11 Apr 2017
Stefan Cassella of Asset Forfeiture Law, LLC comments on US v Bodouva, in which the Second Circuit joined all others in holding that forfeiture and restitution are both mandatory and may not be offset against each other. Because there is “no lawful way to embezzle funds,” a defendant convicted of embezzlement must forfeit the gross proceeds of her offense without any deduction for her direct costs.
[United States v. Bodouva, ___ F.3d ___, 2017 WL 1076339 (2nd Cir. Mar. 22, 2017)]
Defendant was the Chief Operating Officer of an architecture firm. She embezzled money from the firm’s 401(k) plan by withholding payments from employee salaries but not remitting the money to the plan.
She was convicted of violating 18 U.S.C. § 664 and was ordered to forfeit $127,854 in embezzlement proceeds. She appealed, arguing that the district court should have given her credit against the forfeiture order for the funds that she voluntarily paid in restitution to the plan after her indictment but before her trial.
The panel held that the district court had no discretion in the matter, and thus did not err in refusing to credit the restitution payment to the amount of the forfeiture order.
Restitution and forfeiture are “creations of distinct statutes,” the court said, and serve different purposes. Criminal forfeiture is a form of punishment while restitution is intended to return the victim and the perpetrator to the status quo that existed before the violation took place. Accordingly, Congress’s failure to provide for the offset of one against the other does not constitute “an unfair double disgorgement.”
Defendant argued that the offset was required by the definition of “proceeds” in the forfeiture statute, 18 U.S.C. § 981(a)(2)(B). Setting up a 401(k) plan, she said, is not an inherently unlawful activity; rather, it is a lawful service that she provided in an unlawful way. Therefore, in her view, she was entitled to have the amount of her forfeiture judgment reduced by her “direct costs,” which would include the amount of her restitution payments.
The panel did not agree. Defendant’s argument, the court said, “misidentifies her criminal conduct. Her crime was not the unlawful provision of services to [her firm’s] employees. Her crime was embezzlement, [and] there is simply no way to lawfully embezzle funds.”
Accordingly, Defendant was not entitled to any offset against the forfeiture order for any direct costs.
Comment: The panel’s principal holding – that forfeiture and restitution serve different purposes and may not be offset against each other – follows all of the other circuits that have addressed this question. See § 20-8 of Asset Forfeiture Law in the United States (2d ed. 2013) and 2016 Supplement. The panel collects some of the other appellate cases on that point. For the Fifth Circuit’s even more recent opinion on the same issue, see the next case summary.
What is most interesting is the defendant’s creative argument that paying voluntary restitution is a “direct cost” of committing a crime, and that because she was not doing anything inherently illegal, she was eligible to have her forfeiture order reduced by her “direct costs” pursuant to 18 U.S.C. § 981(a)(2)(B).
The panel did not reach the question whether paying restitution is a “direct cost.” Rather, it simply held that the defendant’s crime – embezzlement – is indeed inherently illegal (“embezzlement . . . cannot be done lawfully”), and thus the definition of “proceeds” in Section 981(a)(2)(B) did not apply in her case.
I find this highly significant. Defendants in fraud cases, for example, frequently argue that they weren’t doing anything inherently illegal when they defrauded their investors, the party issuing a fraudulently-obtained contract, or the myriad other victims of fraud. To the contrary, they say, they were merely engaged in lawful conduct but in an unlawful way.
But if, as the Second Circuit says in this case, there is no lawful way to commit embezzlement, there is also no lawful way to commit fraud. Which is why I have always believed that a person convicted of fraud should be required to forfeit the gross proceeds of his or her offense.
Stefan Cassella, Asset Forfeiture Law, LLC
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