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Generally the way this works is that they can claim the money was involved in a drug transaction, and therefore seize it. Since many large bills have *at some point* been involved in drug transactions, any time a guy is carrying a lot of cash, it's almost assured that some of the bills will have trace amounts of contraband on them, usually enough that a dog can pick it up.
Arkansas law enforcement is actually quite famous for running this scam.
http://www.mapinc.org/drugnews/v99.n709.a07.html
etc etc etc.
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This is a urban legend
http://tafkac.org/drugs/cocaine.mone...money_wsj.html