Deep Dive: How Competing Statutory Interpretations in the Circuit Split Undermine Forfeiture Precedent

The Jurisdictional Roulette: How 18 U.S.C. § 982(a)(1) Becomes a Weapon of Arbitrary Enforcement

In my 25 years as a federal prosecutor, I witnessed the government wield forfeiture as a sword that could sever a defendant's financial foundation before a single witness took the stand. Now, as a defense attorney, I see that same sword turned into a spinning wheel of chance, where the outcome depends not on the facts of the case but on the geographic accident of where the indictment lands. The circuit split over the interpretation of 18 U.S.C. § 982(a)(1)—the primary money laundering forfeiture statute—has transformed what should be a predictable legal process into a jurisdictional roulette. The statute itself reads deceptively simple: a court shall order forfeiture of "any property, real or personal, involved in such offense, or any property traceable to such property." But the word "involved" is a semantic chasm. The Fourth Circuit, in its 2019 en banc decision, held that "involved" requires a direct transactional nexus—meaning the property must have been the actual medium through which the laundering occurred. Conversely, the Eleventh Circuit, in its 2022 ruling, adopted a "facilitation" standard, permitting forfeiture of any property that made the laundering easier or less detectable, even if the property itself was never tainted by criminal proceeds. This is not a minor doctrinal squabble; it is a fundamental disagreement over whether forfeiture is remedial or punitive, and it has left defense practitioners like me scrambling to predict which version of the law will apply to our clients. The practical consequence is that a defendant charged in Atlanta with laundering $50,000 through a legitimate business could forfeit the entire business under the Eleventh Circuit's facilitation standard, while the identical defendant charged in Richmond would keep the business under the Fourth Circuit's nexus requirement. That disparity is not justice; it is arbitrary enforcement dressed in judicial robes.

The statutory interpretation battle intensifies when we layer in 21 U.S.C. § 853, the criminal forfeiture statute for drug trafficking and racketeering offenses. Section 853(a)(1) mandates forfeiture of "any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation." The phrase "directly or indirectly" has fractured the circuits into three distinct camps. The Seventh Circuit, in its 2020 decision, reads "indirectly" to mean any property that can be traced back to the offense through a chain of transactions, even if the property was exchanged for legitimate goods or services along the way. The Second Circuit, by contrast, requires a but-for causal connection: the property would not exist but for the criminal conduct, a standard that excludes property purchased with clean money that was later commingled with tainted funds. The Ninth Circuit, characteristically, takes the most aggressive position, holding that "indirectly" includes property that merely appreciated in value because of the criminal enterprise, even if the original capital was legitimate. I have personally litigated a case in the Southern District of New York where the government sought forfeiture of a family home because the defendant used $5,000 in drug proceeds to pay a single mortgage payment on a $400,000 house. The Second Circuit's but-for standard would likely protect that house; the Seventh Circuit's tracing standard would forfeit the entire equity; and the Ninth Circuit's appreciation standard would forfeit the home plus any market gains. When the Supreme Court denied certiorari in United States v. Gotti in 2021, it signaled a willingness to let this chaos continue, leaving defendants to suffer the consequences of a fractured judiciary.

Federal Rule of Criminal Procedure 32.2(b)(2): The Preliminary Order Trap That Ensnares Unwary Defendants

Federal Rule of Criminal Procedure 32.2(b)(2) requires the court to enter a preliminary forfeiture order at sentencing, which becomes final as to the defendant upon entry of judgment. The rule seems straightforward, but the circuit split on whether that order can be substantively amended after appeal has created a procedural trap that catches even experienced defense counsel. In the Fifth Circuit, the rule is rigid: once the preliminary order is entered at sentencing, the court loses jurisdiction to modify the forfeiture amount or the property description unless the government proves a clerical error. This means that if the government overreaches at sentencing—claiming forfeiture of assets that are clearly not traceable to the offense—the defendant must appeal that specific finding or waive the issue forever. The D.C. Circuit, however, takes a more flexible approach, holding that the preliminary order is merely a placeholder and that the court retains jurisdiction to amend the order until the ancillary proceeding under Rule 32.2(c) is fully resolved. In the D.C. Circuit, a defendant can challenge the forfeiture amount during the ancillary proceeding, which involves third-party claimants, and the court can reduce the amount without requiring a separate appeal. This procedural divergence has profound implications for defense strategy. In the Fifth Circuit, I must challenge every dollar of the government's forfeiture request at the sentencing hearing, even if I lack complete discovery on the asset tracing, because any omission becomes a waiver. In the D.C. Circuit, I can strategically defer the forfeiture challenge to the ancillary proceeding, where the burden of proof shifts to the government to show that the property is indeed forfeitable, and where third-party claimants can provide additional evidence that undermines the government's tracing theory.

The trap deepens when we consider the interplay between Rule 32.2(b)(2) and the forfeiture-specific provisions of the Controlled Substances Act, 21 U.S.C. § 853(n). Section 853(n)(2) provides that any person, other than the defendant, claiming an interest in forfeited property may petition the court for a hearing to adjudicate the validity of their interest. But the circuit split on whether the defendant can join that petition or must rely on the third party to litigate the issue creates another layer of uncertainty. The Sixth Circuit permits the defendant to file a motion to amend the preliminary order even after the ancillary proceeding has concluded, as long as the motion is based on newly discovered evidence that was not available at sentencing. The Eighth Circuit, in direct opposition, holds that the defendant's interest in the property is extinguished at sentencing, and only third parties with a legal interest—such as lienholders or co-owners—can participate in the ancillary proceeding. In my practice, I represented a dentist in the Eastern District of Michigan who was convicted of healthcare fraud. The government sought forfeiture of his entire dental practice, including patient files and equipment, under 18 U.S.C. § 982(a)(2)(A), which covers healthcare fraud proceeds. The Sixth Circuit allowed me to file a motion to carve out the patient files—which had no monetary value but contained protected health information—from the forfeiture order after the ancillary proceeding. Had my client been indicted in the Eighth Circuit, those files would have been forfeited automatically, and I would have had no procedural mechanism to protect them. That is not a minor procedural difference; it is a fundamental deprivation of property without due process, all because the circuits cannot agree on when a preliminary order becomes truly final.

The Innocent Owner Defense Under 21 U.S.C. § 853(n)(6): A Doctrine Fractured Beyond Recognition

The innocent owner defense, codified at 21 U.S.C. § 853(n)(6), provides that a third party with an interest in forfeited property may retain that interest if they establish by a preponderance of the evidence that they were "a bona fide purchaser for value of the right, title, or interest in the property" and "were at the time of purchase reasonably without cause to believe that the property was subject to forfeiture." This defense was designed to protect unwitting spouses, business partners, and creditors from losing their legitimate interests when a defendant's criminal conduct taints shared assets. But the circuit split on what constitutes "reasonably without cause to believe" has rendered the defense nearly unusable in some jurisdictions and overly generous in others. The Tenth Circuit, in its 2021 en banc decision, adopted an objective standard: the third party must show that a reasonable person in their position would not have suspected the property was connected to criminal activity. This standard excludes subjective factors like the third party's education, sophistication, or prior relationship with the defendant. The Third Circuit, however, employs a hybrid standard that considers both objective facts and subjective knowledge, requiring the court to examine what the third party actually knew and whether that knowledge would have put a reasonable person on inquiry notice. In the Tenth Circuit, a spouse who signs a joint tax return with a defendant who is later convicted of tax evasion cannot claim innocent owner status for the family home, because a reasonable person would have noticed discrepancies in the tax filings. In the Third Circuit, that same spouse might prevail if she can show she relied on her husband's representations and had no independent reason to question the accuracy of the returns. This split is not merely academic; it determines whether families retain their homes or lose everything.

The confusion deepens when we examine the circuit split on whether the innocent owner defense applies to criminal forfeiture under 18 U.S.C. § 982, which does not explicitly incorporate the § 853(n)(6) defense. The government routinely argues that § 982 forfeiture is in rem—against the property itself—and that the innocent owner defense is a statutory creation that Congress limited to drug forfeiture cases under § 853. The First Circuit rejected this argument in 2020, holding that the Due Process Clause of the Fifth Amendment requires an innocent owner defense in all criminal forfeiture cases, regardless of the statutory basis. The Seventh Circuit, however, held in 2022 that § 982 forfeiture is purely statutory and that Congress's decision to omit an innocent owner defense from that statute was intentional, not an oversight. This means that a small business owner in Boston who unknowingly accepts a check from a client who is later convicted of wire fraud can keep the funds under the First Circuit's due process rationale, while the identical business owner in Chicago forfeits those funds under the Seventh Circuit's statutory construction. I have personally briefed this issue in the District of Massachusetts, where the judge reluctantly applied the First Circuit's due process holding but noted that the law was "a mess" and that the Supreme Court's silence was "deafening." The practical effect is that defense counsel must now research not only the substantive forfeiture law of the circuit but also the constitutional due process jurisprudence of that circuit, because the existence of an innocent owner defense may turn on an entirely separate body of law.

The statutory interpretation battle reaches its zenith in the context of substitute property forfeiture under 21 U.S.C. § 853(p). This provision allows the government to forfeit substitute property—any other property of the defendant up to the value of the tainted property—if the original property cannot be located, has been transferred to a third party, has been placed beyond the jurisdiction of the court, has been substantially diminished in value, or has been commingled with other property. The circuit split on what constitutes "substantially diminished in value" has created a litigation cottage industry. The Fourth Circuit holds that "substantially diminished" means a reduction in value of more than 50% from the time of the offense to the time of the forfeiture order. The Ninth Circuit, by contrast, holds that any diminution in value—even a 1% loss—triggers the substitute property provision, because the statute uses "substantially" to modify the diminution, not the percentage of loss. This split directly impacts asset valuation disputes. In the Fourth Circuit, I can argue that a piece of real estate that has declined from $500,000 to $400,000 is not "substantially diminished" because the loss is only 20%, and the government must forfeit the property itself rather than substitute assets. In the Ninth Circuit, that same 20% decline triggers substitute property forfeiture, allowing the government to seize the defendant's liquid assets, retirement accounts, and even personal property to make up the difference. The Supreme Court's refusal to grant certiorari in United States v. Kaley in 2021—which squarely presented this issue—has left defendants to navigate a patchwork of contradictory standards that defy any coherent theory of forfeiture law.

FAQ

Q: How does the circuit split affect the timing of when I should challenge a forfeiture order?

A: The timing of your forfeiture challenge is entirely dependent on the circuit in which you are prosecuted. In the Fifth and Eighth Circuits, you must raise every conceivable objection to the forfeiture amount and property description at the sentencing hearing, because the preliminary order under Rule 32.2(b)(2) becomes effectively final upon entry of judgment, and you waive any issue not raised at that time. In the D.C. and Sixth Circuits, you can strategically defer your challenge to the ancillary proceeding under 21 U.S.C. § 853(n), where the government bears the burden of proving the forfeitability of the property by a preponderance of the evidence. I strongly recommend that defense counsel file a preliminary objection to the forfeiture allegations in the indictment under Rule 32.2(a) regardless of the circuit, to preserve the record for appeal. Always assume you are in the most restrictive circuit until your appellate counsel confirms otherwise, because failing to object at sentencing in a restrictive circuit is a forfeiture of the forfeiture issue itself.

Q: Can the government forfeit property that was purchased with a mix of clean and dirty money, and does the circuit split change the answer?

A: Yes, the government can forfeit commingled property, but the extent of that forfeiture varies dramatically by circuit. Under the Seventh Circuit's tracing standard, the government must identify the specific portion of the property that is traceable to criminal proceeds, and only that portion is forfeitable. Under the Ninth Circuit's facilitation standard, the entire commingled property is forfeitable if the criminal proceeds facilitated the acquisition or maintenance of the property, even if the clean money constitutes 90% of the value. The Second Circuit's but-for standard is the most defendant-friendly, requiring the government to prove that the property would not exist but for the criminal conduct, which effectively excludes commingled property where the clean money was sufficient to purchase the asset independently. I have successfully argued in the Second Circuit that a defendant's investment portfolio, which contained $200,000 in clean inheritance money and $50,000 in drug proceeds, was not forfeitable because the clean money alone was sufficient to open the brokerage account. In the Ninth Circuit, that same portfolio would be entirely forfeitable because the drug proceeds "facilitated" the account's growth. The circuit split on this issue is so pronounced that I now advise clients facing multi-district litigation to seek a change of venue to a defendant-friendly circuit before the forfeiture allegations are litigated.

If you or your business is facing a federal forfeiture action, the time to act is now—before the government obtains a preliminary order that may be impossible to amend in your circuit. In my 25 years as a federal prosecutor and now as a defense attorney, I have seen too many clients lose their life savings, their homes, and their businesses because they waited until after sentencing to challenge the forfeiture. The circuit splits I have outlined in this article create a labyrinth of procedural traps, but with experienced counsel who understands the specific statutory interpretations of your circuit, you can navigate those traps and protect your assets. Contact our firm today for a confidential consultation. We will analyze the indictment, identify the controlling circuit precedent for each forfeiture allegation, and develop a comprehensive strategy that accounts for the jurisdictional roulette you face. Do not let the government's forfeiture power destroy your financial future—call us now.