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View Winners → Crime Sep 29, 2022
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A federal judge ruled Thursday that the FBI’s search and seizure of property from rented safe deposit boxes at a Beverly Hills private vaults company that allowed customers to remain anonymous was constitutional.
The now-defunct U.S. Private Vaults was fined $1.1 million in June for money laundering after admitting it sought drug traffickers and other criminals as customers who often kept stacks of illegally obtained cash in their safe deposit boxes.
In their lawsuit — a case separate from the criminal action — box holders seeking the return of their property said the government overstepped constitutional protections in efforts to uncover illegal activity and misled the judge who approved the FBI and U.S. Attorney Office’s request for a search warrant.
About $86 million in cash and millions more in jewelry and other valuables were reportedly seized, but specific criminal conduct has not been alleged against customers.
In his ruling, U.S. District Judge R. Gary Klausner found that law enforcement did not exceed the bounds of the warrant that allowed the opening of 1,400 safe-deposit boxes at the store in Beverly Hills.
The class action suit had asked Klausner to rule that the raid violated the Fourth Amendment rights of box holders and that any records of box contents should be destroyed. The judge rejected the argument.
Thom Mrozek, a spokesman for the U.S. Attorney’s Office, applauded the judge’s decision, saying the ruling “expressly rejected every claim of improper conduct.”
The judge’s ruling “demonstrates that the actions taken in relation to a business that catered to criminals were legally authorized, adhered to policy and were conducted in full compliance with the Constitution,” Mrozek said.
Lawyers from the Institute for Justice, which is representing box holders, said Thursday they will appeal the judge’s decision.
“If today’s shocking decision stands, it will set a dangerous precedent that will allow the FBI and other law enforcement agencies to bypass the Fourth Amendment,” Institute for Justice Senior Attorney Rob Johnson said in a statement.
“The decision will give a blueprint for the government to pry open safe deposit boxes, storage lockers and other private spaces — and to take the contents with civil forfeiture,” he said. “There is no question that we will be filing an appeal.”
Klausner stated that many vault customers used its services for legitimate reasons.
The judge’s ruling also found that the FBI planned to “forfeit box holders’ property even before applying for its warrant,” but concealed “any mention of these plans from the warrant application,” according to Johnson.
“All this makes the district court’s ultimate decision even more troubling,” the attorney said. “The court does not deny that the government had an improper motive when it applied for its warrant, but it says that fact is irrelevant unless `the improper investigatory motive was the only reason that the Government opened the safety deposit boxes.’ … In other words, the decision gives law enforcement a license to concoct bogus reasons to seize and forfeit millions of dollars in property from people who have not been accused of doing anything wrong.”
U.S. Private Vaults, a Nevada-based company that operated on West Olympic Boulevard, was raided by the FBI and the U.S. Drug Enforcement Administration in March 2021. Agents broke open boxes, seizing drugs, firearms and large amounts of gold bullion and cash, as well as other valuables, from about 396 of the rented boxes, according to the criminal indictment alleging three separate conspiracies to violate federal law.
Since then, box holders who denied criminal culpability successfully petitioned the judge to have their property returned.
The company pleaded guilty earlier this year through an attorney to a federal charge of conspiracy to launder money.
U.S. District Judge Mark Scarsi sentenced U.S. Private Vaults to three years of probation and the maximum fine of $1.1 million. He also ordered that a preliminary order of forfeiture of its business equipment be made final.
The federal government has remained silent about the details of its case against the now-defunct business, whose board of directors has not been charged or named.
The company admitted to having “recruited as its customers drug traffickers and other criminals” who paid over $550,000 in cash and bitcoin in exchange for the anonymous use of safety deposit boxes “to store the proceeds of their offenses, most often in stacks of $100 bills,” according to the plea agreement filed in Los Angeles federal court.
Box rental payments were made to U.S. Private Vaults with the company’s knowledge that the money came from “the proceeds of the distribution of controlled substances and other crimes,” the plea agreement states.
The company would deposit the cash with banks, using the money to pay its costs for maintaining the business, “thereby promoting the distribution of controlled substances and other crimes by its customers,” federal prosecutors wrote.
Box holders seeking the return of their property said the government overstepped constitutional protections in efforts to uncover illegal activity. About $86 million in cash and millions more in jewelry and other valuables were reportedly seized, but specific criminal conduct has not been alleged against customers.
In the indictment, Los Angeles prosecutors allege that U.S. Private Vaults adopted “business practices that attracted customers in possession of proceeds from criminal offenses, including drug trafficking” and other crimes.
U.S. Private Vault customers were not required to use their names to access their boxes. Instead, the company used iris scans and other means to keep client identities secret.
The warrant authorizing the raid on U.S. Private Vaults stated that it “does not authorize a criminal search or seizure of the contents of the safety deposit boxes,” according to the IJ, which filed suit for the return of box contents on behalf of clients.
Despite the direction of the judge who signed the warrant, “The FBI opened every box in the vault and forced individuals to prove their own innocence to get their property back,” Johnson said.
The government abandoned its forfeiture claims against the institute’s clients and finished returning seized property late last year, he said.
