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

• Decision Date: 22 March 2019
• Docket Number: Civil Action No.: 17-1705 (RC)
• Citation: 368 F.Supp.3d 10
• 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

368 F.Supp.3d 10

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, District of Columbia.

Signed March 22, 2019

Jennifer A. Short, Kaiser Dillon, Pllc, Zia Mustafa Faruqui, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Plaintiff.

Brigida Benitez, Brian Egan, Jessica Piquet Megaw, Steptoe & Johnson LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

RUDOLPH CONTRERAS, United States District Judge

GRANTING IN PART PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT

I. INTRODUCTION

Plaintiff United States of America ("the government") seeks forfeiture and civil money penalties from two foreign companies that have allegedly acted as fronts for the Democratic People's Republic of Korea ("North Korea"). According to the government, these two companies—Velmur Management Pte. Ltd. ("Velmur") and Transatlantic Partners Pte. Ltd. ("Transatlantic")—made transactions on behalf of sanctioned North Korean entities, using the United States banking system, in contravention of federal law and United States sanctions on North Korea. Velmur failed to respond to the government's complaint, and the government asks this Court to enter a default judgment against it. For the reasons set forth below, the Court concludes that the government's factual allegations are sufficient to show that Velmur is liable for the offenses with which it is charged, that the government sent proper notice of this action to interested parties, and that the money the government claims under the forfeiture statute was involved in Velmur's offenses. However, the government's allegations support only a portion of the civil money penalty it seeks against Velmur. Thus, the Court grants the government's motion for default judgment in full with respect to the forfeiture, and in part with respect to civil money penalties.

II. FACTUAL BACKGROUND

This case began with an FBI investigation of Velmur and Transatlantic in connection with an alleged North Korean scheme to subvert international sanctions through the use of front companies. Compl. ¶ 1, ECF No. 1. According to the government: (1) North Korean banks directed Transatlantic and other front companies to send United States dollars to Velmur; (2) those front companies wired the money to Velmur, using United States banks as conduits; (3) Velmur then wired the money to a Russian gasoil supplier; which (4) shipped gasoil to North Korea. See id. ¶ 55. The government alleges that this scheme ran afoul of, among other laws, the International Emergency Economic Powers Act ("IEEPA") and federal anti-money laundering and bank fraud statutes.¹ The Court will briefly summarize those laws and then describe the alleged money laundering scheme in more detail.

A. Statutory and Regulatory Framework

1. The International Emergency Economic Powers Act

The IEEPA authorizes the President to "deal with any unusual and extraordinary threat ... to the national security, foreign policy, or economy of the United States" from outside the United States. 50 U.S.C. § 1701(a). This authority includes the ability to investigate "transactions in [the] foreign exchange" or "the importing or exporting of currency." Id. § 1702(a)(1)(A). Exercising his IEEPA authority, President Bill Clinton issued Executive Order 12,938, which designates "Weapons of Mass Destruction" ("WMDs") as an "unusual and extraordinary threat" under the IEEPA. Exec. Order No. 12,938, 59 Fed. Reg. 58,099 (Nov. 14, 1994). Executive Order 13,382, issued a decade later, denies 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 "WMD Proliferators Sanctions Regulations," which implement Executive Order 13,382, "block" any property interests, including money and other financial instruments, belonging to or used in support of individuals and entities designated as WMD proliferators.² 31 C.F.R. §§ 544.201, 544.308. Those individuals and entities are placed on the "Specially Designated Nationals and Blocked Persons" list (the "SDN" list) administered by the Department of Treasury's Office of Foreign Assets Control ("OFAC"). See id. § 544.201(a). And Department of Treasury regulations bar the "provision of funds, goods, or services by, to, or for the benefit of any person" designated as an SDN, unless OFAC licenses the transactions. 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 IEEPA. 50 U.S.C. § 1705(a). And property "which constitutes or is derived from proceeds traceable to" a violation of the IEEPA is subject to forfeiture. 18 U.S.C. § 981(a)(1)(C). "This chain of interlocking statutes can thus be summarized 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 ).

2. The Federal Anti-Money Laundering Statute

The federal anti-money laundering statute, 18 U.S.C. § 1956, makes it a crime to "transport[ ], transmit[ ], or transfer[ ] ... a monetary instrument or 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 [a] specified unlawful activity."³ 18 U.S.C. § 1956(a)(2)(A). "Specified unlawful activity" includes violating the IEEPA. Id. § 1956(c)(7)(D). Additionally, "any property ... involved in a transaction ... in violation of" the federal anti-money laundering statute is subject to forfeiture. Id. § 981(a)(1)(A). To show that the property was "involved in" such a transaction, the government must show that "there was a substantial connection between the property and the offense." Id. § 983(c)(3). A violator of the anti-money laundering statute is also liable "for a civil penalty of ... the value of the property, funds, or monetary instruments involved in the transaction." Id. § 1956(b)(1)(A).

B. Relevant Facts and Procedural History

In 2013, OFAC designated North Korea's primary foreign exchange bank, the Foreign Trade Bank ("FTB"), as an SDN. Compl. ¶¶ 19, 46. In 2016, the Department of Treasury'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) (citing 81 Fed. Reg. 35,665 (June 3, 2016) ). FinCEN found, in making that determination, that North Korea makes extensive use of front companies and deceptive financial practices to evade international sanctions. Id. ¶¶ 32, 50.

Velmur is registered in Singapore, and is purportedly a commercial and industrial real estate management company. Id. ¶¶ 58-59. Despite Velmur's legitimate-sounding business, the government alleges that it "bears the hallmarks of a front company"; it "lacks an official website and appears to have little to no web presence" while also not "having a true physical office space." Id. ¶ 59; Decl. Special Agent Benjamin Whitley ("Whitley Decl.") ¶ 6, ECF No. 28-2. Relying in part on confidential sources, the government contends that Velmur "has been a recipient of U.S. dollar payments on behalf of North Korean entities—in particular, FTB." Compl. ¶¶ 60-61.

During its investigation of Velmur, the FBI allegedly identified several payments made to or from Velmur, through United States banks, for the purpose of laundering money or purchasing gasoil on behalf of North Korea. See id. ¶ 84. In May 2017, OFAC blocked five of these transactions, totaling $ 4,999,925, that were described as "prepayment for gasoil" and that involved three alleged North Korean front companies. See id. ¶¶ 56, 85-93; Whitley Decl. ¶ 7. The blocked funds (the "Defendant Funds") are "currently held in a bank account in the United States." Compl. ¶ 10.⁴ OFAC found that "an SDN had an interest in each one of the ... transactions" and no SDN "obtain[ed] an OFAC license prior to engaging in the transactions." Whitley Decl. ¶ 7; see also Compl. ¶¶ 70, 72, 74. The transactions prompted OFAC, in August 2017, to designate Velmur as an SDN "for operating in the energy industry in the North Korean economy," and for "attempt[ing] to use the U.S. financial system to send millions of dollars in payments on behalf of North Korea-related transactions." Compl. ¶ 57.

In addition to the transactions blocked by OFAC, the FBI's investigation identified several other Velmur transactions involving North Korean front companies and companies known to do business with North Korea. In early 2017, Velmur wired $ 6,853,000 over eight transactions to JSC Independent Petroleum Company ("IPC"), a Russian company, "for gasoil."⁵ Id. ¶¶ 75–77; Whitley Decl. ¶ 13. OFAC subsequently designated IPC as an SDN, noting that it "had a contract to provide oil to North Korea and reportedly shipped over $ 1 million worth of petroleum products to North Korea." Compl. ¶ 75. One of the government's "reliable" confidential sources stated that IPC shipped the gasoil purchased by Velmur from a Russian port to North Korea. Id. ¶¶ 78-79. Through 2016 and 2017, Velmur was also the recipient of four United States dollar wire transfers, totaling $ 1,169,980, from companies known to be associated with or front companies for FTB. Id. ¶ 61. These companies are known "to have made payments for FTB" and are believed to have "laundered funds to promote sanctions violations". Id.

In August 2017, the government filed a verified complaint for forfeiture in rem against $ 6,999,925 in blocked funds associated with Velmur, and for civil money penalties in personam against Defendants...