Asset Forfeiture as a Law Enforcement Tool

I. INTRODUCTION Asset forfeiture laws--laws that allow the government to seize assets used in the commission of a crime--represent an established component in the arsenal of law enforcement authorities. Although asset forfeiture was originally derived from admiralty law, where it was one of the few effective ways of controlling smuggling, the strategy has recently been revived for use as a weapon in the war on drugs. Proponents see it as a potential deterrent of crime because of the risk that it imposes on owners of capital that may be used for criminal purposes, while critics see it as an invitation for abuse by rent-seeking enforcers whose primary aim is to generate revenue, as well as a potentially serious threat to private property. The purpose of this article is to evaluate asset forfeiture as a law enforcement tool by incorporating it into the standard economic model of crime (Becker 1968). The analysis is related to economic models of law enforcement in which, in addition to facing criminal punishment, offenders must surrender (or disgorge) their ill-gotten gains upon capture (Bowles, Faure, and Garoupa 2000; Tabbach 2009). (1) Our model differs from this literature in that it focuses on the deterrent effects of forfeiture of assets used in the commission of a crime when those assets are owned by someone other than the offender. For example, if a drug dealer operates out of his apartment or his parent's home, the government may seize the building in addition to punishing the offender. Our analysis also relates to the paper by Baumann and Friehe (2014), which shows that deterrence of crime can be enhanced by regulation of an inherently harmless activity if that activity is complementary to crime. The difference is that we focus on an essential input into the "production" of crime that can also be used for legal purposes. The threat of seizure therefore potentially distorts the market for that input in a socially undesirable way, which, as we will show, limits the usefulness of the strategy. Finally, our analysis is related to the papers by Mungan (2011) and Kaplow (2011) which show that erroneously imposed criminal sanctions can have the effect of chilling otherwise beneficial activities. Optimal procedural rules in judicial proceedings should therefore reflect that cost, which the authors argue helps to explain the high standard of proof for criminal convictions. The results of our analysis show that forfeiture can be used effectively, in combination with more standard tools (fining or imprisoning offenders), as a deterrent under certain conditions, but the risk of overuse is real. In particular, we will show that in most contexts, the distortionary effect of forfeiture in the capital market makes it optimal to seize only a fraction of an asset's value, but when enforcers are rent-seekers who care primarily about the revenue generated by forfeiture, they will have an incentive to use it to the maximum extent allowed by law. This article is organized as follows. Section II sets the stage for the analysis by reviewing the law of forfeiture and the scope of its actual use. Section III then develops the basic model and derives the main conclusions, first for the case where the primary form of punishment is by a fine, and then for the case where punishment is by imprisonment. Section IV discusses two further issues that bear on the usefulness of forfeiture as a criminal deterrent: the impact of an "innocent owner" defense, and the possible abuse of forfeiture by rent-seeking enforcers. Finally, Section V concludes. II. THE LAW OF FORFEITURE Government seizure of capital assets used in the commission of a crime is rooted in admiralty law. In 1790, for example, the U.S. Congress adopted a forfeiture law to enforce customs duties, which were at the time the principal source of federal tax revenue. The Supreme Court, in recognizing the usefulness of forfeiture in the prevention of piracy and other customs violations, upheld these early laws. …