United States v. Sum of $70,990,605

• Decision Date: 13 February 2017
• Docket Number: Civil Action No. 12–1905 (RDM)
• Citation: 234 F.Supp.3d 212
• Parties: UNITED STATES of America, Plaintiff, v. SUM OF $70,990,605, et al., Defendants.
• Court: U.S. District Court — District of Columbia

234 F.Supp.3d 212

UNITED STATES of America, Plaintiff,

v.SUM OF $70,990,605, et al., Defendants.

Civil Action No. 12–1905 (RDM)

United States District Court, District of Columbia.

Signed February 13, 2017

Elizabeth Ann Aloi, Ann Marie Blaylock Bacon, Steven Clifford Parker, U.S. Department of Justice, Andrea Duvall, U.S. Department of Justice Child Exploitation & Obscenity Section, Patricia Marie Sulzbach, Washington, DC, for Plaintiff.

MEMORANDUM OPINION AND ORDER

RANDOLPH D. MOSS, United States District Judge

This is an in rem action seeking forfeiture of assets held at three U.S. banks by or for the benefit of the Afghanistan International Bank ("AIB"), the Emirates NBD Bank ("Emirates Bank"), and Bank Alfalah. Those assets, which the United States has seized, correspond to amounts previously deposited in overseas accounts at those banks in the names of three Afghan companies. The United States alleges that the funds deposited in the overseas accounts were fraudulently obtained as payment for transportation of U.S. military supplies in Afghanistan by Hikmatullah Shadman ("Shadman"), his associates, and companies he controls. Shadman, his two brothers, and four companies that they control (collectively, the "Shadman Claimants") have filed claims asserting their interest in or rights to the defendant assets.¹ Dkt. 24. AIB has also filed a claim asserting its interest in some of these assets. Dkt. 41. Neither Emirates Bank nor Bank Alfalah has filed a claim.

Four motions are currently before the Court. First, the United States moves to strike the Shadman Claimants' claims to the defendant assets that correspond to the funds previously deposited at AIB and Bank Alfalah. Dkt. 234. Second, it also moves to strike the claims of Shadman's brothers and two companies that they control on the ground that each of these claimants is allegedly a "straw owner" for Shadman and thus lacks any cognizable interest in the funds. Dkt. 182. Third, the Shadman Claimants move to dismiss the action and for release of the seized assets, arguing that a bilateral agreement between the United Sates and the Islamic Republic of Afghanistan commits resolution of the present dispute exclusively to diplomatic channels. Dkt. 274. Finally, the Shadman Claimants move for summary judgment on grounds of international comity and the act of state doctrine. Dkt. 138.

For the reasons explained below, the Court will GRANT the motion of the United States to strike the Shadman Claimants' claims with respect to the defendant funds that correspond to the funds previously deposited at AIB and Bank Alfalah; will DENY without prejudice the motion of the United States to strike the remaining claims of Shadman's brothers and their companies; and will DENY both of the Shadman Claimants' motions.

I. BACKGROUND

A. Commencement of the Action and Seizure of Funds in Afghanistan

The United States commenced this in rem civil forfeiture action on November 20, 2012, by filing a verified complaint for forfeiture against $77,920,605 located in two accounts ( [redacted text] 7810 and [redacted text] XXXX) at AIB in Afghanistan. Dkt. 3 at 3, ¶ 7. The 'XXXX account was held in the name of Hikmat Shadman Logistics Services Company, and the 'XXXX account was held in the name of Faizy Elham Brothers, Ltd. Id. According to the United States, the funds held in those accounts were the unlawful proceeds of a scheme to defraud the United States. In particular, the United States alleges that it "paid contractors and subcontractors through the North Atlantic Treaty Organization (NATO) to resupply U.S. military forces operating in Afghanistan," Dkt. 193–2 at 5, ¶ 12; that one of these subcontractors was Hikmat Shadman Logistics Services Company, id. at 6, ¶ 20, which Shadman owns, id. at 8, ¶ 24; and that Shadman and others enriched themselves and Hikmat Shadman Logistics Services Company by "falsif[ying] contracting documents, st [ealing] fuel from the United States, mak[ing] bribe and gratuity payments, fraudulently inflat[ing] prices, and caus[ing] the United States to be invoiced and to make payments of at least $77,920,605 to" the 'XXXX and 'XXXX AIB bank accounts for "fraudulent" work requests, id. at 6–7, ¶ 20.

On December 10, 2012, this Court issued arrest warrants in rem for the assets deposited with AIB in the 'XXXX and 'XXXX accounts, see Dkt. Entry of Dec. 10, 2012, and those warrants were transmitted to the government of Afghanistan pursuant to a mutual legal assistance request under the United Nations Convention Against Corruption, Dkt. 225 at 18, ¶ 51. The requests for assistance were received by the government of Afghanistan in late December 2012, and, in mid–January 2013, AIB froze the 'XXXX and 'XXXX accounts at the direction of the Office of the Attorney General of Afghanistan. Id. at 18, ¶¶ 52–53; Dkt. 41 at 2, ¶ 3. By the middle of March 2013, however, the Office of the Attorney General of Afghanistan changed course and instructed AIB to release the frozen funds, Dkt. 138–5 at 2; Dkt. 41 at 2, ¶ 4, and, in April 2013, the Central Bank of Afghanistan "advised AIB that it could not block any corporate or individual account related to Shadman," Dkt. 41 at 2, ¶ 5. The Afghan Attorney General subsequently informed the United States "that Afghanistan would not comply with the United States' mutual legal assistance request for enforcement of the restraint against the defendant AIB bank accounts." Dkt. 225 at 19, ¶ 55. In a letter sent to the U.S. Attorney General months later, the Afghan Attorney General recounted that, at the request of the United States, he

arrested Mr. Shadman, froze his bank accounts and submitted the case to senior prosecutors. The assigned delegation [of Afghan prosecutors then] asked for supportive evidence to the accusations from the US legal and judicial bodies, but the legal and judicial bodies remained unanswered due to lack of binding reasons and evidence. As a result of broad and extensive investigation and review of the ... allegations [against Shadman] and other information related to the case, [the Attorney General of Afghanistan] considered the accusations illegal and baseless based on the judicial findings of the prosecutors with respect to Mr. Shadman's [i]nnocence. [The prosecutors'] determination was approved by ... the Attorney General Office of the Islamic Republic of Afghanistan.

Dkt. 138–3 at 3. Based on this "determination," the Afghan Attorney General concluded that the seizure of Shadman's bank accounts was illegal and ordered that the "accounts" be released. Id. That determination was, in his view, "final in accordance with the applicable laws of" Afghanistan and not subject to appeal. Id.

B. Seizure of Funds in the United States

Shortly after Afghanistan released the previously frozen accounts, Shadman began to transfer money out of AIB, including to accounts at Bank Alfalah and Emirates Bank held in the names of Hikmat Shadman Logistics Services Company, Hekmat Shadman General Trading LLC, Everest Faizy Logistics Services, and Yaser Elham. Dkt. 225 at 19–26, ¶¶ 54–87. In light of these developments, on May 3, 2013, the United States filed an amended, verified complaint under seal against certain assets held in U.S. "interbank accounts" on behalf of AIB and the other foreign banks to which Shadman had transferred the funds previously deposited in the AIB accounts, and it obtained seizure warrants for the funds held in these U.S. accounts. Id. at 19, ¶ 57. Then, after the United States learned of additional funds transferred from AIB to Emirates Bank and Bank Alfalah, it filed a second amended, verified complaint, and obtained warrants for the seizure of funds held in U.S. interbank accounts on behalf of Emirates Bank and Bank Alfalah. Id. at 19–20, ¶ 58.

In order to seize the funds, the United States invoked 18 U.S.C. § 981(k), which provides in relevant part:

If funds are deposited into an account at a foreign financial institution ... and that foreign financial institution ... has an interbank account in the United States with a covered financial institution ..., the funds shall be deemed to have been deposited into the interbank account in the United States, and any restraining order, seizure warrant, or arrest warrant in rem regarding the funds may be served on the covered financial institution, and funds in the interbank account, up to the value of the funds deposited into the account at the foreign financial institution ..., may be restrained, seized, or arrested.

In general, to take advantage of this procedure, the United States need not "establish that the funds are directly traceable to the funds that were deposited into the foreign financial institution." 18 U.S.C. § 981(k)(2). But, because the funds held in the U.S. interbank account are deemed to be the same funds deposited in the foreign account, the owner of the foreign funds may contest the forfeiture. Id. § 981(k)(3). If the foreign financial institution demonstrates that it had discharged its obligation to the foreign depositor before the funds were seized, however, the nexus to the foreign depositor dissolves, and the foreign financial institution is instead "deemed" to be the owner of the funds held in the interbank account. Id. § 981(k)(4)(B)(ii)(II).

The currently operative third amended complaint² names five defendant U.S. interbank accounts:

(a) All funds held by or for the benefit of Afghanistan International Bank at Standard Chartered Bank, New York, of an amount up to but not to exceed $4,330,287.03 of the total sum of any funds held in any account at Afghanistan International Bank controlled by or for the benefit of Hikmatullah Shadman, including, but not limited to, account number [redacted text] XXXX, in the name of Hikmat Shadman Logistics Services Company, account number [redacted text] XXXX, in the name of Faizy Elham Brothers, Ltd., and account number [redacted text] XXXX in the name of Everest Faizy Logistics Services;

(b) All funds held by or for the

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