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Long Island Forfeiture

HELD UP: Feds Use Civil Forfeiture To Seize More than $446,000 From Innocent Family Business; Deny Hearing for More than Two Years.

For 27 years, brothers Jeffrey, Richard and Mitch Hirsch have owned Bi-County Distributors, Inc., a small business that distributes candy, snacks, and other goods to convenience stores throughout Long Island. On May 21, 2012, the federal government raided their bank account using civil forfeiture laws, taking $446,000 and putting the company into a tailspin and upending the Hirsch families’ lives.

Bi-County’s customers often pay in cash, which means the Hirsch brothers frequently make large deposits at their local bank. The federal government alleged that the brothers violated federal banking laws by “structuring” those cash deposits. Federal law requires banks to report cash transactions in excess of $10,000, and it is illegal to break up one’s cash deposits or withdrawals—or “structure” them—for the purpose of evading those reporting requirements.

With no serious investigation into Bi-County’s legitimate business purposes for making sub-$10,000 deposits, the government moved in and grabbed the money. Civil forfeiture laws allow the government to take property it merely suspects of being involved in crime. The government never alleged that the seized money is the proceeds of any illegal activity or charged the Hirsch brothers with any crime.

Shockingly, over a period of over two-and-a-half years the government did not file a civil forfeiture action in court—it just sat on the money and refused to give it back. This total disregard of the Hirsch brothers’ due process rights meant that they never had a day in court to challenge the seizure and demonstrate their innocence.

On October 27, 2014, the Hirsch family teamed up with the Institute for Justice to fight back in federal court. The Hirsch brothers filed an action demanding the return of their money. And, on January 20, 2015, the government did just that–agreeing to return all the money it had seized.

The publicity and pressure generated by the Hirsch brothers’ lawsuit (and other similar suits brought by IJ) resulted in significant changes to the structuring laws. In October 2014, the IRS announced that it would no longer seize money based on structuring allegations unless it had reason to believe the money was connected to a crime. The Department of Justice followed suit in March 2014.

Long Island Forfeiture

Brothers Jeffrey, Richard and Mitch Hirsch owned Bi-County Distributors Inc., a small distribution business in Long Island, N.Y. The IRS used a legal process called civil forfeiture to seize their entire bank account—more than $446,000—even though they had done nothing wrong. After the brothers filed a lawsuit, the IRS returned their hard-earned cash.

Date Filed

October 15, 2014

Original Court

United States District Court for the Eastern District of New York

Case Status

Closed

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Timeline and Case Documents

Introduction

Brothers Jeffrey, Richard, and Mitch Hirsch have owned Bi-County Distributors, Inc., in Ronkonkoma, New York, for 27 years. The business distributes candy, snacks and other goods to convenience stores throughout Long Island. The business has supported their families for years. But on May 21, 2012, they woke up to find that all of the money in Bi-County’s bank account—more than $446,000 that they needed to pay vendors and make payroll—had been frozen by a Nassau County police officer that had teamed up with a federal task force organized by the U.S. Treasury Department.

Their bank account was taken using a legal process called civil forfeiture because the officer and federal agents deemed Bi-County’s frequent cash deposits to be suspect. But the Hirsch brothers are not money launderers—they are ordinary businessmen involved in an honest cash business with a stellar reputation in the community. The Hirsch brothers have never been charged with a crime; in fact, they have never been in trouble with the law in their entire lives.

Two years later, however, the federal government still holds the Hirsch family’s money and refuses to give it back. Making matters worse, the government has failed to provide any hearing before a judge where the Hirschs can contest the seizure. This is not just an outrage, but makes the government the actual lawbreaker in this case: by holding the Hirschs money for more than two years without a hearing, the Government has violated the Civil Asset Forfeiture Reform Act of 2000 (CAFRA)—a law passed by Congress to prevent precisely this kind of abuse.

Most troubling, perhaps, is the fact that the government has violated one of the most basic due process rights guaranteed by the U.S. Constitution: a prompt hearing before a judge when one’s property is seized.

That is why the Hirsch brothers have joined with the Institute for Justice to get their money back and fight against the injustice of civil forfeiture. Their legal challenge will not only vindicate their rights, but the right of all Americans to be free from abusive forfeiture tactics.

A Family Business Wrongly Targeted

For the Hirsch brothers, convenience store distribution on Long Island is a family business. The brothers worked for their father’s distribution company growing up and have worked for decades to build their own business. In fact, they inherited many of their father’s customers when he passed away. Profit margins are low in Bi-County’s business and money is made in volume, sweat, and lost sleep. The brothers work hard—generally eleven hour days—to maintain the business that supports their families.

They are honest businessmen making an ordinary living, yet they got caught in the web of civil forfeiture law. Without any serious investigation, the government claimed that the Hirsch brothers violated federal banking laws by “structuring” their cash bank deposits. Federal law requires banks to report cash transactions in excess of $10,000 to the IRS.1 It is illegal to intentionally break up one’s deposits or withdrawals—or “structure” them—for the purpose of evading those reporting requirements.2 Violating the structuring laws can result in having your money seized and being charged with a felony, threatening years in prison. But it’s not illegal to deposit less than $10,000 in cash when you have a legitimate business purpose for doing so, as the Hirsch brothers do.

If the government had bothered to ask, they would have heard the Hirschs’ legitimate reasons for their business practice. But they didn’t—and didn’t have to, because they got an “ex parte” or secret warrant in which a judge can approve the seizure after listening only to the government’s explanation of the facts. Had they been able to explain their business, they could have told a judge why they make frequent sub-$10,000 cash deposits.

As is customary in their industry, the convenience stores that the Hirsch brothers serve often pay for deliveries in cash. Their large cash deposits have caused several banks to abruptly close their accounts in recent years—sometimes explaining that banks no longer like “cash-intensive” businesses because it creates regulatory headaches. As a result, and on the suggestion of a local CPA, the Hirsch brothers began making fewer and smaller deposits at the bank and paying vendors with their excess cash—all the while maintaining detailed records of their transactions. Their banking practices were not intended to evade any banking laws, as the government assumed.

In fact, whenever they made cash payments in excess of $10,000 to their vendors they complied with a different law requiring those transactions to be reported to the U.S. Treasury. The government has not alleged that any of the money they deposited was the proceeds of illegal activity or that they have evaded taxes or other legal obligations. Nonetheless, ill-informed or sloppy law enforcement agents simply assumed that the Hirsch brothers’ frequent cash deposits represented money laundering and raided their bank account.

Struggling to Survive

The Hirsch brothers had no idea that making frequent small cash deposits at their bank could even potentially be a crime. Yet on the basis of mere suspicion, the government grabbed their money with no warning, no notice, and has unmercifully held it for more than two years without a hearing before a judge while the business has struggled. They have met with the government in an attempt to explain their case; they have hired a forensic accountant to provide audits of their business to the government to prove their innocence; they have asked law enforcement to visit their business to understand its operations and their banking practices; they have asked that the government give the money back. Yet their attempts to get their money back to date have been either ignored or refused.

The Hirsch brothers are just a few of thousands of Americans who have fallen prey to a civil forfeiture process that looks more like bank robbery than law enforcement.

While they have survived to date, the seizure has wrought tremendous hardship on Bi-County and the Hirsch brothers’ families. In decades of business the brothers had never bounced a check, but suddenly they were calling their suppliers and asking them to hold off depositing their checks because there wasn’t enough money in their account. Some of those vendors are still patiently waiting—and at risk of business failure themselves for lack of payment. Further, the Hirsch brothers have suffered extraordinary stress during these years—the stress of losing money they worked so hard to earn; of not knowing when (or if) the money would be returned; of having to explain to friends and relatives that they had been targeted by the Department of Justice; and of wondering day after day whether the government would target them again, or even whether the government might someday attempt to charge them with a felony crime.

The Hirsch family has been in the business of convenience store distribution for two generations, but civil forfeiture nearly drove them under. Their family business continues to exist only because their vendors and others who know them well banded together to lend them a hand. Their lawsuit is aimed at ending this nightmare. But how could this have happened to them?

Civil Forfeiture Laws Treat Ordinary Small Business Owners Like Criminals

Federal civil forfeiture laws allow the government to take and keep property it merely suspects of being involved in a crime. This is different than criminal forfeiture, in which the proceeds of criminal activity may be seized after someone is convicted of a crime. To get their cash back, property owners must wage a lengthy and expensive legal battle against the U.S. Department of Justice to prove their own innocence. Shockingly, the government uses the money that it seizes through civil forfeiture to pad the budgets of the very agencies that seize the money. These three factors work together to make injustices inevitable, just like the one being perpetrated against the Hirsch family.

The government claims that forfeiture is used to take money from big-time criminal syndicates and cartels, but it is often used on wholly innocent property owners like the Hirsch brothers. Their story is neither unique nor surprising given the recent history of civil forfeiture.

Between 2005 and 2012, the IRS alone seized more than $242.6 million in “structuring” cases like the Hirschs.’ The IRS held on to that money for an average of 356 days before it actually forfeited any money.3 In the Hirsch family’s case, it’s already been more than 800 days.

The Civil Asset Forfeiture Reform Act CAFRA was enacted in 2000 in part to reign in abuses of this type, but the government has spent years undermining the protections of CAFRA and has completely violated its commands in this case.

Justice Delayed, Justice Denied

After taking the Hirsch brothers’ money, the IRS proceeded to do nothing. Two years after the money was taken, the Hirsch brothers have never been charged with a crime, and the government has never even filed a formal complaint in court, which would at least enable the Hirsches to get a hearing before a judge. The government is simply holding the money and waiting.

That violates CAFRA and the most basic notions of due process under the U.S. Constitution.

If the local sheriff had come to Bi-County Distributors, Inc., to repossess inventory or business equipment, Supreme Court precedent mandates that the Hirsch brothers promptly get a hearing to contest that seizure before a judge. In civil forfeiture cases, however, innocent property owners wait months or even a year—and in this shocking case, more than two-and-a-half years—before a judge will review the seizure. This is flatly unconstitutional. CAFRA establishes deadlines for the government to initiate proceedings to finalize a seizure within a certain time, or else return the property. The government has blown past every deadline established by CAFRA.

Equitable Sharing: Direct Financial Incentives for Local Law Enforcement

Civil forfeitures like this one are on the rise in part because of a little-known program called “equitable sharing.” The federal equitable sharing program pays local law enforcement a bounty of up to 80% of property seized when local or state law enforcement agencies team up with federal authorities. That is what has happened in the Hirsch brothers’ case, in which a Nassau County police officer teamed up with a federal taskforce. Equitable sharing provides a direct financial incentive for local law enforcement agencies to seek out and initiate more forfeitures.

Payments from the federal government to state law enforcement agencies under equitable sharing agreements have risen to more than $650 million per year.4 Nassau County is particularly aggressive in using civil forfeiture and receiving equitable sharing payments. This county on Long Island took in roughly $28 million in forfeiture funds in 2013—the highest of any agency in New York State outside of New York City,5 including more than a million dollars in equitable sharing payments from the federal government in cases like this one.6

IJ’s report Inequitable Justice: How Federal “Equitable Sharing” Encourages Local Police and Prosecutors to Evade State Civil Forfeiture Law for Financial Gain, shows how these equitable sharing payments warp law enforcement priorities by allowing local law enforcement officers to benefit from forfeitures that they could not accomplish under state law.

Legal Challenge: Due Process Requires A Prompt Hearing Whenever the Government Seizes Property

The government should not use civil forfeiture to take money from people who have done nothing wrong. In this case, the government has not only wrongfully seized the lawful earnings of the Hirsch family’s legitimate business, but they have held that money for more than two years while denying them any hearing to contest the seizure and without filing any criminal charges.

The Hirschs are filing a Motion for Return of Property, which asks the court to enforce CAFRA’s deadlines and return the property, and to find that the delay in this case is an unconstitutional violation of the Hirschs’ due process rights. The Hirschs’ challenge in this case will shield other property owners from similar abuse at the hands of the federal government. No citizen should have to wait years for their day in court, in order to prove that the government has taken money to which it has no legal right. The case is being heard in the United States District Court for the Eastern District of New York (Central Islip).

The Parties in the Case

As is typical of civil forfeiture cases, assuming the money is not ordered to be returned immediately, the federal government will be the Plaintiff in a civil forfeiture action going forward in which the money is the “defendant.” Jeffrey, Richard, and Mitch Hirsch, owners of Bi-County Distributors, Inc., are Claimants in the case and will be forced to prove they did not violate the structuring law and should receive their money back.

The Litigation Team

The Institute for Justice attorneys representing the Hirsch family are Larry Salzman and Robert Everett Johnson, who litigate economic liberty and property rights cases nationwide.

The Institute for Justice

The Institute for Justice is the national law firm for liberty. IJ is a public-interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society. Through litigation, communication, outreach and strategic research, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment is denied by the government. IJ is based in Arlington, Va., and has offices in Arizona, Florida, Minnesota, Texas, and Washington, as well as a Clinic on Entrepreneurship at the University of Chicago Law School.

IJ has come to the defense of Americans nationwide to fight civil forfeiture, including the owner of a restaurant in Iowa, the owners of the family-run Motel Caswell in Massachusetts and the owners of Schott’s Market in Michigan. In 2010, IJ published the landmark report on civil forfeiture, Policing for Profit. IJ’s latest report Bad Apples or Bad Laws?, is an empirical study demonstrating the perverse incentives civil forfeiture creates for law enforcement agencies.

For more information, please contact:

J. Justin WilsonDirector of Communications Institute for Justice (703) 682-9320 ext. 206 jwilson@ij.org www.ij.org/long-island-forfeiture

1 31 U.S.C. § 5313(a) 2 31 U.S.C. § 5324(a) 3 Data from the U.S. Department of Justice’s forfeiture tracking system, on file with the Institute for Justice. 4 See 31 U.S.C § 5324(a) (making it unlawful to make cash deposits “for the purpose of evading” federal reporting requirements).

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