provides jurisdiction and venue for in rem forfeiture proceedings, departs from the ‘traditional paradigm’ by granting in rem jurisdiction even when a district court does not have ‘actual or constructive control’ over those assets.

The Nasri decision may handcuff the US government when it lacks control

A recent decision from the Ninth Circuit rejected the US government’s efforts to avoid the requirement of actual or constructive control by holding that even though section 1355(b), as a matter of statutory interpretation, does purport to grant in rem jurisdiction in the absence of actual or constructive control, this grant is a violation of the due process clause. Following the Ninth Circuit’s ruling in this case, United States v Nasri,^[3] forfeiting assets abroad just became much harder – raising questions for both prosecutors and those seeking to recover offshore wealth.

The defendant in Nasri was indicted for racketeering and drug conspiracy in connection with his alleged role in selling specialised cell phones to criminals, promising that they were ‘uncrackable’ and could be wiped remotely to hide or destroy evidence. Following the indictment, the government initiated a civil forfeiture action against funds allegedly associated with the scheme that were held in bank accounts in Liechtenstein. The defendant filed a claim to those assets in the forfeiture action, which the district court struck out under the fugitive disentitlement statute.^[4] A divided panel of the Ninth Circuit reversed this, holding that section 1355 could not constitutionally grant a district court in rem jurisdiction over assets located abroad that were not in the court’s actual or constructive control.^[5]

Section 1355 provides that:

‘(b)(1) A forfeiture action or proceeding may be brought in –

(a) the district court for the district in which any of the acts or omissions giving rise to the forfeiture occurred, or

(b) any other district where venue for the forfeiture action or proceeding is specifically provided for in section 1395 of this title or any other statute.

(2) Whenever property subject to forfeiture under the laws of the United States is located in a foreign country, or has been detained or seized pursuant to legal process or competent authority of a foreign government, an action or proceeding for forfeiture may be brought as provided in paragraph (1), or in the United States District court for the District of Columbia.’

Whether section 1355(b) grants district courts in rem jurisdiction, as a matter of statutory interpretation, over assets located abroad without actual or constructive control was already part of a circuit split. Three years after Congress amended section 1355(b) to its current state, the Second Circuit decided as a matter of first impression that it did not grant in rem jurisdiction in the absence of actual or constructive control.^[6] The Third, Fourth, Ninth and DC circuits disagreed with Meza, holding that section 1355(b) does not require district courts to have actual or constructive control.^[7]

According to the majority opinion in Nasri, however, all of those cases, including the previous Ninth Circuit case, considered only whether section 1355(b) granted that authority as a statutory matter, and did not consider whether ‘such an exercise of in rem jurisdiction comports with due process’.^[8] The majority held that it did not, reasoning that potential claimants to the property that the government seeks to forfeit have due-process notice rights: ‘[N]otice is the touchstone of due process in in rem proceedings, and constructive control has long been the notice required by the Constitution.’^[9] Consequently, the majority held, to the extent that section 1355(b) purports to grant a district court in rem jurisdiction without requiring that it have actual or constructive control over the property, it violates the due process clause of the US Constitution.^[10]

The district court did not have actual control over the funds because they were still held in bank accounts in Liechtenstein, and because prior Ninth Circuit precedent did not require it to have constructive control, the district court did not consider whether it had constructive control. The Ninth Circuit consequently remanded for the district court to consider that in the first instance.^[11]

When foreign government action results in constructive control

As to the meaning and scope of ‘constructive control’ for the district court to assess on remand, the Ninth Circuit majority found ‘instructive’ the Second Circuit’s analysis in Meza, which it read to hold that ‘constructive control exists if the foreign government’ of the jurisdiction where the assets are located ‘act[s] essentially as an agent of the United States for purposes of th[e] forfeiture action’.^[12]

In Meza, the Second Circuit held that the district court had constructive control over funds in a UK bank account in light of the UK government’s ‘demonstrated cooperation’ with the US government’s forfeiture efforts. Pursuant to a 1988 mutual legal assistance treaty, UK officials, at the US government’s request, had sought a court order to restrain the funds, served copies of forfeiture complaints regarding those funds, sought an order continuing the enforcement of the original restraining order and exhibited ‘general cooperation … with respect to the funds’.^[13] The Second Circuit concluded that the district court therefore had constructive control because the UK government had ‘acted essentially as an agent of the United States for purposes of this forfeiture action’ and that ‘[e]very action of the British law enforcement officials has been in direct response to requests from federal authorities’.^[14] Notably, the Second Circuit rejected the claimant’s argument ‘that the district court lacked any degree of control because the United Kingdom was not obliged to remit to the United States the funds seized’, and that, under the 1988 treaty, ‘the amount that the United States will receive ultimately will depend on negotiations between the two nations’. Because the US ‘demonstrat[ed] that the British government will turn over at least a portion of the seized funds to the United States’, the lack of an explicit obligation to do so in the relevant treaty did not defeat constructive control.^[15]

The Meza analysis has not been widely applied, perhaps because prosecutors seeking to forfeit assets abroad initiate forfeiture actions in another circuit if it all possible, where they need not comply with Meza. The few cases that have applied Meza provide something of an outline of the nature of foreign cooperation or facilitation that is likely to become required in the Ninth Circuit.

Instances where the degree of cooperation between the US and a foreign country ‘is indistinguishable from the cooperation between the United States and England underlying the agency relationship found to support jurisdiction in Meza’ seems likely to meet the Meza standard, of course.^[16] Whether other elements are necessary or sufficient is less clear. Some cases suggest that actual restraint of the property by foreign officials is the critical factor, even without extensive additional cooperation. For example, the court in United States v Lear Jet 2005^[17] found that it did not have constructive control despite ‘the USA’s representations that Mexican authorities are cooperating with the USA’s investigation of the aircraft’ because it found that it was ‘clear that [defendant aircraft] have not been seized by the Mexican government’.^[18] And the Court in United States v Funds Described in ‘Attachment A’ to Complaint for Forfeiture 2007^[19] held that it had constructive control because Bermudian officials sought and received a restraining over the assets.^[20] That restraint was apparently sufficient without significant other cooperation by the Bermuda government, as the Bermudian officials discovered the criminal conduct before the US government did, and sought the restraining order ‘without a request by the U.S. government.’^[21]

The decision in United States v Contents of Acct No 03001288^[22] finds a different critical element in Meza, reading it to hold that ‘a district court obtains constructive control over the property if the foreign state sufficiently cooperates with the United States so as to make it likely that a future forfeiture order against the property would be enforced’.^[23] Emirati officials there had frozen the relevant funds at the request of the US, but the Court found that this restraint would have been insufficient if ‘Senior Legal Advisor at the U.A.E. Ministry of Foreign Affairs [had not] informed U.S. authorities that if the U.A.E. were presented with a forfeiture order from an American court, the funds in the accounts would be forfeited’.^[24]

Ramifications for the forfeiture of overseas assets

Because constructive control was already required on statutory grounds in the Second Circuit, the Nasri decision does not, as such, break entirely new ground. But it applies that rule for the first time to prosecutors seeking to bring civil forfeiture actions within the Ninth Circuit, and also may prompt the courts of appeals in the Third, Fourth and DC circuits to reconsider the law in their circuits. This is bad news for prosecutors attempting to bring forfeiture actions against overseas assets, but is good news for clients seeking to resist the forfeiture of assets held outside the US.

The constructive control standard sets a high bar, most significantly because it appears to require not just a foreign government’s blessing, but also its active participation in the US government’s forfeiture efforts, including actual restraint of the assets or an affirmative representation that a US forfeiture judgment would be enforced. That assistance or representation may not always be forthcoming, whether because of shifting diplomatic relationships with the US, internal political calculations or domestic laws. Accordingly, those facing US forfeiture efforts against assets abroad should be prepared to wield the ‘due process’ defence aggressively – it could be the key to shutting down a case before it even starts. And if the US government asks for consent to freeze overseas assets? Think twice.