Imagine heading to your bank to make a withdrawal and finding it empty.
Next, imagine finding out that your identity hasn’t been stolen, your banking information hasn’t been compromised, but rather the federal government has emptied your account. On purpose. And there’s nothing you can do about it.
That’s what happened to Terry Dehko and his daughter. The Dehkos own a small grocery store in Fraser, Michigan, a city of less than 15,000. It’s a family run business that the Dehkos have run since 1978.
In January, the federal government seized all of the money that the Dehkos had in their store bank account. The reason? The federal government alleges that the Dehkos were violating federal money-laundering rules. They were accused of structuring their deposits in order to avoid being subject to bank reporting rules. You can hear more about their story in their own words here:
Under federal law, banks are required to report any transactions (cash deposits or withdrawals) to the Treasury which total more than $10,000 in any single day: this information is included on a currency transaction report (CTR). The purpose of the CTR is to help the government track large transactions and prevent money laundering.
Money laundering works this way: the bad guys get money through illegal activities – like drugs or theft. It’s important to get rid of that “bad” cash and replace it with more legitimate funds. The easiest way, of course, is to run the cash through a bank or other financial institution and replace those dollars with new ones. In order to prevent this, federal laws require that large transactions be reported.
One of the ways that folks try to get around the law is to break down really large transactions into smaller ones, an act called structuring or sometimes, smurfing. So, if you had $100,000 in bad funds that you wanted to get rid of, rather than putting it all in at once, you would break it down into smaller transactions: say, 11 deposits of $9,091 in a number of different accounts or on a number of different days. The folks who make those deposits are sometimes called “runners” or “smurfs” (yes, after the little blue guys from the 1980s cartoons). And what they do – smurfing or structuring, is illegal. It’s important to note that the actual practice of making cash deposits of less than $10,000 is not illegal under 18 U.S.C. § 5324(a); it only violates the law when the transactions are structured “for the purpose of evading” those reporting requirements.
This is what the federal government alleged the Dehkos were doing: structuring deposits in order to avoid reporting requirements. The Dehkos have consistently denied any wrongdoing. Instead, they insist that the deposits were generally less than $10,000 because their insurance policy covers the theft of cash only up to that sum. As a result, they do not let their employees carry more than that amount at any time, including walking deposits to the local bank.
That didn’t stop the feds from seizing the Dehkos’ remaining funds. Using a process called civil forfeiture, the federal government can seize assets on the basis of suspicion: there is no requirement for firm evidence nor are the property owners entitled to notice. The government didn’t ask the Dehkos about their deposits or they would have found out about the insurance policy.
Months after the seizure, prosecutors had never offered any evidence to prove that the Dehkos were engaged in money laundering or that they were avoiding income tax. In fact, a Bank Secrecy Act examination from last year resulted in a notice stating that “no violations were identified.” And the Internal Revenue Service had not indicated that there were any concerns about taxes and had assessed any delinquent taxes or penalties on the Dehkos.
The government’s case, as filed in federal court, is not actually against the Dehkos. It is, by law, filed against the Dehkos’ property. The official case name is United States of America v. Thirty Five Thousand Six Hundred And Fifty-One Dollars And Eleven Cents ($35,651.11) In U.S. Currency From PNC Bank Account Number XXXXXX6937.
That’s the case for all such seizure matters, referred to as civil-asset forfeiture. And seizures don’t have to be in cash: they can be real estate or other real property. All of it is done without notice and without a timely hearing.
As is often the case with these matters, months after the seizure, there had been no hearing. The Dehkos were still out of pocket. So they decided to fight back.
On September 25, 2013, the Dehkos, with the attorneys at the Institute for Justice (IJ), filed a constitutional lawsuit challenging the federal government’s use of civil forfeiture in their case. The complaint, in that case, TARIK DEHKO; SANDRA THOMAS; and DEHKO FOODS, INC. d/b/a SCHOTT’S SUPERMARKET v. ERIC H. HOLDER, Jr., in his official capacity as Attorney General of the United States; DANIEL I. WERFEL, in his official capacity as Acting Internal Revenue Service Commissioner; and BARBARA L. McQUADE, in her official capacity as United States Attorney for the Eastern District of Michigan can be found here (downloads as a pdf).
In the complaint, the Dehkos asked for their money back. They also requested a federal court ruling declaring that property owners are entitled to a prompt hearing either before or immediately after their property is seized, something that isn’t the case now. The lawsuit also asks the court to confirm that law-abiding businesses who make frequent cash deposits for legitimate business purposes are not in violation of the federal statute.
Last week, a federal judge scheduled a hearing for the Dekhos: they would finally get their day in court. The hearing was scheduled for December 4: nearly one year after their funds were seized. IJ Senior Attorney Clark Neily said, about the ruling:
… the fact that it took nearly a year for them to get that hearing highlights the due process problems with civil forfeiture law. No American should have to wait so long without an opportunity to challenge the seizure of their property.
The Dehkos won’t have to wait until December, however. Today, the IRS filed motions to voluntarily dismiss their forfeiture actions against the Dehkos. As a result, the money which was seized without warning nearly a year ago from their bank accounts will be returned. A dismissal was also filed for a similar case: Mark Zaniewski of Sterling Heights, Michigan, who is also represented by the IJ will get his money back, too.
That doesn’t mean that the plaintiffs are ready to walk away. Their attorney, Neily, said, about the cases:
The IRS should not be raiding the bank accounts of innocent Americans, and it should not take a team of lawyers to put a stop to this behavior. We are thrilled that Terry, Sandy, and Mark will finally get their money back, but their fight does not end today. Our constitutional lawsuit against the federal government seeks to rein in the shameful practice of civil forfeiture.
Meanwhile, the government continues to take in forfeiture money at a breakneck pace. In 1985, proceeds from forfeitures were just $27 million: last year alone, the government took in more than $4 billion in forfeiture.