ASSET FORFEITURE PROGRAM
ANNUAL FINANCIAL STATEMENT
FISCAL YEAR 1996

 

 

 

Audit Report 97-32A, (9/97)

 

 

 

TABLE OF CONTENTS


OFFICE OF THE INSPECTOR GENERAL COMMENTARY AND SUMMARY

ASSET FORFEITURE PROGRAM MANAGEMENT'S OVERVIEW

INDEPENDENT AUDITOR'S REPORTS

INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS

AUDITOR'S REPORT ON INTERNAL CONTROL

AUDITOR'S REPORT ON COMPLIANCE

ASSET FORFEITURE PROGRAM ANNUAL FINANCIAL STATEMENT

STATEMENT OF FINANCIAL POSITION

STATEMENT OF OPERATIONS AND CHANGES IN NET POSITION

COMBINING STATEMENT OF FINANCIAL POSITION

NOTES TO PRINCIPAL FINANCIAL STATEMENTS

        (Notes 1 - 3)

        (Notes 4 - 6)

        (Notes 7 - 16)

ASSET FORFEITURE PROGRAM SUPPLEMENTAL FINANCIAL AND MANAGEMENT INFORMATION

EXHIBIT A--ASSETS FORFEITURE FUND
YEAR TO DATE REVENUE, OBLIGATIONS, AND TRANSFERS

EXHIBIT B--ASSETS FORFEITURE FUND
MONTHLY REVENUE, OBLIGATIONS, AND TRANSFERS

EXHIBIT C--SEIZED ASSET DEPOSIT FUND
COMPOSITE OF SADF BALANCE

EXHIBIT D--SEIZED ASSET DEPOSIT FUND
AVERAGE CASH BALANCE

EXHIBIT E--ASSET FORFEITURE PROGRAM
PERFORMANCE MEASURES

TABLE A--ASSETS FORFEITURE FUND
NET DEPOSITS BY DISTRICT

TABLE B--ASSETS FORFEITURE FUND
SOURCE OF INCOME/REFUNDS FISCAL YEAR 1996 BY DISTRICT

TABLE C--ASSETS FORFEITURE FUND
EQUITABLE SHARING DISBURSEMENTS BY DISTRICT

TABLE D--SEIZED ASSET DEPOSIT FUND BALANCES
FISCAL YEAR 1996 BY DISTRICT

APPENDIX - AUDIT DIVISION ANALYSIS AND SUMMARY OF ACTIONS NECESSARY TO CLOSE THE REPORT

 

 

OFFICE OF THE INSPECTOR GENERAL
COMMENTARY AND SUMMARY

 

The Department of Justice Asset Forfeiture Program is a nationwide law enforcement program. Federal employees, contract personnel, and state and local law enforcement officials work cooperatively in the investigation and prosecution of cases involving asset seizure and forfeiture. There are six Department of Justice components that execute the Asset Forfeiture Program: the Drug Enforcement Administration, the Federal Bureau of Investigation, the Immigration and Naturalization Service, the U.S. Marshals Service (USMS), the U.S. Attorneys, and the Criminal Division. The U.S. Postal Inspection Service, the U.S. Park Police, and the Food and Drug Administration are the non-Department of Justice federal participants in the program.

From FY 1989 through FY 1994, the Executive Office for Asset Forfeiture had responsibility for policy formulation and implementation, program oversight, management and fiscal control, and strategic planning for all aspects of the Asset Forfeiture Program. In December 1994, the Executive Office for Asset Forfeiture was reorganized with administrative and financial management functions assigned to the Asset Forfeiture Management Staff of the Justice Management Division and the legal, policy, and oversight responsibilities shifted to the Asset Forfeiture and Money Laundering Section, Criminal Division.

The Office of the Inspector General (OIG) contracted with Brown & Company, Certified Public Accountants, to perform the audits of the FYs 1996 and 1995 financial statements. The FY 1996 audit is the sixth annual financial statement audit of the Asset Forfeiture Program performed under the auspices of the Chief Financial Officers (CFO) Act of 1990. The OIG performs an oversight role in this audit process. The oversight role includes ensuring compliance with the CFO Act, monitoring the progress of the audit, reviewing supporting workpapers, coordinating the issuance of reports, following up on findings and management letter issues, and performing other functions deemed necessary.

The audit was conducted in accordance with generally accepted government auditing standards. The financial statements were prepared in accordance with Office of Management and Budget Bulletin 94-01, "Form and Content of Agency Financial Statements," and the Asset Forfeiture Program accounting policies which are summarized in Note 1 to the principal financial statements.

This audit report contains the annual financial statement of the Asset Forfeiture Program for the year ended September 30, 1996. The report includes management's overview and supplemental financial and management information sections, and the independent auditor's reports on the principal financial statements, internal control structure, and compliance with laws and regulations.

Overview and Supplemental Financial and Management Information Sections

The Justice Management Division prepared the overview which presents a narrative discussion of the objectives, goals, highlights, and program and financial performance analysis of the Asset Forfeiture Program for FY 1996. Important aspects of the Asset Forfeiture Program's operations are discussed and relevant trends are noted. The supplemental financial and management information section presents the Asset Forfeiture Program's financial and program results.

The overview was reviewed by Brown & Company for completeness and consistency. Brown & Company also obtained an understanding of and assessed control risk surrounding internal control policies and procedures which were designed by management to ensure that data supporting reported performance measures are properly accounted for and recorded. However, they did not audit the information presented in the overview or the corresponding performance measurement sections, as their objective was not to provide an opinion on it.

Independent Auditor's Reports

The audit resulted in an unqualified opinion on the principal financial statements. The auditors did note an internal control issue which is briefly discussed below.

The Report on the Internal Control Structure identified one reportable condition. A reportable condition is a matter coming to the attention of the independent auditors relating to significant deficiencies in the design or operation of the internal control structure that could adversely affect management's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. The condition identified (repeated from the FY 1995 audit report, OIG Report #96-21A) involved the improper classification of unliquidated obligations. The finding and recommendation for improvement are detailed in the Auditor's Report on Internal Control. Other weaknesses noted in the internal control structure and its operations, but not considered to be reportable conditions, will be communicated under separate letter to management. The auditors did not identify any conditions in the internal control structure and its operations that they consider to be material weaknesses, either individually or cumulatively.

The Report on Compliance with Laws and Regulations contains no compliance findings related to applicable laws and regulations. The auditors procedures included a review of management's process for evaluating and reporting on internal controls and accounting systems as required by the Federal Managers' Financial Integrity Act (FMFIA). Brown & Company compared its evaluation of the Asset Forfeiture Program internal control structure with the Department of Justice's most recent FMFIA reports. The auditor's objective was not to provide an opinion on overall compliance with laws and regulations and, accordingly, did not express such an opinion.

Financial and Other Information

In its Management Overview, program management notes that asset forfeiture continues to be an extremely effective and powerful tool in the Department's fight against organized crime, drug trafficking, and money laundering. The ability of the Government to remove the proceeds of crime from individuals and destroy the economic infrastructure of criminal organizations is a law enforcement tool.

Management reported that adverse court decisions, especially as to the issue of double jeopardy, may be one of the reasons for the decline in forfeiture program activity. Agents and prosecutors often decided to forego administrative or civil forfeiture actions in order to avoid the risk of having a criminal prosecution barred on double jeopardy grounds. The circuits' adverse rulings on the double jeopardy issue were reversed by the Supreme Court in June 1996, when it decided United States v. Ursery, and United States v. $405,089.23, and held that civil forfeitures under 21 U.S.C. sec. 881(a)(6) and (7) and 18 U.S.C. sec. 981(a)(1)(A), like civil forfeitures generally, do not constitute punishment for purposes of the Double Jeopardy Clause.

Total revenue for FY 1996 was $348.2 million, a decrease of about 30.4 percent from $500.1 million in FY 1995. These revenues provided funding for law enforcement needs. Approximately 51 percent of total FY 1996 revenue ($176.7 million) was distributed to fund equitable sharing payments, joint law enforcement operations, awards for information, and the purchase of evidence. About 29 percent of the total revenue in FY 1996 was used to fund forfeiture program expenses.

Total expenses and distributions for FY 1996 were $292.8 million, a decrease of about 36 percent from $459.7 million in FY 1995. Forfeiture program expenses as a percentage of total expenses and distributions remained relatively constant in FYs 1996 and 1995.

Criminals continue to pay more attention to the risk of forfeiture and are becoming more sophisticated at hiding their assets, both here and abroad. The Department continues to place priority emphasis on international cooperation in forfeiture cases to find and seize foreign assets. Management reported that since this cooperation commenced, $130.9 million has been repatriated to the United States and forfeited. Of this amount, almost $9 million was distributed to foreign governments during FY 1996.

Status of Prior Year's Finding

Audit issues identified by the independent auditors in the FY 1995 Annual Financial Statement Report (OIG Report #96-21A) have been resolved. Program management committed to implementing the necessary corrective actions, and the OIG continues monitoring its progress. The FY 1996 independent auditor's report on the internal control structure identified a repeat condition. The independent auditors reported that although the dollar amount of the improper classification of unliquidated obligations increased from the previous audit that substantial progress had been made towards the correction of the deficiency. This improvement was evidenced by the problem being noted in only two of the 94 USMS district offices versus 11 during the FY 1995 audit. In addition, the auditors reported that USMS closing procedures have been enhanced to ensure that significant year-end adjustments by the Asset Forfeiture Management Staff will not be necessary in the future for the preparation of accurate financial statements.


MANAGEMENT'S OVERVIEW


U.S. Department of Justice
Asset Forfeiture Management Staff
Washington, D.C. 20530

Asset Forfeiture Program
Management's Overview

Introduction

Asset forfeiture continues to be an extremely effective and powerful tool in the Department's fight against organized crime, drug trafficking, and money laundering. While forfeiture is as old as our nation, its utility was enhanced with the passage of the Comprehensive Crime Control Act of 1984. The ability of the Government to remove the proceeds of crime from individuals and destroy the economic infrastructure of criminal organizations is an essential law enforcement tool. The Department of Justice Asset Forfeiture Program is a nationwide law enforcement program that involves Federal employees and contract personnel. Thousands of investigators, litigators, property managers, and support staff are involved in the seizure and forfeiture process as part of their work. In addition, thousands of state and local law enforcement officials work cooperatively with their Federal counterparts in the investigation and prosecution of criminal cases, including the effort to strip criminals of their ill-gotten gains.

The Department's program is aimed at attacking and dismantling criminal organizations at all levels. Wealth is power, and illicit organizations, large and small, are fueled by their tainted money and property. By seizing the assets of illicit organizations, the Government can sharply curtail or eliminate their operations. Since large, established criminal enterprises replace individuals easily, asset forfeiture may represent the most significant tool available for disruption of these enterprises. Forfeiture procedures occur through civil and criminal judicial cases, and through administrative means.

Administrative and financial management functions for the program are assigned to the Asset Forfeiture Management Staff, Justice Management Division. Legal, policy, and program oversight responsibilities are assigned to the Asset Forfeiture and Money Laundering Section, Criminal Division.

There are six Department of Justice components that execute the Asset Forfeiture Program: the Drug Enforcement Administration, the Federal Bureau of Investigation, the Immigration and Naturalization Service, the U.S. Marshals Service, the U.S. Attorneys, and the Asset Forfeiture and Money Laundering Section of the Criminal Division. The U.S. Postal Inspection Service, the U.S. Park Police, and the Food and Drug Administration are the non-Department of Justice participants in the program. In FY 1994, the Internal Revenue Service, the Bureau of Alcohol, Tobacco and Firearms, and the U.S. Secret Service, split away from the Justice Asset Forfeiture Program to participate in the Treasury Forfeiture Fund established by Public Law 102-393. Close coordination between the two forfeiture programs remains an important priority.

The objectives of the program, as set forth in The Attorney General's Guidelines for Seized and Forfeited Property, July 1990, are:

  1. Law enforcement: to punish and deter criminal activity.
  2. Cooperation: to enhance law enforcement cooperation at all levels of government, both domestically and internationally.
  3. Revenue: as a by-product of the first two objectives, to produce funds to be reinvested into Federal, state, local, and international law enforcement.

In FY 1996, the Attorney General initiated a program to reinvigorate use of asset forfeiture. The program was instituted to counter recent declines in the use of the asset forfeiture sanction. This decline resulted in criminal enterprises retaining and reinvesting tens of millions of dollars in their operations.

The funds of the Asset Forfeiture Program are under the management control of the Asset Forfeiture Management Staff, Justice Management Division, and are administered by the U.S. Marshals Service. The Seized Asset Deposit Fund (SADF) is a deposit fund and is listed in the U.S. Treasury Federal Account Symbols and Titles as 15X6874. The Assets Forfeiture Fund (AFF) is a special fund and is listed as 15X5042. The SADF was established for the temporary storage of non-evidentiary cash subject to forfeiture. This deposit fund includes seized cash, proceeds from pre-forfeiture sales of seized property, and income from property under seizure. The funds are held in the deposit account until the U.S. Marshals Service receives a declaration of forfeiture order, or court order, with an authorizing instruction requiring a refund of the seized cash to the owner or forfeiture to the U.S. Government. Once forfeited, the funds are transferred to the AFF unless there are specific reasons the funds should be kept on deposit in the SADF.

Forfeiture Law

The laws affecting the program continue to evolve. The Racketeer Influenced and Corrupt Organizations Act of 1970 and the Comprehensive Drug Abuse Prevention and Control Act of 1970 were the first Federal laws to authorize criminal forfeitures for racketeering and continuing criminal enterprise or "drug kingpin" offenses, respectively. These provisions complemented existing civil forfeiture authority, which, in turn, was greatly enhanced in 1978 and 1984.

The Comprehensive Crime Control Act of 1984 established the Department of Justice AFF to hold proceeds of Department of Justice program forfeitures and to fund certain forfeiture-related expenses and law enforcement activities. The creation of the AFF removed the budgetary deterrent to the aggressive use of forfeiture as a weapon in the war against crime. The Comprehensive Crime Control Act of 1984 also authorized the Attorney General to equitably share forfeited property with state and local law enforcement agencies.

The Anti-Drug Abuse Act of 1986 authorized the use of forfeiture in money laundering cases (see 18 U.S.C. 981 and 982) and authorized sharing of forfeited property with cooperating foreign governments pursuant to a formal treaty. The Anti-Drug Abuse Act of 1988 expanded money laundering forfeiture and eased the way for international sharing by authorizing transfers pursuant to international agreements rather than treaties (see 21 U.S.C. 881(e)(l)(E)). In addition, this 1988 Act created the "Special Forfeiture Fund," administered by the Director of the Office of National Drug Control Policy (ONDCP) (see 21 U.S.C. 1509). The Violent Crime Control and Law Enforcement Act of 1994, October 1994, reauthorized ONDCP and provided that up to $100 million annually of excess unobligated balances from the AFF and the Treasury Forfeiture Fund could be transferred to the Special Forfeiture Fund.

The Financial Institution Reform, Recovery and Enforcement Act of 1989 amended 18 U.S.C. 981 and 982 to authorize civil and criminal forfeiture for bank-related crime to help recover monies looted from savings and loan institutions. Subsequent legislation in 1990, 1992, 1994, and 1996, added new criminal and civil forfeiture provisions for car-jacking, counterfeiting, and other offenses enforced by the Treasury Department, food stamp and health care fraud, and immigration offenses. At the same time, the forfeiture laws have generated a great deal of litigation in the federal courts and a corresponding explosion in the case law interpreting the forfeiture statutes and procedures. Since 1992, the Supreme Court has rendered decisions in 10 forfeiture cases.

The Dire Emergency Supplemental Appropriations Act of 1991, Public Law 102-27, dated April 10, 1991, added subsection (E) to 28 U.S.C. 524(c)(9) to provide authority for the Attorney General to use any excess monies in the AFF for law enforcement, prosecution, and correctional activities. The provision has been amended numerous times since; most recently by Public Law 104-208, dated September 30, 1996. For any surplus balances at the end of FY 1996, the provision reads as follows:

"(E) Subject to the notification procedures contained in section 605 of Public Law 103-121, and after satisfying the transfer requirement in subparagraph (B) above, any excess unobligated balance remaining in the Fund on September 30, 1996, shall be available to the Attorney General, without fiscal year limitation,1 for any Federal law enforcement, litigative/prosecutive, and correctional activities, or any other authorized purpose of the Department of Justice. Any amounts provided pursuant to this section may be used under authorities available to the organization receiving the funds."2

In October 1991, the AFF statutory authority was amended by the Department of Justice and Related Agencies Appropriations Act, 1992, Public Law 102-140, 105 Stat. 782. These amendments made the benefits from the AFF equally available to all program components. This law also provided explicit authority to invest the holdings of the SADF, providing an important new source of revenue for the Asset Forfeiture Program.

In October 1992, the AFF statutory authority was further amended by the Treasury, Postal Service, and General Government Appropriations Act, 1993, Public Law 102-393, and by the Department of Justice Appropriations Act, 1993, Public Law 102-395, which provided authority to fund certain program expenses from the permanent, indefinite portion of the AFF, which were formerly funded from the portion of the AFF which is subject to annual, definite appropriation. In addition, authority to fund certain other law enforcement expenses was added to the AFF statutory authority, including but not limited to, the equipping of conveyances to be used by state and local governments participating in joint enforcement efforts with the Federal Government.

International Forfeiture

The Department continues to place priority emphasis on international cooperation in forfeiture cases. Increased attention continues to be placed on cooperation with foreign authorities to find and seize foreign assets of drug traffickers, money launderers and other criminals. Reflecting the increased level of international assistance obtained in connection with our domestic forfeiture cases, the United States shared substantial amounts of forfeited proceeds with cooperating foreign jurisdictions during FY 1996. Since the international cooperation commenced, a total of $130.9 million has been repatriated to the United States and forfeited, and a total of over $45 million shared with cooperating foreign countries. Of the repatriated amounts, almost $9 million was distributed to foreign governments during FY 1996. The Vienna Convention of 1988, which has been ratified by over 110 countries including the United States, provides for judicial assistance in drug related cases. Article V of the Convention is devoted expressly to forfeiture cooperation requiring each member jurisdiction to assist other members in identifying, immobilizing, and forfeiting assets found within the territory of the requesting jurisdiction. Increased use of the criminal forfeiture process is an important aspect of this initiative to reach criminal wealth located overseas.

Asset Seizure and Forfeiture

The Department recognizes the responsibility to operate the program in a manner that maximizes the law enforcement effect. The Department simultaneously recognizes the need to protect the legitimate interests of innocent parties. Further, due to the economic value of assets seized for forfeiture, and the risks attendant to the seizure and forfeiture process, the Department recognizes the need for strong management controls and the responsibility to manage and dispose of assets in a business-like manner to preserve economic value.

The revenue potential of asset forfeiture and the success in cultivating that potential have made asset forfeiture a high profile program with the Office of Management and Budget (OMB), ONDCP, the Congress, other Federal agencies, and with state and local law enforcement agencies nationwide. The need for improved management and coordination of this widespread, fast-growing program led the Attorney General to report the program as a "material weakness" in FY 1989 through FY 1995 Annual Reports to the President and the Congress pursuant to the Federal Managers' Financial Integrity Act. OMB designated the Federal forfeiture program as one of its 100 "high risk" programs requiring close OMB oversight. In January 1990, the General Accounting Office (GAO) designated the "Management of Seized and Forfeited Assets," including both the Department of Justice and U.S. Customs Service operations, as one of the fourteen program areas in the Executive Branch that warranted special GAO audit or review. In February 1995, the GAO renewed its 1990 designation of the "Management of Seized and Forfeited Assets," of both Departments as one of the program areas in the Executive Branch that warranted special GAO audit or review. Moreover, reports of the GAO, the House Appropriations Committee, the House Judiciary Committee, the Senate Governmental Affairs Committee, and the Department's Office of the Inspector General have pointed out the need for stronger central management and direction of this program.

Accordingly, the Department worked vigorously with the participating agencies to reinforce the integrity and accountability of the Asset Forfeiture Program. Important management improvements have been made in the past five years. Development and implementation of the Consolidated Asset Tracking System (CATS), a single, integrated information system for the Asset Forfeiture Program, brings the power of technology to the working level throughout the forfeiture community nationwide. It represents an important link to tie the Asset Forfeiture Program together, and to provide the information necessary to support proactive management of program activities. At the end of FY 1996, CATS had been fully deployed to 32 judicial districts around the country.3 The Department intends to provide CATS access nationwide by the conclusion of FY 1997.

In response to the continuing demand by the asset forfeiture community for enhanced Federal leadership for, among other aspects of the program, stronger protection of innocent parties, and for a broad range of policy, practice, and management guidance, the Department produced numerous policy documents and other publications, as well as audio-visual tools, to be used to educate and/or assist individuals involved in the Asset Forfeiture Program.

With regard to accountability of the Asset Forfeiture Program, the Department's Office of Inspector General issued the following audit reports during FY 1996:

(1) Use of Equitable Sharing Revenues, Maryland State Police, Pikesville, Maryland.

(2) Asset Forfeiture Program Annual Financial Statement for Fiscal Year 1995.

(3) Use of Equitable Sharing Cash and Property by the Kansas City, Missouri, Police Department.

(4) Use of Equitable Sharing Revenues by the Police Chief of the City of Gregory, Texas.

(5) Use of Equitable Sharing Revenues, Baltimore City Police, Baltimore, Maryland.

Program Performance Information

During FY 1996, a total of $338.1 million in cash and proceeds was deposited into the AFF. This figure includes investment earnings from both the AFF and SADF, and includes returns of Bank of Credit and Commerce International (BCCI) prior year principal deposits ($28.2 million) and prior year interest earnings ($28.7 million). From current balances, $150.0 million was shared with foreign governments and state and local law enforcement agencies that participated in joint investigations with Federal agencies that led to asset seizures and forfeitures. Several state or local agencies received transfers exceeding $1 million in individual cases. An additional $2.1 million worth of real and personal property was transferred to state and local agencies for use in future law enforcement efforts. After payment of statutorily authorized expenses, in FY 1996, the AFF accumulated a surplus of about $183.9 million. Of this amount, $138.1 million is available to pay initial program costs for FY 1997. In FY 1996, the program invested cash balances from both the AFF and SADF in Government securities. These investments resulted in earnings of $42.7 million during FY 19964.

The largest criminal forfeiture to date was achieved in January 1992, when a preliminary forfeiture order for $347 million was issued for all of the domestic assets of BCCI and three related corporations. Subsequently, the court amended the forfeiture order several times to add additional assets, bringing the total amount forfeited to more than $1 billion. A substantial portion of these funds remain in the SADF pending the resolution of third party claims. The balance has been distributed pursuant to the original plea agreement.

During FY 1996, the Department of Justice continued to promote international forfeiture cooperation and asset sharing with its international law enforcement partners. The success of this initiative was manifested through the negotiation of bilateral agreements providing for forfeiture cooperation and asset sharing (see International Forfeiture Section of this Management's Overview).

The Department continued its domestic training programs for persons involved in forfeiture cases. Approximately 600 Federal prosecutors received basic or advanced training in conducting forfeiture cases, or received other specialized forfeiture oriented training. Other Departmental components and participating agencies from the Departments of Health and Human Services and Interior continued active asset forfeiture training programs.

The Attorney General announced a new program during 1992 which continued in 1996 to help combat the problem of inner city violence and drug abuse. The Attorney General authorized state and local law enforcement agencies to receive and then retransfer Federally forfeited real properties to state and local governmental units or private non-profit organizations as part of the Weed and Seed Program. Such properties may be used for drug abuse treatment, prevention, education, and job training, or any other project designed to foster the goal of the Weed and Seed Program to rejuvenate communities plagued by violent crime and drug trafficking activities. By the close of FY 1996, a total of 45 real properties had been transferred to state and local communities pursuant to the Weed and Seed Program, 7 of those during FY 1996. In addition, $9 million was afforded the Weed and Seed Program pursuant to the Fund's authority (28 U.S.C. 524(c)(1)(I)). Resources were provided to more than 70 cities nationwide for this high priority program. The AFF provided 24 percent of the cash funding for the Department's Weed and Seed Program in FY 1996.

Limitations on the Use of the Assets Forfeiture Fund

The AFF is defined by statute. Authorities and limitations governing use of the AFF are specified in 28 U.S.C. 524(c).

In addition, use of the AFF is controlled by laws and regulations governing the use of public monies and appropriations (e.g., 31 U.S.C. 1341-1353, 1501-1558, OMB Circulars, and provisions of annual appropriations acts.) It is further controlled by the Attorney General's Guidelines on Seized and Forfeited Property (July 1990), policy memoranda, and statutory interpretations issued by appropriate authorities. Restrictions on the use of AFF monies retain those limitations after the monies are made available to a recipient agency unless otherwise provided by law. Monies are available for use only to the extent receipts are available in the AFF.

In FY 1996, these monies were available under a permanent indefinite appropriation to finance the following:

(1) The operational costs of the forfeiture program, including handling and disposal of seized and forfeited assets, and the execution of legal forfeiture proceedings to perfect the title of the United States in that property.

(2) The satisfaction of innocent third party claims.

(3) The payment of equitable shares to participating foreign governments and state and local law enforcement agencies.

(4) The costs of ADP equipment and ADP support for the program.

(5) Contract services in support of the program.

(6) Training and printing associated with the program.

(7) Other management expenses of the program subject to approval by the Asset Forfeiture Management Staff.

The monies deposited in the AFF are not available for general use by a recipient agency for investigative, prosecutive or other purposes, even if that activity may result in the seizure of assets for forfeiture. Resources of the AFF are intended to cover the business expenses of the Asset Forfeiture Program, with any excess balances available for other more discretionary purposes, including investigative expenses covered by the appropriated, definite portion of the Fund. Excess unobligated balances identified at the end of a FY may be declared a "Super Surplus" balance. Super Surplus balances may be allocated at the discretion of the Attorney General to "... any Federal law enforcement, litigative/prosecutive, and correctional activities ... of the Department of Justice."

Financial Performance Information

The revenue for the AFF was $338.1 million for FY 1996 (see table below). This does not include $10.1 million of revenue associated with forfeited property that was transferred in kind. The Federal Accounting Standards Advisory Board's Statement of Federal Financial Accounting Standards Number 3, Accounting for Inventory and Related Property, requires that revenue associated with property not disposed of through sale be recognized upon approval of distribution.

Composition of FY 1996 Revenue

CATEGORY AMOUNT
(Millions)
PERCENTAGE
FORFEITED CASH NET OF REFUNDS $185.7 54.9%
SALES OF FORFEITED PROPERTY $73.5 21.7%
INTEREST INCOME ON IDLE AFF/SADF BALANCE $14.0 4.1%
REFUND OF PRIOR YEAR BCCI INTEREST AND PRINCIPAL $28.7 8.5%
PAYMENTS/PENALTIES IN LIEU OF FORFEITURE $17.8 5.3%
OTHER MISCELLANEOUS INCOME $18.4 5.4%
TOTAL $338.1 100.0%


In the Supplemental Financial and Management Information Section, Exhibit A tracks the monthly accumulation of income (revenue) and related obligations as well as the resulting Unobligated Balance on a year-to-date basis, while Exhibit B shows the monthly flow of income (revenue), obligations and transfers.

Due to continual investment of idle cash in Government securities, the AFF and SADF Fund balances with the U.S. Treasury remain low. Exhibit C shows the composition of the SADF by month and the impact of the BCCI seizures. Exhibit D depicts the average cash and investments balance of the SADF for FY 1996. Investment earnings were down 22 percent (from $54.8 million ) totaling over $42.0 million for FY 1996. The investment of seized cash from BCCI accounted for $15.5 million or 36.3 percent of these earnings.

Net Position, which is the equity of the U.S. Government in the Asset Forfeiture Program, has increased 36.7 percent since FY 1995. The ratio of Net Position to Total Assets, excluding the value of BCCI cash on deposit in the SADF, was 0.2 to 1 in FY 1996, an increase of 0.1 since FY 1995.

Current Assets exceed short term liabilities by a ratio of 2.4 to 1. This relationship has increased 0.9 since FY 1995, and increased 0.8 since FY 1994, and continues to indicate that the AFF will be able to meet its obligations when due.

Other performance measures of the Asset Forfeiture Program may be found in Exhibit E.

Other Distributions of Revenues

Special Forfeiture Fund

For 1996, the Department of Justice could transfer one-half of any excess end-of-year unobligated balances in the AFF, up to $100 million, to the Special Forfeiture Fund (see 28 U.S.C. 524(c)(8)). This Special Fund is distinct from the AFF. These surplus monies are deposited in a non-operating account under the Director of the ONDCP, and are available, to the extent specified in appropriations acts, for drug prevention, treatment, education and law enforcement programs. Through the close of FY 1995, the Department of Justice had transferred $367 million to the Special Forfeiture Fund ($131.5 million, $150 million, $28.5 million, $30 million, and $27 million from FY 1990, FY 1991, FY 1992, FY 1993, and FY 1996 surpluses, respectively). No excess unobligated balance was declared for transfer to the Special Forfeiture Fund at the end of 1994 or 1995.

Equitable Sharing

During FY 1996, $150.0 million in forfeited cash was shared with foreign governments and state and local law enforcement agencies. Since the inception of equitable sharing in FY 1986, over $1.8 billion in cash and property has been shared. The equitable sharing program continues to serve its primary purposes. First, it removes impediments to state and local law enforcement efforts to strip criminals of their criminal profits and tools by recompensing investigative and seizure efforts. Second, it encourages enhanced cooperation among Federal, state and local law enforcement efforts. And third, it supplements the resources of state and local law enforcement agencies without further taxing the public wealth.

U.S. Marshals Service Seized and Forfeited Property

The U.S. Marshals Service is responsible for holding and maintaining real and tangible personal property, seized by participating agencies, for disposition. Seized property can be either returned to the owner or forfeited to the U.S. Government and subsequently sold, placed into official use, destroyed or transferred to another agency. Seized and forfeited property is not to be considered inventory held for resale in the normal course of business.

The estimated value of non-monetary seized assets (property), net of estimated liens, held by the U.S. Marshals Service at the end of FY 1996 and FY 1995 is presented in the Notes to the Principal Statements, rather than within the Principal Statements, because the Federal Government does not have title to the property. Statement of Federal Financial Accounting Standards Number 3, Accounting for Inventory and Related Property, mandates this method of presentation, in order to avoid overstating the entity's assets and liabilities, while providing needed accountability over seized assets.

The Future

The Department has made significant progress in implementing the Attorney General's call to reinvigorate the forfeiture program. The Criminal Division assessed the concerns of the Department components, and in February 1996, provided program reinvigoration recommendations to the Attorney General and Deputy Attorney General. Several subsequent initiatives were undertaken, including 1) the Attorney General's provision of reinvigoration guidelines to the investigative agencies and U.S. Attorneys, 2) the initiative to leverage forfeiture as a tool against the drug-smuggling activity along the Southwest border, and 3) training seminars for federal criminal prosecutors and agents to enhance the expertise needed to pursue forfeitures successfully.

The Asset Forfeiture Program has matured in recent years. Criminals continue to pay more attention to the risk of forfeiture and are becoming more sophisticated at hiding their assets, both here and abroad. Finding and seizing their wealth presents new challenges. The increased emphasis on criminal forfeiture means greater numbers of attorneys are involved in forfeiture. However, criminal forfeiture often is a new field for these prosecutors. Continuing education is essential. Also, new program areas are receiving emphasis, e.g., violent crime. Without increased staff, law enforcement agencies simply will not have the resources to identify, seize, and forfeit the proceeds and instrumentalities of crime at the same rate.

Effort continues toward the seizure and forfeiture of assets in financial institution and other fraud cases. Since these cases are characterized by low value compared to the numerous victims, assets forfeited in these cases will be turned over to the defrauded institutions, to other victims or to the regulatory trust fund. This will result in less net income to the AFF for the same volume of forfeiture activity.

Summary

FY 1996 was another active year for the Asset Forfeiture Program. In general, program goals and objectives were met. The $348.2 million revenue recorded during FY 1996 provided funds and equipment for important law enforcement needs.

The inventory of seized and forfeited property under the control of the U.S. Marshals Service decreased by 25.6 percent from inventory levels at the end of FY 1995. The asset value in real-estate as a percentage of total noncash inventory decreased by 6.4 percent from FY 1995 to FY 1996, and at the end of FY 1996 real estate asset value represented 55.2 percent of the total noncash asset value, down from 61.6 percent at the end of FY 1995. Adverse court decisions, especially as to the issue of double jeopardy, may be one of the reasons for the decline in forfeiture program activity. Agents and prosecutors often decided to forego administrative or civil forfeiture actions in order to avoid the risk of having a criminal prosecution barred on double jeopardy grounds. The circuits' adverse rulings on the double jeopardy issue were reversed by the Supreme Court in June 1996, when it decided United States v. Ursery, and United States v. $405,089.23, and held that civil forfeitures under 21 U.S.C. sec. 881(a)(6) and (7) and 18 U.S.C. sec. 981(a)(1)(A), like civil forfeitures generally, do not constitute punishment for purposes of the Double Jeopardy Clause.

Law enforcement emphasis on local gang activity and a deemphasis on larger drug organizations has also resulted in smaller amounts forfeited per case, and fewer forfeitures. To the extent that this program approach continues and staffing of law enforcement bureaus and litigating components remains stable, it appears that the Department's forfeiture program may stabilize at a much lower level than that experienced up through FY 1995, which was about $500 million per year.

Limitations of the Financial Statements

The financial statements have been prepared to report the financial position and results of operations of the Asset Forfeiture Program, pursuant to 28 U.S.C. 524(c), which is consistent with the requirements of the Government Management Reform Act of 1994.

While the statements have been prepared from the books and records of the Asset Forfeiture Program in accordance with the formats prescribed by OMB, the statements have minor differences from the financial reports used to monitor and control budgetary resources which are prepared from the same books and records.

The statements should be read with the realization that they are for a sovereign entity, and that the payment of all liabilities can be abrogated by the Asset Forfeiture Program. Should unfunded liabilities arise, the cost of which may be met by the permanent, indefinite portion of the fund, these liabilities may be met without further appropriation action.

 


1 The words "without fiscal year limitation," establish an appropriation as permanent or available continuously, pursuant to 31 U.S.C. 1301(c)(2) (An appropriation ... may be construed to be permanent or available continuously ... if the appropriation expressly provides that it is available after the fiscal year covered by the law in which it appears.)

2 Public Law 104-134 dated April 26, 1996, includes language that extends Super Surplus authority to excess balances at the end of FY 1995.

3 Note 4 to the Financial Statements reflects data collection from 25 CATS districts. Seven districts became fully operational late in FY 1996; thus, the USMS retrieved financial information about these seven districts from SAMS, rather than CATS.

4 Actual interest earnings totaled $42.7 million for 1996. Offset against these earnings was a refund of over $28.7 million in prior year interest earnings distributed pursuant to the Attorney General's authority to disburse amounts residing in the "U.S. Fund" ($27.4 million) and earnings distributed as a result of an adverse decision in the UBAF Bank Ltd. case ($1.3 million).

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