Bank Fraud · Forfeiture

What Property Can Be Forfeited After Bank Fraud?

How federal forfeiture rules address alleged bank-fraud proceeds, tracing, substitute assets and third-party ownership.

By Heath HydeEast Texas and statewide

Mr. Heath Enix ‘Heath’ Hyde
Eligible to Practice in Texas
Attorney at Law
Bar Card Number: 00796807
TX License Date: 11/01/1996

Primary Practice Location: Sulphur Springs, TX and Dallas, TX
214 Connally St Ste A
Sulphur Spgs, TX 75482-2612

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Section 982(a)(2) of Title 18 requires forfeiture after a bank-fraud conviction affecting a financial institution. It reaches proceeds the defendant obtained, directly or indirectly, and property derived from those proceeds. That does not make every asset the defendant owns forfeitable. Counsel needs to identify the statutory basis and connect the property to the offense. A freeze on funds, a final forfeiture order and restitution each require separate analysis.

Start with the forfeiture statute and notice

Put the indictment, forfeiture allegation and statute of conviction together. Section 982(a)(2) covers specified financial crimes, including bank fraud under § 1344 affecting a financial institution. If the indictment also charges money laundering, check the forfeiture rule attached to that count. The label “fraud” does not supply the required connection between an offense and an asset.

Consider a mixed business account. An allegedly fraudulent deposit arrives, then the business pays wages, buys inventory, pays debt and later buys real estate. The account also held money from other sources. A chart needs more than the dates of those purchases:

This example does not determine whether any real asset can be forfeited.

Personal proceeds, substitute assets and other owners

Substitute property falls under § 853(p), through § 982(b)(1). The question is whether the defendant’s act or omission left directly forfeitable property in one of these conditions:

• It cannot be found despite due diligence.
• It was transferred, sold or deposited with a third party.
• It was placed beyond the court’s jurisdiction.
• Its value has substantially diminished.
• It was mixed with other property that cannot be divided without difficulty.

The value of the unavailable property limits the substitute-property amount. Being charged does not, by itself, make all of a person’s assets available for forfeiture.

Honeycutt v. United States rejected joint-and-several forfeiture under § 853(a)(1) for property the defendant never personally acquired. The Fourth Circuit applied that reasoning to § 982(a)(2) in United States v. Chittenden, a bank-fraud case. These decisions make the records of what each defendant obtained important. Chittenden is a Fourth Circuit decision; counsel must check the controlling law in the court handling the case.

Whose money bought the property, and when did each ownership interest arise? A third-party claimant may need to answer those questions in an ancillary proceeding under § 853(n). The statutory ownership requirements control. A relative’s name on the title does not establish that the interest is genuine or superior to the government’s. Keep the purchase papers, deed, loans and bank statements, including evidence of each owner’s contribution.

What to preserve and discuss with counsel

If a frozen account leaves the business unable to pay a bill, give counsel the bill and the records showing the source of the funds. That helps explain both the practical problem and the request for access to particular money. It does not mean hardship alone entitles the defendant to release of the funds. Leave assets where the order requires them; moving or concealing them to evade it can create further problems. Counsel needs the charge, court orders and asset records to advise on the procedures available in that case.

The Federal Bank Fraud and Related Texas Financial Crimes knowledge hub explains the broader investigation and trial process.