“It’s not fair to the American people who work for a living that one day they can knock on the door, walk in their businesses, and say, ‘We just took your money.’ … I always thought your money was safe in the bank, but I wouldn’t say that now.” — Lyndon McLellan, entrepreneur and victim of unfair civil asset forfeiture
Lyndon McLellan is a law-abiding citizen and a hard-working, local small businessman in Fairmont, NC, who had never been in trouble with the law or the IRS. So, imagine his surprise when combined forces from the local police department, North Carolina’s Alcohol and Law Enforcement, and the FBI showed up one day at his establishment, L&M Convenience Mart, asking to speak with him. Not only did they accuse him of breaking federal law, but they informed him that they (via the IRS) had already seized every penny from his business bank account: $107,702.66. This was done under what is called “civil asset forfeiture” law.
“Took 13 years to get it, and less than 13 seconds, I guess, to take it away.”
McLellan was shocked, confused, and devastated. This was his livelihood! Worse, he didn’t even realize what he had done! As they explained to him, he was guilty of “structuring”, a term McLellan said he wasn’t familiar with. Decades ago, laws and regulations were put into place to help catch drug dealers and money launderers by flagging regular deposits of $10,000 or more. The financial institutions receiving such deposits are required by the Bank Secrecy Act to report them to the U.S. Treasury Dept. “Structuring” (aka “smurfing”) is a term for the tactic used to avoid detection by making sure deposits are broken down into smaller chunks of less than $10,000 apiece. Financial institutions who suspect this is being done with criminal intent must also report this as “suspicious activity”.
Problem is that many people aren’t aware of this law or are sure that, since their business is legit, they don’t have anything to worry about. Also, as in the McLellan case, bank tellers sometimes request customers keep their deposits under $10,000 in order to avoid unnecessary paperwork. Obviously, though, this didn’t turn out well for McLellan and L&M. What makes things worse is that the agencies involved tend to have a “seize now, ask questions later” attitude. They don’t need proof of criminal activity to proceed, nor are they required to even charge a suspect with a crime, let alone get a conviction. Plus, local police departments are incentivized to go along with it all, because they share in the spoils.
Needless to say, McLellan got himself a lawyer — Robert Johnson from the Insitute for Justice — to combat the system and advocate on his behalf. In fact, it has been almost a year (i.e., since July 2014) and no criminal activity by McLellan/L&M or involving the money has been identified and no charges have been filed. But, it’s really tough fighting against the government, especially when it has a vested interest in continuing what it is doing. As Johnson explains,
“The government has a financial incentive to broadly apply the forfeiture laws. When an agency like the IRS takes money under the forfeiture laws, that money goes back into the pockets of the agency and it’s available to the IRS to fund law enforcement activities without appropriation from Congress. It’s a powerful incentive for law enforcement to abuse civil forfeiture laws.”
The whole issue of civil asset forfeiture has been coming under a lot of public scrutiny of late, as more and more questionable cases are brought to light, particularly where average Americans have innocently violated the structuring laws. In October 2014 the New York Times reported on several arbitrary seizures, which led to the agency announcing a policy change to only pursue those structuring cases where the money was known to be tied to criminal activity. (The Dept. of Justice made a similar declaration this past March.) When given the broad strokes of the McLellan case in discussions with the House Ways and Means Oversight Subcommittee in February, IRS Commissioner John Koskinen admitted, “If that case exists, then it’s not following the policy.”
So, why wasn’t the case immediately thrown out?
Many defendants in these cases accept a settlement deal just to be rid of the hassle. The feds offered McLellan 50% to settle by March 30, but he declined on principle.
“I guess I’m old school. If you’re wrong, you’re wrong. If you’re right, you’re right. And in this case, I feel like they’re wrong. And I was raised on —- preached to about —- what would be right and what would be wrong.”
I agree, and I don’t blame him for deciding to make a stand. McLellan was then required to prove his innocence in court. Does that sound wrong to you? It does to me. As the Heritage Foundation’s Jason Snead told Melissa Quinn at “The Daily Signal”,
“In criminal cases, defendants are innocent until proven guilty. Civil forfeiture cases flip this basic legal tenet on its head. Once the government shows that your property is subject to forfeiture, the burden is on you as the owner to disprove the government. In effect, you are asked to prove your own innocence in order to win back your property. That is a high hurdle to clear.”
About a week and a half ago, “The Daily Signal” reported some good news in the case. Citing the above-mentioned government policy changes, U.S. Attorney Thomas Walker filed documents saying that the lawsuit against McLellan has been dropped and all of his money will be returned to him. Sounds great, right? Well, it is, but the news is not as good as it should have been. For one thing, government bureaucracy being what it is, it could take a few months before McLellan gets the money that was (unlawfully?) seized.
Secondly, McLellan incurred over $20,000 in legal fees and expenses in his efforts to prove his innocence and get back what was rightfully his. Congress passed a law back in 2000 that says people in these circumstances are to be fully reimbursed for those fees and expenses. But, the government dismissed the case without agreeing to pay this.
Thirdly, as per government policy, the seized money was kept in an interest-bearing account. It is not clear to me whether or not McLellan is legally entitled to that interest. But, it definitely seems like he should be, since it would have been accruing interest all this time in the store’s account at Lumbee Guaranty Bank, if overzealous federal agents hadn’t seized it.
Finally, it should be noted that neither the DoJ nor the IRS (nor anyone else involved) has admitted that the case against McLellan was bogus, that neither he nor his business was involved in anything criminal. No regret for putting an innocent man through hell, either.
Johnson said that he will continue efforts to make sure his client is recompensed for all relevant fees, expenses, and interest.
“They came into his store and turned his life upside down, caused him all kinds of heartache and expense, and now they’re just trying to walk away as if nothing happened and forcing Lyndon to bear all those costs. It wasn’t right to begin with, and Lyndon shouldn’t be the one left holding the bag at the end of the day…. The government needs to make Lyndon whole.”
IMHO, the IRS is a bully that has grown way too powerful, throwing its weight around and overstepping its function and authority. This whole “civil asset forfeiture” issue is just one example. I think McLellan should sue the IRS, the U.S. Treasury Dept., and probably Robeson County Sheriff Kenneth Sealey, not only for the fees/expenses/interest for which he is legally due but also for compensatory damages for any lost business due to cashflow problems. Heck, I would even throw in damages for “mental anguish”, due to grief and suffering through this entire, unnecessary ordeal.
But, maybe he should way until after he gets his $108K back, first….
UPDATE 7/10/2015: “IRS Returns $107,000 It Took From North Carolina Convenience Store Owner” … But the government still refuses to pay the lawyers’ fees and expenses that the store owner is entitled to.
UPDATE 2/5/2016: “Judge Makes Government Pay Legal Fees to Store Owner Whose $107,700 Was Seized by IRS” … “A federal judge ruled Tuesday that the federal government is required to pay McLellan’s legal fees, his expenses, and interest earned on the money the IRS seized in a case that could set a “powerful precedent” for victims of forfeiture fighting to be made whole…. “This is vindication that has been a long time coming. Lyndon did nothing wrong, and it’s gratifying to see a federal judge stick up for that fact and to make things right.””