487 F.3d 8 (1st Cir. 2007), 06-1187, United States v. Union Bank for Savings & Investment (Jordan)

Docket Nº:06-1187, 06-1423, 06-1444.
Citation:487 F.3d 8
Party Name:UNITED STATES, Plaintiff, Appellee/Cross-Appellant, v. UNION BANK FOR SAVINGS & INVESTMENT (JORDAN), Claimant, Appellant/Cross-Appellee, Reuven Krauzer, Claimant, Appellant, The Bank of New York by the Union Bank for Savings and Investments Jordan, Funds on Deposit in Account No. 8900057173 up to the Value of $2,343,905.33, et al., Defendants-In-Re
Case Date:May 18, 2007
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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487 F.3d 8 (1st Cir. 2007)

UNITED STATES, Plaintiff, Appellee/Cross-Appellant,

v.

UNION BANK FOR SAVINGS & INVESTMENT (JORDAN), Claimant, Appellant/Cross-Appellee,

Reuven Krauzer, Claimant, Appellant,

The Bank of New York by the Union Bank for Savings and Investments Jordan, Funds on Deposit in Account No. 8900057173 up to the Value of $2,343,905.33, et al., Defendants-In-Rem.

Nos. 06-1187, 06-1423, 06-1444.

United States Court of Appeals, First Circuit.

May 18, 2007

Heard Jan. 9, 2007.

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Jeffrey C. Spear, with whom Martha Van Oot and Orr & Reno, P.A. were on brief, for appellant Union Bank for Savings & Investment (Jordan).

Christopher H.M. Carter, with whom Hinckley, Allen & Snyder, LLP was on brief, for appellant Reuven Krauzer.

Gretchen Leah Witt, Assistant United States Attorney, with whom Jean B. Weld, Assistant United States Attorney, and Thomas P. Colantuono, United States Attorney, were on brief, for appellee.

Before BOUDIN, Chief Judge, LYNCH and LIPEZ, Circuit Judges.

LYNCH, Circuit Judge.

This case raises a novel issue of the proper construction of 18 U.S.C. § 981(k), a civil forfeiture provision concerned with interbank accounts of foreign banks, which was added as part of the USA PATRIOT Act, Pub.L. No. 107-56, § 319(a), 115 Stat. 272, 311-12 (2001).

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Section 981(k) provides for the forfeiture of amounts in interbank accounts held by a foreign bank at banks in the United States when forfeitable funds are deposited into an account at the foreign bank. 18 U.S.C. § 981(k)(1)(A). Frequently, however, foreign banks are innocent of the underlying wrongdoing that forms the basis for the forfeiture. As a result, if a foreign bank were allowed to file a claim for amounts seized from its interbank account, as was the case before enactment of section 981(k), it would often succeed in recovering the seized amounts as an "innocent owner" of the funds, see id. § 983(d), even when the foreign depositor might not qualify as an innocent owner.

To avoid this result, Congress in enacting section 981(k) also provided that generally the foreign depositor, and not the foreign bank, is considered an "owner" of the seized funds, eligible to challenge the forfeiture on innocent owner or other grounds. See id. § 981(k)(4)(B)(i). An exception to this designation of ownership applies, however, and the foreign bank is the owner of the funds, to the extent that the bank has "discharged all or part of its obligation to the prior owner of the funds" by the time of the seizure. Id. § 981(k)(4)(B)(ii)(II). It is this exception that is at the heart of this case.

In this case, the United States seized over $2.8 million from an interbank account held by Union Bank for Savings & Investment (Jordan) at the Bank of New York, claiming that, under section 981(k), these funds corresponded to proceeds of a Canadian telemarketing fraud conspiracy. A parallel indictment charged sixteen defendants with violations of federal RICO, mail fraud, and wire fraud statutes in that conspiracy to defraud more than eighty Americans, many of them elderly widows and widowers. Proceeds of the fraud, in the form of cashier's checks sent by those defrauded, had been eventually deposited into two accounts at a branch of Union Bank (Jordan) in Ramallah in the West Bank, one in the name of Samir Esseileh and the other in the name of his brother, Mohammed Ghaleb Esseileh. In response to the seizure, Union Bank (Jordan), but not the Esseilehs, claimed ownership of the seized funds, arguing that the exception at section 981(k)(4)(B)(ii)(II) applied. The Bank of New York, the bank at which the interbank account was located, is not a party in these proceedings.

In ruling on cross-motions for summary judgment, the district court held that the "obligation" referred to in section 981(k)(4)(B)(ii)(II) is the obligation of a bank to repay amounts on deposit. In so holding, the court rejected the contention of Union Bank (Jordan) that the discharge of its obligations should be measured against its ability to obtain recourse from its depositors under banking law. We agree with the district court on this point; the interpretation posited by Union Bank (Jordan) is contrary to the language of the statute and would undermine Congress's intent in enacting section 981(k).

The district court also held that while the relevant obligations are not limited to those arising from the specific account into which the forfeitable funds were deposited, "obligations [that] do not arise from and are not in any way connectable to the obligation that arose from the receipt of the forfeitable funds" do not count as obligations under section 981(k). The court based this on the view that the principle in section 984(a)(2) limiting the forfeiture of substitute property to that found in the "same place or account" should inform the interpretation of the term "obligation" in section 981(k)(4)(B)(ii)(II). On this point, we do not agree. In attempting to chart this middle course between the government's and the bank's positions, the district

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court borrowed concepts relevant to determining the forfeitability of funds in ordinary accounts to decide the question of ownership of funds in interbank accounts. Both the language and the legislative history of section 981(k) demonstrate that Congress did not intend to apply analogous substantive limits to forfeitability in determining ownership under section 981(k). Thus, we hold that for purposes of section 981(k), obligations include amounts in any account held at the time of the seizure by anyone who was an owner of the funds at the time they were deposited.

Union Bank (Jordan) makes other arguments, which were rejected by the district court, and which we also reject. We reject the bank's claim that the forfeiture is excessive under the Eighth Amendment because we find the forfeiture is not punitive relative to Union Bank (Jordan). We also hold that the district court did not abuse its discretion in requiring a joint statement of undisputed material facts for purposes of the cross-motions for summary judgment.

In addition, we find no abuse of discretion in the district court's striking as untimely the claim of Reuven Krauzer, an earlier holder of the cashier's checks at issue, who also appeals.

I.

The facts we describe are drawn from the Joint Statement of Undisputed Material Facts filed by the government and Union Bank (Jordan), or are otherwise undisputed, except as noted.

Union Bank (Jordan) was chartered by the Central Bank of Jordan in 1990 and has its main branch in Amman, Jordan. Since 1995, it has operated a branch in Ramallah, in the West Bank in the Palestinian territories.

On October 18, 2002, the United States seized $2,343,905.33 from a U.S. interbank account held by Union Bank (Jordan) at the Bank of New York, as part of a seizure of over $4.5 million from the interbank accounts of a number of different foreign banks. The government simultaneously filed a complaint against the seized funds in federal district court in New Hampshire for forfeiture in rem. On November 19, 2003, the United States seized an additional $501,228.18 from the same Union Bank (Jordan) account at the Bank of New York, of which $30,000.00 was subsequently released, for a total seizure from this interbank account of more than $2.8 million. Proceedings under the second seizure were consolidated into the first.

This $2.8 million corresponded to the combined face value of 124 cashier's checks drawn on U.S. banks and deposited into customer accounts at Union Bank (Jordan). The government alleged that these cashier's checks (and others corresponding to the balance of the $4.5 million seized) were forfeitable as the proceeds of a Canadian telemarketing fraud scheme that victimized American citizens. The perpetrators of the scheme convinced dozens of individuals to send cashier's checks of $5,000 to $100,000 or more to designated post office boxes in Montreal, purportedly to cover expenses associated with large prizes from a Canadian sweepstakes or lottery.

After receiving the checks, the perpetrators of the fraud sold them to a restaurant owner in Montreal in exchange for Canadian currency. He in turn sold the cashier's checks to a person with connections in Israel. The 124 checks at issue in this case were all eventually sold to Reuven Krauzer, a money changer in Jerusalem.

Krauzer then sold the checks to Mohammed Ghaleb Esseileh. Mohammed Ghaleb Esseileh and his brothers Samir

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and Talal, together with other family members, operated a money exchange business in East Jerusalem. At times relevant here, various members of the Esseileh family maintained bank accounts at Union Bank (Jordan) in the course of their money exchange business; the business as a whole did not have a business account at the bank.

Each of the 124 cashier's checks was deposited into one of two Esseileh accounts at Union Bank (Jordan), both of which the Esseilehs used for the deposit of checks received in the ordinary course of business. The first account, opened on February 28, 1996, was in Samir's name, although, pursuant to a written agreement with the bank, his brother Mohammed Ghaleb also had authority on this account, including the authority to make deposits and withdrawals. This account was closed on February 18, 2002, before the date of the seizures in this case.

The second account, opened sometime in 2001, was in Mohammed Ghaleb's name. On January 14, 2002, the bank approved a credit facility on this account, allowing for the deposit of U.S. dollar instruments to the account without prior bank approval. Samir and Talal were both guarantors on this credit facility, jointly liable with Mohammed Ghaleb...

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