FEDERAL prosecutors last week persuaded a judge to stop a group of Bernard L. Madoff’s victims from using an involuntary bankruptcy filing to claim more than $100 million of his personal assets. The prosecutors’ argument was simple: preserving Mr. Madoff’s assets for eventual forfeiture to the government is the best way to ensure as much money as possible is returned to the victims of his Ponzi scheme in an equitable manner.
Most people would assume that this is business as usual, that the government routinely seizes the assets of criminals and returns them to victims. After all, criminals should not have ill-gotten houses, cars and yachts waiting for them when they finish their sentences. But the reality is that the government’s focus on seizing Mr. Madoff’s assets for restitution is unusual. Lawbreakers are rarely forced to give up the proceeds of their crimes.
To take just one example: Between stints in prison over the past decade, John A. Gotti, the former Gambino crime family boss, was able to return to his luxurious house in Oyster Bay Cove, on Long Island, where the median house value in 2007 was more than $2 million. Does anyone believe the money that Mr. Gotti bought it with was legitimately earned?
Every year in the United States, criminals amass hundreds of billions of dollars in cash and goods from illegal activities — mortgage fraud, extortion, embezzlement, illegal gambling, bank fraud, public corruption, human trafficking, identity theft, securities violations, insurance fraud, intellectual property piracy and bankruptcy fraud — though it’s impossible to gauge the total take precisely. Drug trafficking alone brings in an estimated $18 billion to $64 billion a year, while estimates of Medicare fraud earnings are $35 billion to more than $70 billion a year. The part of that loot that is seized by federal, state and local governments amounts to a few billion dollars at most. Here again, it is difficult to assess the exact value because so many different government entities are involved in collecting it, and no one agency adds it all up.
Even when criminals are behind bars, their profits gather interest in bank and securities accounts, or are held in real estate, cars, aircraft, yachts, art, jewelry, racehorses and countless other assets. If they were routinely seized, it would bring in tens of billions to compensate victims or finance law enforcement, break the backs of criminal organizations and deter future crimes.
The problem is not that the government lacks the authority to confiscate criminal assets. The very first Congress, in 1789, authorized the federal government to seize criminal assets — as a way of taking illegal goods away from smugglers. Today, some 200 federal criminal and drug control laws include provisions for asset forfeiture. And the 50 states and the District of Columbia all have forfeiture provisions of their own.
The problem is that governments — national, state and local — fail to exercise this power fully. Eric Holder, the attorney general, has already expressed his support for doing so. Back in 1999, when he was the deputy attorney general, he told the Senate Judiciary Committee, “From telemarketing to terrorism to counterfeiting to violation of the food and drug laws, the remedy of asset forfeiture should be applied.”
Now Mr. Holder is in a position to order that all federal law enforcement agents and prosecutors be trained to pursue the financial aspects of every case from the start, with an eye toward forfeiture of the criminal’s assets. Modern asset forfeiture laws rest on the notion that it is not enough to incarcerate people involved in criminal activity. Equal attention must be given to attacking and dismantling the economic base of the criminal organization.
For this to happen, the Department of Justice has to overcome a culture in which prosecutors focus on the arrest and conviction of individuals to the exclusion of the broader targets, entire criminal organizations.
Congress must also close a gaping hole in the victim restitution laws, which provide no authority for the pretrial restraint of assets of those accused of orchestrating frauds. Too often, dirty money simply disappears into shell companies and impenetrable offshore havens before the trial even begins.
But upon a showing that fraud was probably committed, a prosecutor should be authorized to restrain all of the suspect’s assets; the question of who gets them would be resolved after the criminal justice system has finished its work. The British already do not differentiate between asset forfeiture and restitution. They merge the two concepts and call it asset recovery. We should borrow a page from them.
The Justice Department must also make sure that its state and local counterparts in law enforcement get the training and resources to manage asset forfeitures of their own.
For too long government has been unwilling to take back the wealth that criminals have stolen from taxpayers. We can no longer afford to ignore the opportunities offered by our under-enforced asset forfeiture laws.
