When Conspiracy and Forfeiture Law Intersect

Justice Robert H. Jackson once wrote that “the modern crime of conspiracy is so vague that it almost defies definition.”

The Supreme Court wrestled with the breadth of this offense last week, when it heard arguments in Honeycutt v. United States about whether a member of a conspiracy can be required to forfeit money generated by the crime even though he never received most of it.

If you are wondering how someone can be forced to give up something he never had, then welcome to the intersection of conspiracy and asset forfeiture law.

The defendant, Terry M. Honeycutt, worked in a store owned by his brother, Tony, that sold iodine used in a water-purification system to manufacture methamphetamine. As the store sold increasing amounts of iodine, it came under investigation by the Drug Enforcement Administration. The brothers were eventually charged with drug offenses and conspiracy for selling the iodine that resulted in profits of about $269,000.

Tony Honeycutt pleaded guilty and Terry Honeycutt was convicted after trial. As part of his sentence, he was ordered to forfeit an amount equal to the profits from the iodine sales, even though all the money went to his brother’s corporation that owned the store and Terry Honeycutt was paid only his salary.

Under the federal drug forfeiture law, a defendant can be ordered to turn over “any proceeds the person obtained, directly or indirectly,” from the crime. In addition, if assets traceable to the crime cannot be located, the government can seize anything else a defendant might have to satisfy the forfeiture order, known as “substitute assets.” This gives prosecutors a powerful tool to deprive someone of almost everything he owns if the amount involved in the crime is significant.

Here is where conspiracy law becomes important when a court orders forfeiture against someone who played a minor role in the crime. Under the Supreme Court’s decision in Pinkerton v. United States, each member of a conspiracy is responsible for any crime committed by a co-conspirator that was foreseeable and in furtherance of the agreement.

That case involved illegal bootleg liquor sales by one brother while the other was in prison and had no direct involvement in the violations. But they conspired to sell the liquor, much as the Honeycutts sold the iodine, and according to the Supreme Court, “So long as the partnership in crime continues, the partners act for each other in carrying it forward.”

In Terry Honeycutt’s case, the government wants to stretch what has become known as the Pinkerton doctrine to forfeiture law, so that the “person” who receives the proceeds of the crime is any member of the conspiracy. When Tony Honeycutt’s corporation received the profits, it was as if the money went into his own pocket because each conspirator was jointly liable without regard to whether he actually got anything, just as each can be guilty of a crime he did not personally commit.

Odd as it may appear when someone is liable to repay money never received, it is the rule accepted by most federal courts, which have interpreted the term “indirectly” to bring within the forfeiture provision any co-conspirators.

The United States Court of Appeals for the District of Columbia Circuit, however, took exception to that approach in 2015 in United States v. Cano-Flores. The appeals court overturned an order requiring a member of a Mexican drug cartel to forfeit $15 billion, which represented the gross proceeds from the drug operation — not that he had that much money, but it meant he would lose everything he had. The court concluded that the Pinkerton doctrine should not be applied because it only reached a conspirator’s liability for crimes committed by a confederate, but not the potential punishment.

The Supreme Court granted review in the Honeycutt case to resolve the split in the lower courts over the scope of forfeiture law. Its decision will affect not just drug cases but also white-collar crime prosecutions because another forfeiture law that largely mirrors the drug forfeiture statute covers crimes like mail and wire fraud that are frequently charged.

The justices were troubled during the oral argument by the application of conspiracy liability to asset forfeiture, trying to figure out how a defendant like Terry Honeycutt could be ordered to repay money he never received — especially when his brother was required to forfeit only about $200,000 rather than the full amount. Chief Justice John G. Roberts Jr. told the government’s lawyer at one point that the Pinkerton doctrine was based on a legal fiction, saying, “I’m not sure that that theory works when you’re talking about a more focused statute here.”

One reason the justices have hesitated to interpret the forfeiture laws broadly is that they give prosecutors a powerful tool to block a defendant from using assets to pay for a lawyer before trial.

A provision of the forfeiture laws allows the government to get an order freezing a defendant’s assets that are traceable to the underlying crime, which was found constitutional in United States v. Monsanto in 1989. But in Luis v. United States, a 2016 decision, the Supreme Court decided that the Justice Department could not use the asset forfeiture law to prevent a defendant from spending money that was not traceable to the crime charged, in that case health care fraud, because it would violate the Sixth Amendment right to counsel. In an opinion for four justices, Justice Stephen G. Breyer explained that distinguishing between tainted and untainted money was important because “it is the difference between what is yours and what is mine.”

In the Honeycutt case, the court may be concerned that treating all conspirators alike for forfeiture could allow the government to freeze the assets of every defendant before trial, requiring them to seek appointed counsel that often do not have the same resources to defend a case.

There is also a sense of unfairness about punishing a defendant who never received the money from the crime, or who got only a small portion of it, by having a forfeiture order entered that requires paying a sum far beyond the person’s actual culpability.

That argument goes only so far in blocking forfeiture, however, because Congress has taken an expansive view on a defendant’s financial liability for violations.

Under a separate federal statute, the Mandatory Victims Restitution Act, a court can in some cases require a defendant to repay victims while also ordering the forfeiture of a similar amount because the two serve different purposes — one provides compensation while the other is a form of punishment.

In insider trading cases, a defendant cannot be compelled to forfeit profits from illegal transactions that went only to an innocent employer, like a hedge fund, because it was never received “directly or indirectly,” as required by the statute. But in S.E.C. v. Contorinis, the United States Court of Appeals for the Second Circuit in Manhattan found that a defendant could be ordered to disgorge those profits in a separate civil case filed by the Securities and Exchange Commission even though he never received the proceeds personally.

The forfeiture laws are built around the notion that crime should not pay. It appears that making a defendant pay for something he never received may not always be permissible either, at least when it is based on playing just a small role in a larger conspiracy.