One of the many potential consequences of a criminal conviction is that the government may seize assets held by the defendant’s family to satisfy a criminal forfeiture order against the defendant himself. In United States v. Daugerdas, the Southern District of New York held that the wife of a lawyer convicted of a tax shelter fraud scheme lacked standing to raise questions about the underlying forfeiture of $32 million held in accounts which she controlled, and that she also was incapable of showing that any of her legal interests in the funds were superior to the government’s interests in forfeiture, which vested earlier when her husband began his scheme. The Daugerdas opinion illustrates the potential futility of transferring the proceeds of illegal activity to third parties. When it comes to criminal forfeiture, the U.S. is a special creditor.
The order of criminal forfeiture at issue arose out of a well-publicized and significant tax shelter prosecution involving various tax professionals, including lawyers and accountants. Although criminal forfeiture cannot rest upon a substantive criminal tax violation under Title 26 (the Internal Revenue Code, or IRC), the government sometimes maneuvers around that statutory rule by charging what are really violations of the IRC as mail or wire fraud under Title 18. There is a DOJ policy which generally prohibits the use of the mail or wire fraud statutes to turn traditional tax violations into mail fraud, wire fraud or money laundering charges and/or forfeiture counts; this issue represents a complicated topic all by itself. Suffice it to say for the purposes of this discussion that the $32 million forfeiture order in Daugerdas rested on mail fraud convictions. The petitioner’s husband, former tax attorney Paul Daugerdas, was convicted and jailed for running an alleged tax fraud scheme from about 1994 to 2004, which produced at least $180 million in illegal proceeds. Approximately $32 million of these same proceeds – the subject of the contested forfeiture – were deposited between February 2000 and July 2009 into accounts held in the petitioner’s own name, a trust controlled by the petitioner, or a corporation the petitioner owned because her husband had assigned the corporation to her in 2002. Continue Reading Friends and Family and Criminal Forfeiture