United States v. Sum of $70,990,605 ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 12-1905-RDM-AK
)
SUM OF $70,990,605 et al., )
)
)
Defendants. )
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MEMORANDUM OPINION
Before the Court is the government’s motion to strike the claim of Afghanistan
International Bank (“AIB”) for lack of statutory standing. Dkt. 93. For the reasons stated below,
the motion is GRANTED in part and DENIED in part.
I. BACKGROUND
This action arises from a civil forfeiture complaint against $77,920,605 that the
government alleges was fraudulently obtained as payment for transportation of United States
military supplies in Afghanistan by Hikmatullah Shadman, his associates, and companies he
controls. Dkt. 3 ¶ 2. To date, the United States has seized of $57,279,428.03 from accounts
maintained by three foreign banks at financial institutions in the United States. Dkt. 225 ¶ 49. It
has seized these funds pursuant to its authority under 18 U.S.C. § 981(k), which allows the
government to seize funds held in U.S bank accounts for the benefit of foreign banks when the
foreign banks themselves hold funds that are subject to forfeiture. See 18 U.S.C. § 981(k)(1)(A).
As discussed in greater detail below, allowing the government to seize funds held in these
“interbank” accounts closed a loophole in the asset forfeiture laws and significantly expanded the
ability of United States authorities to pursue forfeiture of assets held abroad.
According to the third amended complaint (“Complaint”), Mr. Shadman and others
“falsified contracting documents, stole fuel from the United States, made bribe and gratuity
payments [and] fraudulently inflated prices” in the course of a wire fraud conspiracy to obtain
favorable logistics contracts in Afghanistan, and were paid at least $77,920,605 by the United
States under those contracts. Dkt. 225 ¶ 20. Mr. Shadman, other individuals, and companies he
controls 1 (the “Shadman Claimants”) have filed a claim against the seized funds. Dkt. 24.
Afghanistan International Bank (“AIB”) is one of the foreign banks whose funds in
United States interbank accounts have been seized. The Complaint includes allegations
regarding three accounts held by the Shadman Claimants at AIB. The first—account number
7810 (the “7810 Account”)—was the account into which money the Shadman
Claimants earned pursuant to logistics contracts was deposited. Dkt. 225 ¶¶ 44, 46. According
to the government, “at least $77,920,605” was deposited into this account “[d]uring the alleged
conspiracy period.” Id. ¶ 43. AIB does not, at least at this stage, challenge the government’s
characterization of the funds deposited in the 7810 Account as criminal proceeds.
The second account—number 8613 (the “8613 Account”)—received
transfers of $4,000,000 and $2,930,000 from the 7180 Account in June and July 2011. Dkt. 225
¶¶ 47-48. As with the 7810 Account, for present purposes AIB does not challenge the
characterization of these funds as criminal proceeds.
1
Hikmat Shadman Logistics Services Co., Hekmat Shadman General Trading, LLC, Faizy
Elham Brothers, Ltd., Everest Faizy Logistics Services, Hikmatullah Shadman, Najibullah, and
Rohullah. See Dkt. 163 at 1.
2
The third account—number 5115 (the “5115 Account”)—had, in early
2013, a balance of at least $10,000,000. See Dkt. 244 ¶ 83. On April 1, 2013, $10,000,000 was
transferred from the 5115 Account to an account held by the Shadman Claimants at Bank
Alfalah in Pakistan. Id. On May 8, 2013, $5,000,000 was transferred back from the Bank
Alfalah account into the 5115 Account. Id. ¶ 84. The government has not presented evidence
that any of the money in the 5115 Account prior to April 1, 2013, or any of the money
transferred into the 5115 Account on May 8, 2013, was the proceeds of criminal activity. Nor
has the United States alleged any facts purporting to trace the source of that money. The
Complaint says nothing about the source of the funds held in the 5115 Account prior to April 1,
2013, and it contains no allegations suggesting that funds from other sources were commingled
with the funds withdrawn from the 5115 Account in the recipient account at Bank Alfalah.
Nonetheless, the government does allege conclusorily that “there was probable cause to believe
that as of May 8, 2013 . . . [a]t least $5 million of the criminal proceeds [derived from the
criminal activity alleged in the third amended complaint] was located in [the 5115 Account].”
Dkt. 225 ¶ 85.
Based on these allegations, the United States seized $1.5 million from AIB’s interbank
account at Standard Chartered Bank in the United States on or about May 10, 2013 and $8.6
million from the same account on or about May 24, 2013. Id. ¶¶ 69-70, 86. The United States
subsequently released $5,769,712.97 of the $10.1 million seized from AIB based on the fact that
AIB had $4,330,287.03 on deposit in accounts controlled by or for the benefit of Mr. Shadman
on May 24, 2013. Dkt. 225 ¶ 87. Thus, the United States has seized from AIB’s interbank
account at Standard Chartered Bank an amount equal to the total amount AIB held on deposit
from the Shadman claimants on May 24, 2013.
3
According to AIB, following the seizure of the funds held at AIB’s interbank account in
the United States, the Afghan Attorney General’s office and the Afghan central bank directed
AIB to release all of the funds it held in Mr. Shadman’s accounts in Afghanistan to Mr.
Shadman, notwithstanding the fact that AIB’s funds in its interbank account had been seized.
Dkt. 41 ¶ 13. Thus, AIB asserts, it is unable to debit the Shadman claimants’ accounts based on
the seizure in this case. AIB contends that under these circumstances it “has an ownership and
possessory interest in the remaining seized defendant property of $4,330,287.03,” and on this
ground filed a claim in this action. Id.
On July 2, 2014, the United States filed a motion to strike AIB’s claim. Dkt. 93. It
argues that 18 U.S.C. § 981(k) authorizes only “owners” of seized funds to bring claims and that
the foreign financial institution whose funds are seized pursuant to that section is explicitly
excluded from the statutory definition of “owner.” Id. at 8-12. The United States contends that
AIB thus lacks statutory standing to bring its claim and that the claim must therefore be stricken
pursuant to Supplemental Rule G(8)(c)(i)(B) of the Federal Rules of Civil Procedure. Id.
AIB argues in response that it need not demonstrate ownership in order to establish
statutory standing; that, in any event, the United States has failed to trace the funds on deposit at
AIB on which its seizure of funds from AIB’s interbank is based to any criminal activity; and
that prohibiting AIB from asserting a claim under circumstances in which AIB is unable to set
off its losses by debiting the Shadman claimants’ accounts in Afghanistan would violate due
process. AIB also raises an admittedly premature argument that forfeiture in this case would
violate the Excessive Fines Clause of the Eighth Amendment.
4
II. DISCUSSION
A. The Statutory Scheme
This case raises an issue not previously addressed in this Circuit relating to the
interpretation and validity of 18 U.S.C. § 981(k), which was enacted as an amendment to § 981
by the USA PATRIOT Act, Pub. L. 107-56 (2001). Many foreign banks maintain “interbank” or
“correspondence” accounts at banks in the United States in order to facilitate international funds
transfers. If a depositor in Country A wishes to transfer funds to a recipient in Country B, his
local bank can receive his funds and instruct the U.S. bank at which it holds an interbank account
to transfer an equivalent amount of money to the U.S. interbank account of a bank in Country B.
The bank in Country B is alerted to the transfer and correspondingly credits the ultimate
recipient’s local account. This system allows transfers to take place between banks in separate
countries that have no direct relationship with one another and eliminates any immediate need
for currency to move across national borders.
In theory, the interbank account system also exposes funds held by suspected criminals
abroad to seizure in the United States: if criminal proceeds are deposited in a foreign bank and
that bank holds an interbank account in the United States, seizing funds from the interbank
account seems functionally equivalent to seizing funds directly from the suspected criminal’s
foreign account. Until the enactment of § 981(k), however, this rarely worked in practice. See
147 Cong. Rec. 510547-01. Foreign banks whose funds were seized from interbank accounts
were the legal owners of those funds and, as such, were able to file claims to recover them. Id.
Unless the foreign banks were actually implicated in the wrongdoing on which the seizure was
predicated—which was unusual—they could successfully establish that they were “innocent
owners” under the forfeiture laws and reclaim the funds. Id. This meant that suspected criminals
5
abroad could take advantage of the United States financial system, by depositing their funds in
banks that held interbank accounts, without exposing their assets to the risk of forfeiture in the
United States.
Section 981(k) addresses this problem. It provides that forfeitable funds deposited with a
foreign financial institution that maintains a U.S. interbank account “shall be deemed to have
been deposited into the interbank account in the United States.” 18 U.S.C. § 981(k)(1)(A). It
therefore authorizes seizure of funds from the U.S. interbank account “up to the value of the
funds deposited into the account at the foreign financial institution.” Id. It also imposes a new
limitation on claims against seized property. Only the “owner of the funds deposited into the
account at the foreign financial institution . . . may contest the forfeiture”—and, subject to two
exceptions, the statute’s definition of “owner” explicitly excludes “the foreign financial
institution.” Id. § 918(k)(3), (k)(4)(B)(i)(II). Under the first exception, a “foreign financial
institution . . . may be considered an ‘owner’ of the funds” where “the basis for the forfeiture
action is wrongdoing committed by the foreign financial institution.” Id. § 981(k)(4)(B)(ii). In
addition—and importantly for purposes of this case—a “foreign financial institution” is
considered an “owner,” and is thus able to bring a claim, “to the extent” it “had discharged all or
part of its obligation to the prior owner of the funds” prior to the date of the seizure. Id. §
981(4)(B)(ii)(II). The foreign financial institution bears the burden of establishing ownership
under this second exception by a preponderance of the evidence. Id.
The effect of § 981(k) in a typical case is straightforward. After funds are seized from an
interbank account, the foreign depositor may contest the seizure. If the foreign depositor
successfully establishes a defense to forfeiture, the funds are returned to the interbank account.
If, however, the foreign depositor is unsuccessful, the funds are forfeited and the foreign bank
6
will typically be able to set off the loss from its interbank account by debiting the foreign
depositor’s account abroad. The statute also contemplates, however, that a foreign bank may be
unable to recoup its losses from the foreign depositor’s account due to a “conflict of law
between” the foreign jurisdiction and the United States. Id. § 981(k)(1)(B). Under that
circumstance, the Attorney General “may suspend or terminate the forfeiture” if doing so “would
be in the interest of justice and would not harm the national interests of the United States.” Id.
Beyond this authority conferred on the Attorney General, however, the statute does not create
any recourse for a foreign bank that is unable to recover against its depositor after the United
States seizes its funds from its interbank account.
B. Ownership as a Requirement for Statutory Standing
AIB argues that the government’s motion must be denied because § 981(k) does not
make ownership of funds seized from an interbank account a requirement for statutory standing.
Under Supplemental Rule G, “the government may move to strike a claim or answer . . . because
the claimant lacks standing.” Fed. R. Civ. P. Supp. R. G(8)(c)(i). The parties agree that a
claimant in a forfeiture case must demonstrate statutory standing. See Dkt. 93 at 5; Dkt. 181 at
16.
According to the government, § 981(k) requires that any claimant meet the definition of
an “owner” under that section, and, if AIB cannot do so, AIB lacks statutory standing. This
argument is well supported by both the language and purpose of the statute. Section 981(k)(3)
states that “[i]f a forfeiture action is instituted against funds restrained, seized, or arrested under
[§ 981(k)], the owner of the funds deposited into the account at the foreign financial institution
. . . may contest the forfeiture by filing a claim under [18 U.S.C.] section 983.” 18 U.S.C.
§ 981(k)(3). Under straightforward application of the expressio unius canon, this language
7
implies that a person who is not an “owner of the funds deposited into the account at the foreign
financial institution” may not “contest the forfeiture by filing a claim” under § 983. See Indep.
Ins. Agents of Am., Inc. v. Hawke, 211 F.3d 638, 644 (D.C. Cir. 2000) (unless “there are other
reasonable explanations for an omission in a statute,” “mention of one thing implies the
exclusion of another thing”) (quotation marks omitted). Here, the only reasonable interpretation
of the ownership requirement in § 981(k) is to preclude claims brought by persons other than
owners as defined in that section. If non-owners—and specifically foreign banks whose funds
have been seized from interbank accounts—could still bring claims, § 981(k) would not achieve
its intended purpose. Foreign banks would bring claims pursuant to § 983 and successfully
assert the innocent owner defense under § 983(d), which is not affected by the definition of
“owner” in § 981(k). See 18 U.S.C. § 981(k)(4) (definitions in § 981(k) apply only “[f]or
purposes of this subsection”). Section 981(k) does not operate by precluding foreign banks from
establishing the innocent owner defense on the merits; it operates by precluding them from filing
claims in the first place. And the legislative history of § 981(k) unequivocally confirms this
plain reading of the statute. See H.R. Rep. 107-250 at 58 (2001) (“only the initial depositor, and
not the intermediary bank, would have standing to contest” a forfeiture action against funds held
in the intermediary bank’s interbank account).
AIB’s arguments to the contrary conflate the ownership requirement in § 981(k) and the
ownership element of the innocent owner defense under § 983(d). It may be true that, in most
forfeiture cases, ownership is simply an element of an affirmative defense and not a requirement
for standing. 2 See United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F. Supp.
2
AIB has cited a number of cases holding that ownership is not required to establish Article III
standing in a forfeiture action. See Via Mat Int’l S. Am. Ltd. v. United States, 446 F.3d 1258,
1263 (11th Cir. 2006) (considering Article III standing and holding that claimant need not satisfy
8
2d 81, 91 (D.D.C. 2013) (under § 983, “[a]ny person claiming an interest in the seized property
may file a claim”) (quotation marks and alterations omitted). But § 981(k) imposes an additional
requirement on persons seeking to file claims that is not present in other contexts, and AIB must
demonstrate that it can satisfy that requirement before it is allowed to pursue its claim here.
AIB also argues that statutory standing in forfeiture cases requires only that the claimant
“has complied with the Supplemental [Rules] for Admiralty or Maritime Claims & Asset
Forfeiture Actions.” Dkt. 181 at 17. In some statutory contexts that may be enough. But none
of the cases AIB cites for the proposition that compliance with the Supplemental Rules is
sufficient to establish statutory standing involved a forfeiture action under § 981(k). See United
States v. Technodyne LLC, 753 F.3d 368, 373 (forfeiture under 18 U.S.C. § 981(a) and the
Fugitive Disentitlement Statute, 28 U.S.C. § 2466); United States v. 8 Gilcrease Lane, Quincy,
Fla. 32351, 638 F.3d 297, 298 (D.C. Cir. 2011) (forfeiture under § 981(a)); In re Am. River
Transp. Co., 728 F.3d 839, 841 (8th Cir. 2013) (considering standing to bring claim in admiralty
proceeding under the Limitation of Shipowners’ Liability Act, 46 U.S.C. §§ 30501 et seq.);
United States v. $22,050.00 U.S. Currency, 595 F.3d 318, 320 (6th Cir. 2010) (currency seized
from office during execution of a search warrant). Statutory standing is, after all, statutory—
whether it is present will depend on the particular conditions the relevant statute imposes for
filing a claim. Here, because § 981(k) bars persons or entities that are not “owner[s]” from filing
statutory standing requirements); United States v. Real Prop. Located at 5208 Los Franciscos
Way, L.A., Cal., 385 F.3d 1187, 1192 (9th Cir. 2004) (describing requirements for Article III
standing in forfeiture cases); United States v. Premises Known as 7725 Unity Ave. N., Brooklyn
Park, Minn., 294 F.3d 954, 957 (8th Cir. 2002) (same) United States v. One-Sixth Share Of
James J. Bulger In All Present And Future Proceeds Of Mass Millions Lottery Ticket No.
M246233, 326 F.3d 36, 41 (1st Cir. 2003) (“any colorable claim on the defendant property
suffices” to establish Article III standing). The parties do not contest, however, that AIB’s claim
satisfies the requirements of Article III standing.
9
claims, a prospective claimant must show that it is an “owner”—as that term is defined in §
981(k)(4)(B)—in order to establish statutory standing.
Finally, AIB is incorrect that reading § 981(k)’s ownership requirement as a requirement
of standing would render “the ownership prong of the innocent owner defense . . . superfluous.”
Dkt. 181 at 19 n.8. The substantive criteria for “ownership” under § 981(k) and § 983(d) are
different—this is why foreign banks could successfully assert the innocent owner defense before
they were denied standing to do so by § 981(k). And even if they were not, § 983 applies to
many forfeitures other than those against funds held in interbank accounts under § 981(k)—in all
of these cases, the “ownership” prong of the innocent owner defense persists with the same effect
it had before the enactment of § 981(k).
Because only “owners” may file claims under § 981(k), being an “owner” is a
requirement for statutory standing in a forfeiture action under that subsection. If AIB does not
fall within the statutory definition of an “owner,” its claim is barred by § 981(k).
C. Whether AIB Is an Owner under Section 981(k)
AIB argues that, even if § 981(k) requires ownership as an element of statutory standing,
it has met that requirement because it is an owner of all but $147,938.59 of the more than $4
million seized from its interbank account. AIB notes that the United States has identified two
AIB accounts controlled by Mr. Shadman in Afghanistan into which alleged proceeds of criminal
activity were deposited—the 7810 Account and the 8613 Account. AIB has presented evidence
that on May 10, 2013 (when the United States first seized funds from AIB’s interbank account),
the 7810 Account held $58,249.49 and the 8613 Account held $89,689.10, for a total of
10
$147,938.59. 3 Dkt. 180-2 at 116, 146. The United States does not contest the accuracy of this
evidence.
The parties disagree, however, about the significance of the balances in the 7810 and
8613 Accounts at the time of the seizure. AIB reasons that the balances show it “had discharged
. . . part of its obligation to the prior owner of the funds” by the date of the seizure and that AIB
must therefore “be deemed the owner of the funds to the extent of such discharged obligation.”
18 U.S.C. § 981(k)(4)(B)(ii)(II). If the Shadman claimants deposited the proceeds of allegedly
illegal activity into those two accounts, and those two accounts held relatively little money on the
date of the seizure, the Shadman claimants must have withdrawn the bulk of the forfeitable
proceeds before the date of the seizure.
The government takes a different view. It observes that the total amount “on deposit in
accounts controlled by or for the benefit of Mr. Shadman” on May 24, 2013, was $4,330,287.03.
Dkt. 25 at 9. The discrepancy is largely, although not entirely, explained by the fact that another
Shadman account—the 5115 Account—held $4,055,123.80 on that date. Id. The government
argues that AIB had not “discharged . . . its obligation to the prior owner of the funds” because
AIB was still obligated to Mr. Shadman or entities he controls, even though its obligations were
3
The United States calculated the amount of money it released to AIB after its initial seizures of
$10.1 million based on the balances of the Shadman Claimants’ accounts at AIB on May 24,
2013, which was the date of the second seizure from AIB’s interbank account. Dkt. 225 ¶ 87.
The Court concludes, however, that the appropriate reference date for determining the extent of
AIB’s obligation to the Shadman Claimants “prior to the restraint” (18 U.S.C.
§ 918(k)(4)(B)(ii)(II)) is May 10, 2013—the date of the first seizure from AIB’s interbank
account. See Dkt. 225 ¶ 69. The balances of the 7810 and 8613 Accounts did not change
appreciably between May 10, 2013, and May 24, 2013. See Dkt. 180-2 at 116, 146.
11
the result of the balances in an account that is separate from those to which the government has,
as of now, traced proceeds of allegedly criminal activity. 4 Dkt. 188 at 4.
The government relies almost exclusively on the First Circuit’s decision in United States
v. Union Bank for Savings and Investment (Jordan), 487 F.3d 8 (1st Cir. 2007), which is the only
precedent either party has identified that bears on this question. The facts of Union Bank are, in
relevant part, analogous to those in this case. There, the United States seized $2.8 million from
the interbank account held by Union Bank (Jordan) at the Bank of New York. Id. at 11. The
amount corresponded to the value of 124 cashier’s checks that had been deposited into two
Union Bank accounts in Jordan, which the government argued were the proceeds of a
“telemarketing fraud scheme that victimized American citizens.” Id. At the time the
government seized funds from Union Bank’s interbank account, one of these accounts had been
closed. Id. at 12. The other still had some money in it, but its balance was less than the amount
that was seized. Id. There was, however, a third account belonging to a participant in the
alleged criminal scheme; together, the second and third accounts exceeded the amount of the
seizure. Id.
Union Bank argued, among other things, that it was the owner of the seized funds to the
extent their amount exceeded the balance of the two accounts into which the cashier’s checks
had been deposited. See id. at 20. This is analogous to the argument AIB advances here:
according to both banks, a foreign financial institution “discharge[s] its obligation” to the prior
4
The government does allege in the Complaint that there was “probable cause to believe that as
of May 8, 2013 . . . [a]t least $5 million of the criminal proceeds was located in [the 5115
Account].” Dkt. 225 ¶ 85. The government does not rely on this allegation, however, to refute
AIB’s showing that the bank discharged virtually all of the obligation created by the Shadman
claimants’ deposit of allegedly criminal proceeds. At this stage, moreover, such a conclusory
allegation would not suffice to defeat AIB’s showing that it returned virtually all of the money
deposited in the 7810 and 8613 Accounts.
12
owner of allegedly forfeitable funds when the prior owner withdraws those funds from the
accounts into which they were deposited, regardless of whether the prior owner maintains
additional balances in other accounts. The First Circuit, however, rejected this view. Analyzing
the language of the exception to the ownership requirement that it relevant here, it concluded that
“[t]he obligation at issue in section 981(k) is the bank’s ‘obligation to the prior owner of the
funds,’ not the obligation under a specific account or the obligation ‘arising’ from the deposit of
forfeitable funds.” Id. (citation omitted). Thus, according to the court in Union Bank, a foreign
financial institution cannot demonstrate standing to challenge the seizure of its funds under
§ 981(k) unless its total obligations—in all accounts—to the “prior owners” of the forfeitable
funds are lower than the amount seized.
If the holding in Union Bank is correct, AIB loses. The government has seized only an
amount equal to AIB’s total obligations to the “prior owners” of the forfeitable funds, so AIB
would not “own” any of the seized funds. On the other hand, if the holding in Union Bank is
incorrect, AIB has standing to claim the vast majority of funds seized from its account because,
at the time of the seizure, relatively little money remained in the two accounts to which the
government has traced criminal proceeds.
The First Circuit’s analysis in Union Bank begins persuasively. The language of
§ 981(k)(1)(A) makes clear that once funds are “deposited into an account at a foreign financial
institution,” funds in the corresponding interbank account “up to the value of the funds deposited
into the account at the foreign financial institution may be . . . seized.” 18 U.S.C. § 981(k)(1)(A)
(emphasis added). As the First Circuit concluded, seizure from an interbank account is
contingent on the initial “deposit” in the foreign account, “not the continued presence of funds in
that account.” Union Bank, 487 F.3d at 21. Thus, from the moment that proceeds of allegedly
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criminal activity were deposited into the 7810 and 8613 Accounts, the United States was
authorized to seize an equal amount of money from AIB’s interbank accounts. The fact that Mr.
Shadman or an associated person or entity may have subsequently withdrawn funds from the
accounts that received the proceeds, moreover, had no effect on the government’s power to make
the initial seizure—if a subsequent withdrawal matters at all, it must be considered in the context
of the § 981(k)(4)(B)(ii)(II) exception.
Under that exception, the key inquiry is whether the “foreign financial institution . . . had
discharged all or part of its obligation to the prior owner of the funds” “prior to the restraint.” 18
U.S.C. § 981(k)(4)(B)(ii)(II). The First Circuit concluded that the statute speaks in terms of the
bank’s obligation to a depositor, not its obligation pursuant to the contract creating an account.
If a person opens multiple accounts at a bank, the bank’s obligation to that depositor is the sum
of the balances in those accounts. See Union Bank, 487 F.2d at 20. Under that reading, a bank
like AIB must “discharge[ ] all or part of its obligations” in all accounts to its depositor in order
to become an “owner” for purposes of § 981(k).
The next clause in the § 981(k)(4)(B)(ii)(II), however, casts doubt on an interpretation
that severs the “obligation” from the actual criminal proceeds. If a foreign bank discharges “all
or part of its obligations to the prior owner of the funds,” the bank “shall be deemed the owner of
the funds [seized in the interbank account] to the extent of such discharged obligation.” Id. If
the bank’s “obligation” refers to the sum of the balances of all accounts held by a particular
depositor, then this clause would prevent forfeiture in some cases where it seems clearly
appropriate. Imagine, for example, that a foreign depositor uses “clean” money to open an
account with $5 million. The bank’s “obligation” is $5 million. He then opens another account
at the same bank, into which he deposits $2 million of money traceable to criminal activity. The
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obligation increases to $7 million. Next, however, he withdraws $3 million from the first
account. Accepting the First Circuit’s broad definition of “obligation,” the bank has “discharged
. . . part of its obligation to the prior owner of the funds” and “shall be deemed the owner of the
funds [seized in the interbank account] to the extent of such discharged obligation”—in this
hypothetical, $3 million. If the government subsequently seizes $2 million (as it is authorized to,
pursuant to § 981(k)(1)), the bank will have statutory standing to contest the entire forfeiture, and
will prevail if it can establish it is an innocent owner of the seized funds.
This is the danger of reading “obligation” to refer to all of a depositor’s funds at a foreign
bank, rather than to the criminal proceeds whose deposit gave rise to a 981(k) forfeiture. If
“obligation” referred to all of a depositor’s funds, then “discharge[ ]” of even plainly innocent
funds would confer standing on the foreign bank “to the extent of such discharged obligation.”
18 U.S.C. § 981(k)(4)(B)(ii)(II). It is no answer, moreover, that the government could rely on
accounting techniques such as the lowest intermediate balance rule to avoid this result. See
United States v. Banco Cafetero Panama, 797 F.2d 1154, 1159 (2d Cir. 1986), superseded in
part by statute, 18 U.S.C. § 984, as recognized in In re 650 Fifth Ave. & Related Props., 777 F.
Supp. 2d 529, 571 (S.D.N.Y. 2011). 5 Those techniques allow courts to “determine[ ] under what
circumstances a ‘traceable connection’ exists between [criminal activity] and a credit balance of
an active account into which some criminal proceeds were deposited” along with untainted
funds. Id. Default accounting rules of this type, however, have no application where tainted
money is already segregated in its own account. That is, where there is no commingling of
5
The lowest intermediate balance rule, borrowed from the law of trusts, holds that a bank
account contains all criminal proceeds that have been deposited in it “so long as the account
balance never falls below” the sum of the deposits. See Banco Cafetero Panama, 797 F.2d at
1159.
15
funds, there is no basis for adopting accounting assumptions designed to differentiate otherwise
undifferentiated funds. Indeed, to disregard the fact that distinct funds have been deposited into
distinct accounts—and, instead, to focus on the identity of the depositor—risks transforming an
in rem action into an in personam suit. This is why untainted money held in separate accounts is
generally not subject to forfeiture. See, e.g., United States v. Bornfield, 145 F.3d 1123, 1137-38
(10th Cir. 1998) (reversing verdict where jury ordered forfeiture of funds from claimant’s
“business account, which,” unlike his personal account, “had no connection to” the offense at
issue).
It is difficult to believe that Congress intended the result in the hypothetical above when
it enacted § 981(k) or that, without saying so, it intended to create what is essentially an in
personam forfeiture action. To the contrary, the statute repeatedly speaks in terms of deposits
“into an account at a foreign financial institution,” including in the provision authorizing “the
owner of the funds deposited into the account at the foreign financial institution” to “contest the
forfeiture by filing a claim.” 18 U.S.C. § 981(k)(1)(A), (k)(3) (emphasis added). Under the most
natural reading of the statute, the foreign financial institution’s “obligation” is the obligation
created by the deposit of criminal proceeds into an undifferentiated “account” that gave rise to
the government’s ability to seize funds under § 981(k) in the first place.
The legislative history of the section, moreover, indicates that Congress intended to
“make a depositor’s funds in a foreign bank’s U.S. correspondent account subject to the same
civil forfeiture rules that apply to depositors[’] funds in other U.S. bank accounts.” 147 Cong.
Rec. S10547-01 (2001); see also id. (“Our bill would . . . plac[e] civil forfeitures of funds in
correspondent accounts on the same footing as forfeitures of funds in all other U.S. accounts.”).
Under the rules that generally apply to domestic asset forfeitures, “the Government may not
16
satisfy its tracing burden simply by showing that criminal funds were once deposited into a
particular account: it must use accounting principles or circumstantial evidence to show that the
particular funds in the account are traceable to criminal activity.” Stefan D. Cassella, Asset
Forfeiture Law in the United States § 11-4 (2d ed. 2013). Thus, for example, the Eleventh
Circuit in United States v. $125,938.62, 537 F.3d 1287, 1293-94 (11th Cir. 2008), held that five
certificates of deposit purchased by the claimants were not subject to forfeiture because they
were not traceable to criminal proceeds, even though the government had shown that two other
certificates of deposit purchased from the same bank were subject to forfeiture. See also
Bornfield, 145 F.3d at 1137-38. The government’s interpretation of § 981(k)—and the
interpretation embraced by the First Circuit—would reach the opposite result.
Although, read in isolation, the language of the §981(k)(4)(B)(ii)(II) exception does not
rule out the First Circuit’s interpretation, the statutory purpose of putting interbank accounts on
the same footing in forfeiture proceedings as other U.S. bank accounts strongly suggests that the
term “obligation” refers only to the foreign bank’s obligation pursuant to the contract that created
the account into which undifferentiated funds traceable to criminal activity were deposited.
The First Circuit in Union Bank gave two additional reasons it found to favor its
interpretation. First, it noted that the “‘deeming’ language in [§ 981(k)] makes the deposit of
forfeitable funds in the foreign account, not the continued presence of funds in that account, the
trigger for a forfeiture from the interbank account.” 487 F.3d at 20-21. That is true, but it does
not follow that there “would have been no reason to craft such language if Congress had intended
to limit forfeitures to the amounts in particular accounts.” Id. at 21. The statute as written
creates a rebuttable presumption that illicit funds deposited in a foreign bank remain there. A
foreign bank can assert a claim for the seized funds only when it “establishes[ ] by a
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preponderance of the evidence” that it had returned the funds to its depositor at the time of the
seizure. 18 U.S.C. § 981(k)(4)(ii)(II). If Congress had imposed a requirement to prove the
contemporaneous presence of criminal proceeds for the seizure itself, the government would
have borne the initial burden to establish probable cause that illicit funds remained in a given
bank account before the funds could be seized. Congress, however, structured the statute to
lower impediments to a broad initial seizure of funds and to shift to foreign institutions the
burden to show that they have returned illicit proceeds to their depositors. This feature of
§ 981(k) is hardly unreasonable, and it does nothing to bolster the First Circuit’s interpretation of
the section.
Second, the First Circuit concluded that language in the House Report “support[s] [its]
view that ownership is to be measured in terms of the bank’s relationship to a depositor, and not
in terms of its relationship to particular accounts.” 487 F.3d at 21. It cites the House Report’s
statement that “section 981(k) would ‘treat the deposit in the correspondent account as a debt
owed directly to the depositor, and not as a debt owed to the respondent bank.’” Id. (citing H.R.
Rep. 107-250 at 58) (alterations omitted). But the fact that “no mention is made of the foreign
account” in this sentence does not mean that the Committee took a position on either side of the
question facing the Court here. The parties do not disagree that funds held in interbank accounts
are treated as “owed directly to the depositor”—the question is what a foreign bank must do to
“discharge[ ] its obligation” to its depositor such that it may bring a claim. 18 U.S.C. §
981(k)(4)(B)(ii)(II). And the court in Union Bank itself acknowledged that “[t]here appears to be
no legislative history directly addressing the meaning of the term ‘obligation’” in
§ 981(k)(4)(B)(ii)(II). 487 F.3d at 21. This Court concludes that the most relevant portions of
the legislative history are the floor statements indicating that Congress intended to put interbank
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and other U.S. deposits on equal footing in forfeiture cases—and that legislative purpose
counsels in favor of AIB’s interpretation here. See 147 Cong. Rec. S8913-01 (Sen. Levin)
(purpose of § 981(k) to “make a depositor’s funds in a foreign bank’s U.S. correspondent
accounts subject to the same civil forfeiture rules that apply to depositors’ funds in other U.S.
bank accounts”); id. (“[t]here is just no reason foreign banks should be shielded from forfeitures
when U.S. banks would not be”).
It is true that this interpretation of the § 981(k)(4)(B)(ii)(II) exception would not in every
case prevent determined money launderers from shielding their funds from forfeiture. A
criminal could deposit funds in one account, then withdraw the funds and deposit them in a
different account in the same bank. But this strategy is already available to criminals—they
simply must use a different foreign bank for the second deposit of funds. And the government
can overcome such efforts at evasion by tracing the criminal proceeds from the first account to
the second account.
Finally, the government contends that “to the extent that AIB . . . challenges the
government’s tracing of the defendant assets,” AIB is prematurely arguing the merits of its claim
before it establishes standing to do so. Dkt. 188 at 5 n.1. But the Supreme Court has recognized
that “the merits inquiry and the statutory standing inquiry often overlap;” in fact, “depending
upon the asserted basis for lack of statutory standing, they are sometimes identical, so that it
would be exceedingly artificial to draw a distinction between the two.” Steel Co. v. Citizens for
a Better Env’t, 523 U.S. 83, 97 n.2 (1998) (quotation marks and citation omitted). The hurdle
Congress erected for a foreign bank seeking to establish standing under § 981(k) necessarily
raises the issue of tracing the funds deposited in the foreign bank’s account, and AIB should not
be denied the opportunity to clear this hurdle simply because it must raise a “merits issue” to do
19
so. The standing inquiry at this stage, moreover, is necessarily more limited than a merits-stage
traceability analysis after the parties have a full opportunity for discovery. As AIB and the
government develop the factual record in this matter, they may well uncover evidence that
prompts the Court to revisit the issue of statutory standing. The district court in Union Bank, for
example, addressed the statutory standing issue on cross-motions for summary judgment after
the parties had engaged in discovery. 487 F.3d at 13. The Court simply concludes that, for
present purposes, AIB has made a sufficient showing to remain in court.
For the reasons above, the Court concludes based on the record before it that AIB is an
“owner” of the funds it discharged from the two accounts into which the government has traced
proceeds of allegedly criminal activity—the 7810 Account and the 8613 Account. 6 Because AIB
has shown that the balances of those accounts at the time the United States first seized funds
from its interbank account was $147,938.59, and the government has not disputed that
evidentiary showing, AIB has standing to challenge the forfeiture of funds from its interbank
account to the extent the forfeiture exceeds that amount.
D. AIB’s Constitutional Arguments
AIB has also raised arguments under the Due Process Clause of the Fifth Amendment
and the Excessive Fines Clause of the Eighth Amendment. The Excessive Fines Clause
argument is admittedly premature, see Dkt. 181 at 27-28, and, because AIB will remain involved
in this litigation, it will have an opportunity to raise that argument if and when it becomes ripe.
Because the Court concludes that AIB lacks statutory standing to challenge a portion of the
6
AIB asserts that on May 24, 2013, it held funds in eleven separate bank accounts “believed to
be controlled or held for the benefit of Shadman.” Dkt. 181 at 9. The United States, however
has not alleged or shown that any of the accounts other than those addressed in this Opinion held
criminal proceeds.
20
seizure of funds from AIB’s interbank account, however, the Court must consider whether that
ruling violates AIB’s due process rights.
AIB argues that § 981(k) deprives it of property—the funds seized from its interbank
account—and that in this case the deprivation is permanent because AIB has “no way to make
itself whole.” Dkt. 181 at 26. It then asserts that striking its claim “denies it of any opportunity
to be heard on the merits of this deprivation.” Id. AIB’s position is that § 981(k) is
unconstitutional as applied to a foreign bank that has no recourse against a foreign depositor
once its funds are seized, because that bank will suffer an actual loss if the forfeiture is sustained.
In response, the government first questions whether AIB, as a foreign entity, is “entitled
to due process protection.” Dkt. 186 at 6-7 (citing United States v. All Assets Held in Account
No. 80020796, ___ F. Supp. 3d ___, 2015 WL 1285791, at *7 (D.D.C. 2015)). That proposition
is indeed doubtful in civil forfeiture cases in which the seized property is located abroad. See
Account No. 80020796, 2015 WL 1285791, at *6 (“defendant properties are investment
portfolios located in the United Kingdom”); People’s Mojahedin Org. of Iran v. U.S. Dep’t of
State, 182 F.3d 17, 22 (D.C. Cir. 1999) (“[a] foreign entity without property or presence in this
country has no constitutional rights”) (emphasis added). But the government cites no case
holding that a foreign national with funds on deposit in a U.S. bank is not entitled to due process
before the government may seize those funds. Because the property at issue here was money
located in U.S. bank accounts, the Court concludes that AIB is entitled to due process protections
in this action. See Dkt. 225 ¶ 8 (defendant funds held in New York).
The parties agree that if AIB is entitled to assert a due process argument here, its claim
should be evaluated under the framework set out in Matthews v. Eldridge, 424 U.S. 319, 335
(1976). Under Matthews, the Court must consider three factors: “[f]irst, the private interest that
21
will be affected by the official action; second, the risk of an erroneous deprivation of such
interest through the procedures used, and the probable value, if any, of additional or substitute
procedural safeguards; and finally, the Government's interest, including the function involved
and the fiscal and administrative burdens that the additional or substitute procedural requirement
would entail.” Id.
It is clear that AIB’s “private interest” is significant. Money that belongs to AIB has
been seized from its interbank account. Under most circumstances, “in order to comport with
fifth amendment due process, an individual must be afforded some kind of hearing before being
permanently deprived of a property interest.” United W. Bank v. Office of Thrift Supervision,
793 F. Supp. 2d 357, 364 n. 2 (D.D.C. 2011) (quotation marks omitted) (citing Cleveland Bd. of
Educ. v. Loudermill, 470 U.S. 532, 542 (1985)). Here, § 981(k) does provide certain process to a
foreign bank. First, the foreign bank can attempt to show that it is the “owner” of the seized
assets either because the bank’s own alleged “wrongdoing” is at issue, 18 U.S.C.
§ 981(k)(4)(B)(ii)(I), or because it had “discharged all or part of its obligation to the prior owner
of the funds” before the interbank assets were seized, id. § 981(k)(4)(B)(ii)(II). For due process
purposes, moreover, it makes little difference whether these inquiries are framed as jurisdictional
or merits issues—in this case, for example, regardless of the label, AIB had access to the Court
to show that all or a substantial portion of its obligation to the prior owner were discharged
before the interbank assets were seized. Second, where the obligation has not been discharged,
the foreign bank will typically have recourse against the prior owner’s deposits in the event the
corresponding interbank deposits are forfeited.
The Court recognizes that all of this is cold comfort to a bank, like AIB, that discharged a
portion of its obligation to the prior owner of the funds after the interbank funds were seized
22
because the government where the bank is located required that it do so. The United States
argues that, at least on the facts here, AIB might have protected itself from this dilemma by
refusing to accept further deposits from the Shadman Claimants after it was on notice that the
United States sought to forfeit the funds. Dkt. 188 at 10. But, even putting that contention aside,
the Court is not convinced that the dilemma AIB faces necessarily gives rise to an inherent due
process problem. Indeed, Congress recognized that just this type of problem might arise, and it
provided a procedure to address it. Under § 981(k)(1)(B), “[t]he Attorney General, in
consultation with the Secretary of the Treasury, may suspend or terminate a forfeiture under this
section if the Attorney General determines that a conflict of law exists between the laws of the
jurisdiction in which the foreign institution . . . is located and the laws of the United States with
respect to liabilities arising from the . . .seizure . . . of such funds, and that such suspension or
termination would be in the interest of justice and would not harm the national interests of the
United States.”
Here, AIB petitioned the Attorney General to suspend the forfeiture under this provision,
and the Attorney General declined to do so. Dkt. 169 ¶ 27. But the fact that AIB was not
successful, or the fact that the Attorney General’s determination must be based on both the
“interest of justice” and the “national interest of the United States,” does not mean that AIB was
denied a fair opportunity to be heard. Nor does due process always require access to the courts,
as opposed to consideration by the executive branch. That is particularly true in a context like
this one, where the “conflict of law” analysis likely implicates issues of foreign policy better left
to the political branches. See Haig v. Agee, 453 U.S. 280, 292 (1981) (“[m]atters intimately
related to foreign policy and national security are rarely proper subjects for judicial
intervention”); cf. Lin v. United States, 561 F.3d 502, 507 (D.C. Cir. 2009) (“[d]ecision-making
23
in the areas of foreign policy and national security is textually committed [by the Constitution] to
the political branches”) (citation and quotation marks omitted). Here, there can be little doubt
that the executive branch is in a far better position than the Court to assess whether
responsibility, if any, for AIB’s dilemma is properly placed on the U.S. or Afghan government,
whether a diplomatic solution is available, and the international consequences of accepting
AIB’s request for relief. The fact that courts, at times, leave judgments of this type to the
political branches does not, standing alone, equate with a due process violation. See, e.g., Lin,
561 F.3d at 503-04 (dismissing as nonjusticiable lawsuit asserting that the United States
exercised de jure sovereignty over Taiwan and residents of Taiwan were therefore United States
nationals).
That, however, does not end the inquiry. The next factor is “the risk of an erroneous
deprivation of such interest through the procedures used, and the probable value, if any, of
additional or substitute procedural safeguards.” Matthews, 424 U.S. at 335. It is undeniable that
there is a risk of an erroneous deprivation of a bank’s property, even in light of the available
procedures described above. 7 Some banks—potentially including AIB—will find themselves
unable to satisfy the “owner” requirement and assert a claim, unable to recover against their
foreign depositors, and unable to convince the Attorney General to suspend the forfeiture. To
the extent these banks suffer actual losses and have meritorious defenses that they will be
7
Additionally, the Court notes that the government has moved to strike the Shadman Claimants’
claim as to the funds at issue in this motion on the theory that, because the Shadman Claimants
have “access to and control over” the funds in their accounts at AIB, they have suffered no
concrete injury and do not have Article III standing. Dkt. 234 at 7. Although the Court
expresses no view on the merits of that motion, it warrants mention that, if the Court were to
strike the claims of both AIB and the Shadman Claimants as to these funds, it is possible that
there would be no subsequent merits stage at which traceability could be contested because there
would be no claimant with standing to raise that argument. This possibility further contributes to
the risk of an erroneous deprivation of property.
24
prevented from asserting, that deprivation of property will be erroneous. The precise extent of
this risk is not clear, and depends in significant part on the banking and contract laws of foreign
nations and how the Attorney General exercises her suspension authority. It is clear, however,
that the risk could be eliminated if banks were given statutory standing to file a claim whenever
they established that they were unable to recover the value of seized funds from their initial
depositors.
Allowing banks to participate as claimants whenever they show that they have been
unable to recover offsetting funds from foreign depositors, however, would frustrate the
congressional purpose underlying § 981(k). Criminals seeking to deposit funds abroad would
gravitate toward nations whose laws would prohibit banks from offsetting for seized funds;
banks in those jurisdictions might be more willing to accept suspicious deposits, knowing that
they no longer had skin in the game; and the government would frequently lack recourse against
intrabank accounts used to facilitate foreign transactions. The net effect would be to reopen the
loophole § 981(k) was intended to close. It is true that the presence of a significant public
interest does not, in itself, excuse the government of responsibility to provide due process
protections to those whom it deprives of property. But here, where the government interest is
substantial, where the owners of seized property have a number of procedural avenues open to
them, and where further procedures that would reduce the risk of erroneous deprivation would
severely harm the public interest, the Court cannot conclude that application of § 981(k) violates
AIB’s due process rights. 8
8
The Court does not and need not decide whether adopting the government’s interpretation of
§ 981(k) to bar foreign banks from challenging forfeitures in a broader set of circumstances
would affect this due process analysis.
25
III. CONCLUSION
For the foregoing reasons, the motion to strike AIB’s claim is GRANTED in part and
DENIED in part. The motion is GRANTED as to the $147,938.59 representing the amount that
remained in the 7810 Account and the 8613 Account on May 10, 2013. It is DENIED as to all
other funds claimed by AIB. This denial, however, is without prejudice to the government’s
right to show that additional funds on deposit at AIB on May 10, 2013, are traceable to criminal
activity. An appropriate Order accompanies this Memorandum Opinion.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: September 14, 2015
26