United States v. $6,999,925.00 of Funds Associated With Velmur Mgmt. Pte Ltd.

• Decision Date: 23 March 2020
• Docket Number: Civil Action No.: 17-1705 (RC)
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. $6,999,925.00 OF FUNDS ASSOCIATED WITH VELMUR MANAGEMENT PTE LTD, et. al., Defendants.
• Court: U.S. District Court — District of Columbia

UNITED STATES OF AMERICA, Plaintiff, v. $6,999,925.00 OF FUNDS ASSOCIATED WITH VELMUR MANAGEMENT PTE LTD, et. al., Defendants.

Civil Action No.: 17-1705 (RC)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

March 23, 2020

Re Document No.: 41

MEMORANDUM OPINION

GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT

I. INTRODUCTION

Plaintiff United States of America ("the Government") seeks forfeiture from Transatlantic Partners Pte. Ltd. ("Transatlantic") for using the United States banking system in order to make transactions on behalf of sanctioned North Korean entities in violation of federal law. Transatlantic made an initial appearance in this matter but has since failed to respond to the Government's complaint. As a result, the Government asks the Court to enter default judgment against Transatlantic. For the reasons set forth below, the Court finds that the Government's factual allegations are sufficient to show that proper notice of this action was provided to interested parties, that the funds sought were the funds involved in Transatlantic's offenses, and that Transatlantic is liable for the offenses for which it is charged. Thus, the Court grants the Government's motion for default judgment.

II. BACKGROUND

This case stems from an FBI investigation highlighting North Korea's pattern of deploying state-controlled front companies to execute commodities contracts that would otherwise be barred by international sanctions. Compl. ¶¶ 1, 65-69, ECF No. 1. The Government alleges that Defendant Transatlantic acted as an intermediary in this illicit scheme by using the United States banking system to wire funds that were used as prepayment for gasoil shipments to North Korea. See id. ¶¶ 55-56. The Government argues that this activity violates both the International Emergency Economic Powers Act ("IEEPA") and the federal anti-money laundering statute. The Court will briefly discuss each of those laws and then explain the factual background in more detail.

A. Statutory and Regulatory Framework

The Government cites two provisions under which forfeiture is sought: 18 U.S.C. § 981(a)(1)(C), which permits forfeiture of property traceable to IEEPA violations, and 18 U.S.C. § 981(a)(1)(A), which permits forfeiture of property related to money laundering. See Compl. ¶¶ 7, 100, 104; Mem. Supp. Pl.'s Motion for Def. J. 12-14, ECF No. 41. The Court will first describe the International Emergency Economic Powers Act and then turn to the anti-money laundering statute.

1. The International Emergency and Economic Powers Act

IEEPA authorizes the President to "deal with any unusual and extraordinary threat . . . to the national security, foreign policy, or economy of the United States" that comes from outside of the United States. 50 U.S.C. § 1701(a). This includes the ability to "investigate, regulate, or prohibit" certain transactions, including "any transactions in foreign exchange." 50 U.S.C. § 1702(a)(1)(A). Pursuant to this authority, President Bill Clinton issued Executive Order 12,938,which established that the proliferation of Weapons of Mass Destruction ("WMDs") constitutes an "unusual and extraordinary threat" under IEEPA. Exec. Order No. 12,938, 59 Fed. Reg. 58,099 (Nov. 14, 1994). President Clinton identified several North Korean entities as WMD proliferators and imposed sanctions on North Korea as a result of that finding. Compl. ¶ 16. A subsequent executive order, issued over a decade later, denied access to the United States banking system to anyone designated as a "proliferator" of WMDs. Exec. Order No. 13,382, 70 Fed. Reg. 38,567 (June 28, 2005).

The Treasury Department's Office of Foreign Assets Control places individuals determined to be proliferators on the Specially Designated Nationals and Block Persons List (the "SDN" list). 31 C.F.R. §§ 544.201, 544.308. There are several consequences to a designation by OFAC. For example, Treasury regulations "block"¹ any property interests, including money and other financial instruments, belonging to or used in support of individuals and entities placed on the SDN list. Id. § 544.201. Furthermore, both U.S. and non-U.S. persons are prohibited from facilitating the "provision of funds, goods, or services by, to, or for the benefit of any person" on the SDN list, unless OFAC specifically licenses the transaction. Id. § 544.201(b); see also id. §§ 544.202(c), 544.301, 544.405.

Section 206 of the IEEPA makes it "unlawful for a person to violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition issued under" the statute. 50 U.S.C. § 1705(a). Additionally, "any property, real or personal, which constitutes or is derived from proceeds traceable to a violation" of the IEEPA is subject to civil forfeiture. 18 U.S.C. § 981(a)(1)(C). "This chain of interlocking statutes can thus besummarized as follows: property that 'constitutes or is derived from proceeds traceable to' violations of executive orders . . . promulgated pursuant to the IEEPA is subject to forfeiture." In re 650 Fifth Avenue & Related Props., 830 F.3d 66, 87 (2d Cir. 2016) (citing 18 U.S.C. §§ 981(a)(1)(C), 1956(c)(7)(D); 50 U.S.C. § 1705.); see also United States v. $396,589 in U.S. Funds, 349 F. Supp. 3d 13, 21-22 (D.D.C. 2018) (finding that funds paid to Iran were forfeitable because the payments constituted a violation of regulations issued pursuant to IEEPA that forbid exports to Iran without a license).

2. The Anti-Money Laundering Statute

The federal anti-money laundering statute makes it a crime to "transport[], transmit[], or transfer[] . . . funds from a place in the United States to or through a place outside the United States . . . with the intent to promote the carrying on of specified unlawful activity." 18 U.S.C. § 1956(a)(2)(A). Violations of IEEPA constitute "specified unlawful activity." Id. § 1956(c)(7)(d). Furthermore, any property involved in a transaction or attempted transaction in violation of the statute is subject to civil forfeiture. Id. § 981(a)(1)(A). In order to show that the relevant property was "involved in" a violation of the money laundering statute, the Government must demonstrate a "substantial connection between the property and the offense." Id. § 983(c)(3). Thus, the Government is required to show that the property subject to forfeiture has a "substantial connection" to the "specified unlawful activity" at issue. Id.

B. Relevant Facts²

This case involves North Korea's financial sector, which depends on state-controlled financial institutions that use front companies to conduct international financial transactions.Compl. ¶ 41. Some of these financial institutions have been designated by OFAC as supporters of North Korea's WMD program, and, pursuant to that designation, are listed on OFAC's SDN list. Id. ¶ 33. Specifically, in 2013, OFAC designated North Korea's primary foreign exchange bank, the Foreign Trade Bank ("FTB") as an SDN. Id. ¶¶ 19, 46. Subsequent to this determination, the Treasury Department's Financial Crimes Enforcement Network ("FinCen") deemed "the entire North Korean financial sector as a jurisdiction of primary money laundering concern." Id. ¶ 27 (emphasis in original). Nevertheless, FinCen has found that North Korean financial institutions continue to access the U.S. financial system, in violation of U.S. sanctions, by using money laundering techniques to conceal North Korea's involvement. Id. ¶ 42.

The Government contends that Transatlantic is a piece of one such scheme. Transatlantic is a corporation allegedly headquartered in Singapore that conducts its primary business in "General Wholesale Trade." Id. ¶¶ 12, 66. The Government claims that Transatlantic resembles a front company, given that it does not have an official website, appears to have "little to no web presence," and does not seem to have a "true physical office space, as numerous companies are registered at their [same] official location." Id. ¶ 67.

Based on information provided by several confidential sources, the Government asserts that Transatlantic wired funds through the United States in order to purchase gasoil on behalf of North Korea in U.S. dollars. Id. ¶¶ 91-92. On December 6, 2016, Transatlantic allegedly entered into a contract with Velmur, a company with similar characteristics, including lack of physical office space and little to no web presence. Id. ¶ 59. Between May and June 2017, Transatlantic wired funds to Velmur through U.S. correspondent bank accounts. Id. ¶ 56. A confidential source provided the Government with details of each wire transaction. Id. ¶ 60. On May 12, 2017, Transatlantic wired $1,510,000.00 to Velmur, noting that it was prepayment forgasoil. Id. ¶¶ 56, 91. On June 1, 2017, Transatlantic wired an additional $490,000.00 to Velmur with the same notation. Id. ¶¶ 56, 93.

The Government alleges that Velmur then remitted these funds to JSC Independent Petroleum Company ("IPC"), a Russian oil supply company. Id. ¶ 76. A confidential source provided a bill of lading information noting that IPC shipped cargo identified as diesel fuel to Velmur from Port Valdivostok, Russia, which the Government argues is a known waypoint for Russian shipments to North Korea. Id. ¶ 78. Additionally, the Government explains that publicly available shipping data shows a steady pattern of oil tanker traffic from this port to North Korea. Id.

Ultimately, OFAC designated IPC as an SDN after determining that IPC had an explicit contract to provide oil to North Korea. Id. ¶ 75; Decl. Special Agent Benjamin Whitley ("Whitley Decl.") ¶ 8, ECF No. 28-2. OFAC eventually made the same determination about both Transatlantic and Velmur. On August 22, 2017, OFAC designated Transatlantic as an SDN for operating in the energy industry in the North Korean economy. Compl. ¶ 65. OFAC's designation highlighted that Transatlantic had contracted with Daesong Credit Development Bank to purchase fuel oil on behalf of North Korea, a bank that had...