Medina-Rodríguez v. $3,072,266.59 in U.S. Currency

• Citation: 471 F.Supp.3d 465
• Decision Date: 09 July 2020
• Docket Number: Civil No. 19-1236 (FAB)
• Parties: Norberto MEDINA-RODRÍGUEZ, Plaintiff, v. $3,072,266.59 IN UNITED STATES CURRENCY, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

471 F.Supp.3d 465

Norberto MEDINA-RODRÍGUEZ, Plaintiff,

v.$3,072,266.59 IN UNITED STATES CURRENCY, et al., Defendants.

Civil No. 19-1236 (FAB)

United States District Court, D. Puerto Rico.

Signed July 9, 2020

OPINION AND ORDER

BESOSA, District Judge.

Claimants Foreign Exchange Bank Corporation ("Foreign Exchange Bank"), Guillermo Guiñazú ("Guiñazú"), and José ManuelO Guiñazú (collectively, "claimants") move to dismiss the verified amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket No. 28.) For the reasons set forth below, the motion to dismiss is DENIED .

I. Background

The United States seeks to appropriate $5,066,920.26 from three brokerage accounts, asserting that this property is subject to civil forfeiture. (Docket No. 1.) According to the United States, Guiñazú committed wire fraud and laundered money on behalf of clients in "high risk" jurisdictions. Id. at p. 2. Commission of the wire fraud and money laundering offenses required access to the "U.S. financial system," a "critical [component] of [Guiñazú’s] business model." Id. at pp. 2–3. By submitting false information to correspondent financial institutions, Guiñazú and his former wife, Amelia Shuford ("Shuford"), channeled funds from client accounts to the United States through the Federal Reserve Bank.¹

A. Federal Reserve Banks, Master Accounts and Fedwire

Congress enacted the Federal Reserve Act in 1913 to "provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, and to afford means of discounting commercial paper to establish a more effective supervision of banking in the United States." 63 P.L. 43, 38 Stat. 261 (1913); see TNB USA Inc. v. FRB of N.Y., Case No. 18-7978, 2020 WL 1445806 at *1, 2020 U.S. Dist. 62676 at *1-2 (S.D.N.Y. Mar. 25, 2020) ("The Federal Reserve System is the Nation's central bank. It consists of twelve Federal Reserve banks across the country.").² Federal Reserve Banks "[conduct] the nation's monetary policy" and "[provide] certain financial services to depository institutions." Federal Reserve System Publication, Roles and Responsibilities of Federal Reserve Directors, p. 17 (available at https://www.federalreserve.gov/publications.htm.) (last visited July 9, 2020); see 12 U.S.C. § 225.

The Federal Reserve Wire Transfer Network ("Fedwire") is a financial service offered by the Federal Reserve Bank, "a nationwide electronic network linking approximately 7,000 depository financial institutions (banks) throughout the United States ... through which trillions of dollars are transferred each day." Fund Transfers Made Through Fedwire Funds Service, 1 The Law of Electronic Transfers § 3.04 (2019); see 12 C.F.R. § 210.26 (defining Fedwire as "the funds transfer system owned and operated by the Federal Reserve Banks ... for the transmission and settlement of payment offers").

Consumer banks utilize Fedwire to transfer funds from one master account to another pursuant to a volume-based pricing structure.³ "A master account is, put simply, a bank account for banks. It gives the depository institutions access to the Federal Reserve System's services, including its electronic payments system." Fourth Corner Credit Union v. FRB, 861 F.3d 1052, 1053 (10th Cir. 2017) ; see 31 C.F.R. § 240.2 ("Master Account means the record of financial rights and obligations of an account holder at the Federal Reserve Bank with respect to each other, where opening, intraday, and closing balances are determined."). Fedwire is available only to "consumer banks with an account at a Federal Reserve Bank." Organization JD Ltda. v. United States DOJ, Case No. 92-3690, 1996 WL 162271 at *1, 1996 U.S. Dist. LEXIS 4347 at *4 (E.D.N.Y. Apr. 2, 1996). Generally, wire transfers "are conducted through banks on their own behalf or on the behalf of other financial service institutions and corporate and consumer bank customers." High Risk Activity, 2 Compliance Officers Mgmt. Manual § 24.24 (2020).

B. The Relevant Parties and Financial Institutions⁴

Guiñazú is the president and majority shareholder of MCS International Bank Inc. ("MCS") and Foreign Exchange Bank, exercising "complete, unfettered control over" both organizations. (Docket No. 18 at p. 5.) Shuford served on the board of directors at both institutions. Id. at p. 6.

MCS is an international financial services entity ("IFSE") incorporated in the U.S. Virgin Islands and regulated by the Office of the Lieutenant Governor, Division of Banking and Insurance. Id. at p. 5.⁵ Foreign Exchange Bank is an international financial entity ("IFE"), incorporated in Puerto Rico and regulated by the Office of the Commissioner of Financial Institutions. Id. ⁶ Neither MCS nor Foreign Exchange Bank "had a master account at a Federal Reserve Bank [or could send] wire transfers without using a correspondent bank account." Id.

Cooperative A is a financial institution in San Juan, Puerto Rico, a master account holder with access to Fedwire. Id. at p. 6. Financial Institution #1 is located in North Carolina, "had a master account at a Federal Reserve Bank, and could send and receive wire transfers." Id. at p. 6. Financial Institution #2 is located in the U.S. Virgin Islands. Id. at p. 7. Unlike Cooperative A and Financial Institution #1, Financial Institution #2 "did not have a master account at a Federal Reserve Bank." Id.

C. MCS Transferred Client Funds from Foreign Countries to the United States

Guiñazú opened a correspondent bank account at Financial Institution #2 and Cooperative A on behalf of MCS in 2015 and 2016, respectively. Id. at p. 7. During the application process, Guiñazú submitted false statements to Cooperative A "as part of a fraudulent scheme." Id. at pp. 7–8. For instance, he falsely claimed that Person #1 served as the chief compliance officer for MCS. Id. at p. 8.⁷ Cooperative A approved Guiñazú and Shuford's account application based on this misrepresentation. Id.

Clients transferred funds to the MCS operational account. Id. To wire funds elsewhere, clients "contact[ed] MCS, not Cooperative A, with wire instructions." Id. Subsequently, MCS instructed Cooperative A to perform the wire transfer. Id. By acting as an intermediary between MCS and Cooperative A, Guiñazú and Shuford concealed the source of client funds and "limited potential scrutiny" regarding Bank Secrecy Act and anti-money laundering regulations. Id. From September 2017 to August 2017, MCS deposited $38,941,928.53 and withdrew $36,630,117.96 from the Cooperative A account. Id. at p. 9. Cooperative A wired approximately $13,683,527.46 to Switzerland, Argentina, Bolivia, Panamá, the Dominican Republic, Canada, Great Britain, México, Malaysia, Perú, Uruguay, Spain and businesses "owned or affiliated with other members of Guiñazú’s family" on behalf of MCS. Id. But for the fraudulent scheme "to obtain the MCS Operational Account at Cooperative A, Guiñazú and MCS could not have reliably engaged in its business, which consisted of executing a large volume of wire transfers." Id.

D. Diversion of "Illicit Proceeds"

Guiñazú diverted funds from the Cooperative A account to satisfy membership and wire-transfer fees, constituting "illicit proceeds of wire fraud." Id. at p. 10. The United States alleges that "Guiñazú siphoned a total of approximately $6,732,403.37." Id. at p. 10. He then transferred approximately $1,400,000.00 from the Cooperative A account to Financial Institution #2 "to pay personal and MCS expenses." Id.

Guiñazú, Shuford and MCS opened E*Trade Accounts #1, #2, and #3 between 2014 and 2017. Id. at p. 11. E*Trade, a securities brokerage firm, "was required to comply with the BSA, had a master account at a Federal Reserve Bank, and could send and receive wire transfers." (Docket No. 18 at p. 6.) An E*Trade representative requested that Guiñazú and Shuford provide a "corporate resolution" "signed by all the directors indicating it is okay for MCS to enter into a fee based professionally managed account relationship." Id. Guiñazú and Shuford submitted a corporate resolution that "was false, inaccurate, and misleading in several ways," i.e. stating that Person #1 served as the chief compliance officer and representing "that MCS was regulated by the Federal Reserve Bank." Id. E*Trade Accounts #1 and #2 "commingled Guiñazú’s personal funds, MCS and [Foreign Exchange Bank] capital, illicit proceeds obtained from defrauding E*Trade and Cooperative A, and MCS client funds." Id. at p. 13. The dividends, interest, and capital gains acquired from the E*Trade accounts "[paid] MCS expenses." Id.

Cooperative A closed the MCS account on August 14, 2017, depriving Guiñazú and Shuford of "a reliable way to wire [client funds]." Id. at p. 14. On this same day, Shuford opened an account on behalf of Foreign Exchange Bank at Financial Institution #1. Id. Foreign Exchange Bank "would be taking over for MCS's business and clientele," transitioning operations from the U.S. Virgin Islands to Puerto Rico. Id. Subsequently, the Foreign Exchange Bank account at Financial Institution #1 received $2,233,378.53 in wire transfers from the MCS administrative account at Financial Institution #2. Id. These transactions were "suspicious" because they "lacked an apparent business purpose." Id. at p. 15. Financial Institution #1 requested that Foreign Exchange Bank disclose its BSA and anti-money laundering compliance policies, account statements and identification of its beneficial owners." Id. Foreign Exchange Bank purportedly presented false information, including the misrepresentation that it held a master account at a Federal Reserve Bank. Id. Financial Institution #1 closed the Foreign Exchange Bank account on August 25, 2017, issuing Shuford a check in the amount of $2,233,478.53. Id. Guiñazú attempted to deposit the check in the MCS account at E*Trade, but was informed that the instrument "had to be payable to MCS." Id. Consequently, Guiñazú changed the E*Trade account holder from MCS to Foreign Exchange Bank by ...