Cash Businesses Beware: The Justice Department May Be Coming For Your Money - TheStreet

New York (MainStreet) -- Two years ago, a team of IRS. agents, working with the Department of Justice, seized nearly half a million dollars from Bi-County Distributors and its owners, Jeffrey, Richard and Mitch Hirsch. The IRS had no warrant, brought no criminal charges and has given no indication that it intends to file any. It is, however, keeping the money.

MainStreet has written in the past about civil asset forfeiture, through which federal, state and local governments take control of disputed assets. The goal of the law is to secure evidence, particularly when time is of the essence. In theory this allows law enforcement to keep up with financial criminals who can shift money out of the government’s reach with the click of a mouse. In reality police and revenue departments, which get to keep the seized assets for themselves, use this power to boost their own budgets.

And they don’t seem particularly worried about guilt or innocence.

Instead stories like that of the Hirsch brothers are becoming increasingly common. Acting under an obscure law called “structuring” the IRS and Justice Department target people who make cash deposits of less than $10,000, the federal cut off after which a depositor and bank need to report a transaction. The law is aimed at money laundering and drug dealers, but over the past ten years, the Justice Department has stepped up its Asset Forfeiture Program by more than 1,000% and seized more than $4.3 billion in 2013 alone.

Cash deposits aren't illegal even when they’re made to avoid paperwork. Only attempts to hide cash break the law, although that distinction tends to get lost on agencies that clean out bank accounts on suspicion alone. That’s what happened to Bi-County Distributors, a candy and food distributor based out of Long Island. According to one of the company’s attorneys, Robert Johnson with the Institute for Justice, the business has had several accounts closed over the years by banks that didn't want to deal with the paperwork associated with large cash deposits. To prevent this, Bi-County took the advice of an accountant and began making deposits below the $10,000 limit. The result looked suspicious, so Justice Department officials seized $445,000 in account balances.

So far, however, there’s no evidence that the Hirsch brothers actually did anything wrong. “It’s not uncommon that people get into trouble this way,” Johnson said, referring to companies trying not to deal with paperwork, “[but] what the law says is you have to have the purpose of evading the reporting requirement… that the purpose is avoiding the report going to the I.R.S.”

Ducking some paperwork isn't illegal as long as the account holder is honest about his assets overall during tax filings.

Under the 2000 Civil Asset Forfeiture Reform Act the government has 60 days to either return any money or make its case in front of a judge. It has been two years and counting for Jeffrey, Richard and Mitch Hirsch.

“It’s very common in these cases, the way the government proceeds is it simply holds the money," Johnson said. "The common resolution is that people can’t afford to contest it because legal representation is expensive, and the government has already taken all their money.”

How people are supposed to hire a lawyer with no money appears to be their problem. Most often these cases end in negotiated settlements, although that term implies charges that the government generally doesn’t bring and parity which rarely exists. Under these deals the government returns a portion of the seized money and keeps sometimes as much as 80%, according to Johnson, all without ever demonstrating that it has probable cause to take the money in the first place. It’s simply dealing with people who don’t have the knowledge or resources to fight back.

Government isn't supposed to operate in the dark like this. The IRS., along with the Justice Department, should have explained its position on the Hirsch case long ago. Under virtually all conditions the government has to make a public case for its actions either before or shortly after seizing private property. Although law enforcement agencies act as though they’ve found a loophole in civil forfeiture, the CAFRA actually requires court filings within two months of seizure. However, the Hirsch brothers’ attorneys argue, the fact that agencies can keep seized money for their own budget has led to widespread abuse of power.

Johnson and his colleagues have challenged the government’s right to keep Bi-County’s money under both the Reform Act and the Constitution’s Due Process Clause, which prohibits government takings without “due process of law.” The absence of any effort by the government to make a case, no less prove one, against Bi-County represents a failure of process, they argue.

Unfortunately the Act only provides for return of the taken money. If an agency’s worst case scenario is a return to status quo, there will be no disincentive to pursue the next case. Instead the government will continue to seize money from people and make it their problem to prove their innocence, settling out most cases for a tidy profit. As to whether this will change any time soon, Politico gives civil forfeiture reform a 3% chance of passage.

So probably not.

-- Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website www.wanderinglawyer.com.