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Some Ecomomics and History of Civil Forfeiture

More than a decade ago, Adam Pritchard and I together wrote several articles on the uncivil practice of civil asset forfeiture.  Here’s one that’s available on line from the Independent Institute.  (Figure 1 is not included in this on-line version – my apologies.)  (I believe especially interesting is the section on the “The Legal Pedigree of Civil Forfeiture.”)

Here are the paper’s opening paragraphs:

Miguel Alvarez was arrested in October 1985 on a criminal drug charge. His bond was set at $50,000. American Bankers Insurance Company loaned Alvarez the bail money, taking a mortgage for $50,000 as security and thus gaining an ownership interest in Alvarez’s house. Several months later (but before Alvarez’s criminal trial), the U.S. government brought a civil proceeding against Alvarez’s house, alleging probable cause for suspecting that illegal drugs had once been harbored there. The government claimed title to the house, relying on the federal Comprehensive Drug Abuse Prevention and Control Act (“Drug Act”), which forfeits to the government “[a]ll real property…which is used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, a violation of [federal drug laws] punishable by more than one year’s imprisonment.”

When Alvarez failed to appear at his June 1986 trial, American Bankers paid the $50,000 bond to the government. The company then sought to exercise its ownership interest in the house (which under commercial law now belonged to American Bankers because Alvarez was a no-show at his trial). However, the government claimed to own the house under the Drug Act’s forfeiture provisions. In response, American Bankers advanced the Drug Act’s “innocent-owner” defense, which is intended to protect unwitting property owners from having their assets seized by government agents fighting the “war on drugs.” This innocent-owner defense says that “no property shall be forfeited…by reason of any act or omission established by that owner to have been committed or omitted without the knowledge or consent of that owner.” Because the alleged illegal acts took place prior to American Bankers’ obtaining the mortgage—and because the government had not alleged any subsequent illegal acts—the company urged the court to find that the government had no right to take title to the house. American Bankers argued that title to the house vested in the company when Alvarez defaulted on his bond by not showing up for trial.

The court ruled in favor of the government, holding that because the statute places the burden on the owner to prove his innocence or lack of knowledge of wrongdoing, American Bankers failed to show that it did not know that the house once (allegedly) contained contraband drugs. Consequently, American Bankers lost both the $50,000 it paid when Alvarez skipped bail and its $50,000 security interest in the forfeited house. The government pocketed the $50,000 as well as the entire value of the house.