Big Loopholes in New Civil Forfeiture Rules


On Friday, January 16, the Department of Justice announced that it would limit the practice of federal adoption of assets seized by state and local law enforcement agencies, or “adoption” for short. This is an important step in curbing law enforcement practices that had been justified in the name of the “War on Drugs.” However, there are some very large exceptions to this new policy that may limit the relief it brings to the legal marijuana industry.

Civil forfeiture laws, in general, permit law enforcement authorities to seize assets (usually cash and vehicles) as the ill-gotten gains of criminal enterprise or the means by which the crime was committed. The assets can be seized before an individual is charged with or convicted of a crime. Sometimes the prosecution never happens at all.

It is a strange doctrine with a strange history, but the effect has been to put anyone carrying a large amount of cash at risk. It has made many businesspeople, including landlords and suppliers, reluctant to deal with legal marijuana enterprises. It also spooks investors.

Adoption allowed states to apply federal rather than state law to these seizures. In some jurisdictions, federal standards were also applied in ways that allowed law enforcement agencies to keep and spend the cash seized for equipment and other departmental purposes. In any event, the difference between state and federal law is key here.


It’s Good News

Under state laws, police often have to have more evidence of crime before they can seize assets. Seizures are rarer, and it is often easier for innocent targets to reclaim seized assets if no charges are filed or if there is no conviction. Where state and local police cannot keep the cash, there is less incentive to distort law enforcement priorities. Shifting from federal to state standards does not end civil forfeiture, but it seems like a good move in the direction of basic fairness.


But It’s Not Great News

This is a change in administrative policy, which is not necessarily permanent. It could change with a new administration. Permanent reform of civil forfeiture law requires action by Congress, which is not on the immediate horizon.

Perhaps more importantly, as the last paragraph of the DOJ’s press release makes clear, this change will not apply to: seizures resulting from joint operations involving both federal and state authorities or seizures pursuant to warrants issued by federal courts.

The first exception might include hundreds of federally funded anti-drug task forces across the country. The second might apply to prosecutions under the federal Controlled Substances Act. Did one hand just take away what the other one gave?

Under the terms of the Cole Memorandum, the DOJ does not seem to be prioritizing enforcement of the Controlled Substances Act against state-regulated marijuana businesses. As with the new guidance on adoption, that could change. What this speaks to is the danger of trying to build an industry under an administrative policy of benign neglect.

It is better than it might be, but not as good as it could be for the industry and investors waiting on the sidelines. Permanent reform will require political change that comes from political activism.

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

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