Supreme Court Opinion Expands the Importance of Tracing Assets

In a case that could lead to future implications, the Supreme Court held Wednesday that a criminal defendant has a Sixth Amendment right to use her own “innocent” property to the pay legal fees of counsel of her choice, drawing a distinction between “innocent funds” and “tainted funds” related to fraud. In a dissenting opinion, Justice Kennedy remarked that the “unprecedented holding rewards criminals who hurry to spend, conceal, or launder stolen property by assuring them that they may use their own funds to pay for an attorney after they have dissipated the proceeds of their crime.”

The 5-3 decision set aside an order from a Federal Judge freezing the assets of Sila Luis, a defendant charged with fraudulently obtaining $45 million through crimes related to health care. The case deals with a federal statute that allows a court to freeze, before trial, certain assets belonging to a criminal defendant accused of violations of health care or banking laws. Those assets include: (1) property “obtained as a result of ” the crime, (2) property “traceable” to the crime, and (3) other “property of equivalent value.” Believing they will ultimately prevail in the case, the government asked the District Court to freeze approximately $2 million still in Luis’ possession which it contended constituted “property of equivalent value”. Of particular importance to this case, the $2 million in question is “not loot, contraband, or otherwise ‘tainted.’ It belongs to the defendant” and is not traceable to the $45 million alleged to have been received fraudulently.

In concluding that “tainted funds” and “innocent funds” need to be dealt with separately in preserving a defendant’s Sixth Amendment right to counsel, the Court acknowledged Justice Kennedy’s concern that money is fungible. But, the Court states “the law has tracing rules that help courts implement the kind of distinction we require in this case.”

The decision obviously has repercussions with respect to tracing. For example: who is required to proffer the initial evidence with respect to the source of funds; how early should experts be involved with respect to tracing; what level of evidence will courts require to show the “innocent” versus “tainted” funds.

In his dissent, Justice Kennedy notes “[t]he principle announce[d] today—that a defendant has a right to pay for an attorney with forfeitable assets so long as those assets are not related to or the direct proceeds of the crime alleged—has far-reaching implications. There is no clear explanation why this principle does not extend to the exercise of other constitutional rights….” One thing that is clear from the ruling, tracing the proceeds of an alleged fraud may be as important to the commencement of a case as it is to the ultimate judgment.

The case is Luis v. United States and can be found at http://www.supremecourt.gov/opinions/15pdf/14-419_nmip.pdf.

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