When Long Island businessman Jeff Hirsch stepped up to the bank window to make a deposit one morning in May, 2012, the teller shot him a worried look. “You know, your account has been frozen,” she told Hirsch. “I’m not sure you want to put any money in there this morning.”
In fact, the disbelieving Hirsch soon learned, the office of the U.S. Attorney for the Eastern District of New York had, without warning, seized the entire working capital — $447,000 — of Bi-County Distributors in Ronkonkoma, N.Y., the business Hirsch co-owns with his two brothers.
For Hirsch, it was one of those petrifying moments that could only elicit an incredulous, “This can’t be true!”
But it was true. Hirsch and his brothers, like thousands of other Americans in the past 10 years, had been targeted by law enforcement authorities on suspicion of a crime he had never heard of. His money had been seized as part of a federally sanctioned wave of “civil asset forfeitures,” with citizens losing homes and automobiles and life savings merely because they were suspected of some crime.
The subject is likely to come up at U.S. Senate hearings this week to review President Obama’s nomination of Loretta Lynch to replace Eric Holder as U.S. Attorney General, staff of the Senate Judiciary Committee say. It was Lynch’s office that inflicted the nightmare of disappearing funds on the Hirsches and refused to release the money even after overwhelming evidence that the brothers were innocent of wrongdoing.
Since 2008, police agencies have seized cash and property worth $3 billion, making more than 55,000 seizures, according to the Washington Post. Lynch’s office hauled in $113 million in civil forfeiture actions from 123 cases between 2011 and 2013, and a Wall Street Journal editorial described her office as “a major forfeiture operation.”
Last week, Lynch’s office finally gave the brothers their money back, two years and nine months after it had been seized and exactly a week before Lynch was scheduled to be grilled by members of the Judiciary Committee.
By now, the asset-forfeiture horror stories have begun to alarm not only ordinary citizens but members of Congress and high-ranking federal officials. Holder himself stepped into the controversy last week, issuing a sweeping order to stop local and state police from seizing private property without warrant or criminal charges.
Holder’s announcement was a significant move away from the predatory property seizures that have been the subject numerous recent investigative stories. But Holder is on his way out, leaving administration of the new policy in the hands of his successor, likely to be one of the enforcers of the tainted grab-and-keep system, Loretta Lynch.
On that day in 2012, the office of the nominee for the job as the nation’s top lawyer did not spell out the charges against Bi-County in the registered letter Jeffrey Hirsch received. It took a call to the federal law enforcement agency to find out what the problem was. It seems that the Hirsch brothers were under suspicion of “structuring” their bank deposits – depositing numerous sums of less than $10,000 to avoid the federal banking reports that larger deposits require. Structuring is a ruse commonly used by drug dealers and money launderers to hide quantities of illegally acquired cash from the IRS or federal law enforcers.
In Bi-County’s case, there was a suspicion of wrongdoing but no formal charges ever came. In the almost three years that the fed held onto the Hirsches’ money, federal prosecutors failed to specify any crime the brothers may have committed or to offer any formal explanation for freezing Bi-County’s bank account.
What the feds did do, however, was to repeatedly refuse to return the $447,000, dealing a harsh blow to the Hirsches’ business.
“There’s really only one reason we’re still in business,” Jeff Hirsch says. “Because of our friends in the industry.” Bi-County’s vendors, some of whom have been doing business with Bi-County for the 27 years of the company’s existence, extended long-term credit to the company. The Hirsches supply candy, cigarettes and other products to some 150 convenience stores in Long Island.
Bi-County is the sole source of income for the three brothers, including Mitch and Richard, and they conduct the business themselves, with the help of one part-time employee. Jeff Hirsch said that they were able to cover their legal expenses by liquidating a $55,000 certificate of deposit.
There were bona fide reasons for their practice of making sub-$10,000 deposits. But the U.S. Attorney’s office neither listened to their pleas nor allowed them to have their day in court to argue for the return of their funds, the Hirsches say.
The U.S. Attorney’s office declined to comment on the case.
Attorney Larry Salzman of the Institute for Justice, a public interest law firm based in Arlington, Virginia, that represented the Hirsches in recent months, filed a motion for return of property last October in Federal District Count in Central Islip, Long Island.
Salzman’s motion was preceded by two and a half years of fruitless efforts by attorney Joseph Potashnik to get the Hirsches’ money back. Among other things, Potashnik had the Hirsches hire an independent forensic accountant, at a cost of $25,000, to check Bi-County’s books.
“Everything equaled out,” Jeff Hirsch says. “We had paid all of our taxes. Actually, we had even paid a little too much in taxes that year. We figured that would be the end of it. But they still wouldn’t release the money.”
Salzman’s motion charged that the federal government, represented by Loretta’s Lynch’s office, had deprived the Hirsches of their constitutional right to due process. Salzman also claimed that the U.S. Attorney violated a federal law imposing strict deadlines for initiating forfeiture proceedings.
“The law says that they [the prosecutors] have got to file a complaint in the court within 90 days, so there’s some judicial oversight over this process,” Salzman said in an interview. “But the prosecutors in Long Island completely violated that law. They blew past those deadlines, insisting the deadlines don’t apply to them.”
It’s unclear whether Lynch was directly involved in the Bi-County case, but she bears ultimate responsibility for the practices and policies of the U.S. Attorney’s office, Salzman contends. “She oversees that office,” Salzman says. “She oversees a set of policies.” Lynch is scheduled for two days of confirmation hearings before the Senate Judiciary Committee on Wednesday and Thursday.
The Hirsches’ story is, of course, part of a larger story about alleged abuses by local and federal authorities, who have seized homes, cars or cash worth billions of dollars from innocent citizens unwittingly entangled in criminal cases. Among the targets of forfeiture recently represented by Salzman’s firm are an elderly couple whose Philadelphia home was seized after an addicted son sold a small amount of drugs to an agent on the couple’s front sidewalk and the owner of a small Iowa cash-only restaurant whose $33,000 bank account was frozen by federal authorities for making allegedly structured deposits.
Forfeiture laws have been on the books “since the beginning of the Republic,” says Scott Bullock, senior attorney at the Institute for Justice. “It was a limited remedy that allowed the government to seize property for unpaid taxes or customs duties, that sort of thing,” he says.
The federal government raised the stakes significantly in 1970, with a law that, as part of the so-called War on Drugs, gave local law enforcement agencies the authority to seize cars, boats and airplanes used to transport drugs or luxury vehicles driven by drug kingpins. But civil forfeiture law in effect went on steroids after 1984, when the government allowed federal agencies to “adopt” seizures made by local and state police. Under a system called “equitable sharing,” police departments could keep up to 80 percent of the proceeds from seizures, which now included cash from the suspected profits of criminals, sending police and sheriffs department trolling for forfeiture targets.
The law, a section of the Comprehensive Crime Control Act of 1984, provided a “perverse incentive” for authorities to pursue forfeitures, critics charged. “The funds go right back to the agency that seizes the money,” Bullock explains, giving law enforcement agencies an incentive to pursue cases for their own material gain. Since the law went into effect, cash-strapped law enforcement agencies all over the country have eagerly trained their detectives in investigative techniques that would pay off not in convictions but in hard currency.
In a civil forfeiture, police don’t have to charge a citizen whose property they’re seizing with any crime. But it’s up to the citizen to prove that his money or property was not the product of a criminal enterprise. Many seizure targets have challenged authorities, and about 40 percent of them get their property back – often after a long, expensive legal battle.
The case against Bi-County began when a detective from the Nassau County Police Department’s asset forfeiture unit scanned records of deposits to the New York Commercial Bank in Ronkonkoma. Nassau County has an especially aggressive asset sharing program, toting up about $28 million in seized cash and property in 2013, the equivalent of almost 4 percent of the department’s annual budget that year. The county uses the money as “an offset against the overtime incurred” by police officers, according to Nassau County budget documents for 2014.
Detective Michael Kearns, who was working with a forfeiture task force, including IRS investigators, spotted a pattern of sub-$10,000 deposits to the Bi-County bank account. There were 165 such deposits between May 2011 and March 2012, amounting to almost $1.5 million, Kearns wrote in his affidavit. The patterns of the deposits were “consistent with structuring,” he said.
But Kearns’ investigation did not include interviewing the Hirsches or finding evidence of any criminality associated with the bank deposits. Kearns died the following year, and it’s unclear who is now handling the case for the police. It’s not clear either how much of Bi-County’s money would have been turned over to Nassau County had the Hirsches lost in federal court. The Nassau County police refused to comment on the case.
The Hirsches acknowledge that they made the deposits enumerated in Kearns’ affidavit. But they say there were legitimate reasons for them to conduct business the way they did, which they could have explained if any investigator had asked.
Bi-County is a cash-intensive business. Its customers, who deal largely in cash, often pay their suppliers in cash. “It’s not uncommon for the Hirsches to show up with $500 to $1,000 worth of goods for the week,” Salzman explains. “And the client just opens the till and pays in cash.”
But banking Bi-County’s proceeds has always been problematic, Jeff Hirsch says. Aside from the security risks of keeping large amounts of cash on hand, the company kept running up against reluctant banks that didn’t want to deal with the extra paperwork. In fact, in the decade before the Bi-County account was seized, the company had been shut out of three local banks who grew impatient with the Hirsches’ large cash sums. Then a CPA who does work for the company suggested that the Hirsches make smaller, more frequent deposits.
“They had no idea they were doing anything wrong,” Salzman says. “If somebody had said, hey, what you’re doing could be misconstrued, or it’s illegal, they would have stopped doing it in a heartbeat.”
Salzman adds that making numerous sub-$10,000 deposits is not illegal, unless the deposits are structured to conceal ill-gotten gains.
Since the hassles with the feds, the Hirsches have reverted to making large, reportable deposits, Jeffrey Hirsch says.
All along, there were signals that the U.S. Attorney had doubts about its own case. Though Lynch’s office adamantly refused to return the Hirsches’ money, it floated a series of offers to settle the case for a sizeable chunk of the $446,000, Jeffrey Hirsch says. These offers ranged from $275,000 to $200,000 to, in recent months, $50,000, Hirsch says.
“That’s just an insult,” he said, a few days before Lynch’s office admitted defeat ion the case. “It looks like they just wanted something, so they’ll take $50,000 and give the rest back.” But the Hirsches were adamant about demanding a full return and refusing to admit wrongdoing.
There are moves to reform the civil asset forfeiture system, including possible federal bill to put a stop to the unsavory practices of some law enforcement agencies prompted by the federal Equitable Sharing Program. Four members of Congress, including the chairmen of the House and Senate Judiciary Committees, called on Attorney General Holder earlier this month to end the program.
“We are concerned that these seizures might circumvent state forfeiture law restrictions, create improper incentives on the part of state and local law enforcement, and unnecessarily burden our federal authorities,” said a letter from the four, including Senator Charles Grassley (R-Iowa), chairman of the senate Judiciary Committee; Rep. James Sensenbrenner Jr. (R-Wisconsin), chairman of the House subcommittee on crime, terrorism, homeland security and investigations; Rep. John Conyers (D-Michigan); and Senator Mike Lee (R-Utah).
Last December, the Republican and Democratic leaders of the House Ways and Means Committee introduced a bill to protect targets of structuring investigations by requiring a probable cause hearing within 14 days of a property seizure.
On January 16, Holder introduced his sweeping order to put the brakes on local and state police engaged in lucrative property seizures.
The order was not so sweeping as to affect the Hirsches’ case, however.
“Holder’s order was aimed more at roadside seizures, where state law enforcement officials take money from people without a warrant, then turn it over to the federal government as bounty – a small subset of all civil forfeitures,” Salzman says. “The Hirsches’ money was seized pursuant to a federal warrant.”
Possibly more helpful to the Hirsches’ cause was a recent announcement by the IRS saying it would no longer pursue structuring cases where the money involved could be proved to be from a legal source –except in “exceptional circumstances.”
“Unfortunately, they didn’t define `exceptional circumstances,’ and they didn’t make it retroactive,” Salzman says. For the Hirsches, however, it turned out that the principle – if not the law itself – bolstered their case.
The whole experience has been stressful in the extreme for the brothers. Aside from having to cut back on inventory and making extra deliveries, they also had to live with the stress of owing two-and-a-half-year-old debt to creditors who are also their friends. “They need their money too,” Hirsch says. “It’s unfair on all bases.”
But the experience steeled the Hirsches against adversity. “It’s made us work harder,” Jeff Hirsch says.
He added: “Nobody in America should have to live through the nightmare we’ve experienced. Civil forfeiture nearly destroyed our business even though we did nothing wrong.”