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

• Decision Date: 14 September 2015
• Docket Number: Civil Action No. 12–1905–RDM–AK
• Citation: 128 F.Supp.3d 350
• Parties: United States of America, Plaintiff, v. Sum of $70,990,605 et al., Defendants.
• Court: U.S. District Court — District of Columbia

128 F.Supp.3d 350

United States of America, Plaintiff,

v.Sum of $70,990,605 et al., Defendants.

Civil Action No. 12–1905–RDM–AK

United States District Court, District of Columbia.

Signed September 14, 2015

Elizabeth Ann Aloi, Andrea Gail Duvall, Ann Marie Blaylock Bacon, Steven Clifford Parker, U.S. Department of Justice, Washington, DC, for Plaintiff.

MEMORANDUM OPINION

RANDOLPH D. MOSS, United States District Judge

Before the Court is the government's motion to strike the claim of Afghanistan International Bank ("AIB") for lack of statutory standing. Dkt. 93. For the reasons stated below, the motion is GRANTED in part and DENIED in part.

I. BACKGROUND

This action arises from a civil forfeiture complaint against $77,920,605 that the government alleges was fraudulently obtained as payment for transportation of United States military supplies in Afghanistan by Hikmatullah Shadman, his associates, and companies he controls. Dkt. 3 ¶ 2. To date, the United States has seized of $57,279,428.03 from accounts maintained by three foreign banks at financial institutions in the United States. Dkt. 225 ¶ 49. It has seized these funds pursuant to its authority under 18 U.S.C. § 981(k), which allows the government to seize funds held in U.S bank accounts for the benefit of foreign banks when the foreign banks themselves hold funds that are subject to forfeiture. See 18 U.S.C. § 981(k)(1)(A). As discussed in greater detail below, allowing the government to seize funds held in these "interbank" accounts closed a loophole in the asset forfeiture laws and significantly expanded the ability of United States authorities to pursue forfeiture of assets held abroad.

According to the third amended complaint ("Complaint"), Mr. Shadman and others "falsified contracting documents, stole fuel from the United States, made bribe and gratuity payments [and] fraudulently inflated prices" in the course of a wire fraud conspiracy to obtain favorable logistics contracts in Afghanistan, and were paid at least $77,920,605 by the United States under those contracts. Dkt. 225 ¶ 20. Mr. Shadman, other individuals, and companies he controls¹ (the "Shadman Claimants") have filed a claim against the seized funds. Dkt. 24.

Afghanistan International Bank ("AIB") is one of the foreign banks whose funds in United States interbank accounts have been seized. The Complaint includes allegations regarding three accounts held by the Shadman Claimants at AIB. The first—account number [Redacted] 7810 (the "7810 Account")—was the account into which money the Shadman Claimants earned pursuant to logistics contracts was deposited. Dkt. 225 ¶¶ 44, 46. According to the government, "at least $77,920,605" was deposited into this account "[d]uring the alleged conspiracy period." Id. ¶ 43. AIB does not, at least at this stage, challenge the government's characterization of the funds deposited in the 7810 Account as criminal proceeds.

The second account—number [Redacted] 8613 (the "8613 Account")—received transfers of $4,000,000 and $2,930,000 from the 7180 Account in June and July 2011. Dkt. 225 ¶¶ 47–48. As with the 7810 Account, for present purposes AIB does not challenge the characterization of these funds as criminal proceeds.

The third account–number [Redacted] 5115 (the "5115 Account")–had, in early 2013, a balance of at least $10,000,000. See Dkt. 244 ¶ 83. On April 1, 2013, $10,000,000 was transferred from the 5115 Account to an account held by the Shadman Claimants at Bank Alfalah in Pakistan. Id. On May 8, 2013, $5,000,000 was transferred back from the Bank Alfalah account into the 5115 Account. Id. ¶ 84. The government has not presented evidence that any of the money in the 5115 Account prior to April 1, 2013, or any of the money transferred into the 5115 Account on May 8, 2013, was the proceeds of criminal activity. Nor has the United States alleged any facts purporting to trace the source of that money. The Complaint says nothing about the source of the funds held in the 5115 Account prior to April 1, 2013, and it contains no allegations suggesting that funds from other sources were commingled with the funds withdrawn from the 5115 Account in the recipient account at Bank Alfalah. Nonetheless, the government does allege conclusorily that "there was probable cause to believe that as of May 8, 2013 ... [a]t least $5 million of the criminal proceeds [derived from the criminal activity alleged in the third amended complaint] was located in [the 5115 Account]." Dkt. 225 ¶ 85.

Based on these allegations, the United States seized $1.5 million from AIB's interbank account at Standard Chartered Bank in the United States on or about May 10, 2013 and $8.6 million from the same account on or about May 24, 2013. Id. ¶¶ 69–70, 86. The United States subsequently released $5,769,712.97 of the $10.1 million seized from AIB based on the fact that AIB had $4,330,287.03 on deposit in accounts controlled by or for the benefit of Mr. Shadman on May 24, 2013. Dkt. 225 ¶ 87. Thus, the United States has seized from AIB's interbank account at Standard Chartered Bank an amount equal to the total amount AIB held on deposit from the Shadman claimants on May 24, 2013.

According to AIB, following the seizure of the funds held at AIB's interbank account in the United States, the Afghan Attorney General's office and the Afghan central bank directed AIB to release all of the funds it held in Mr. Shadman's accounts in Afghanistan to Mr. Shadman, notwithstanding the fact that AIB's funds in its interbank account had been seized. Dkt. 41 ¶ 13. Thus, AIB asserts, it is unable to debit the Shadman claimants' accounts based on the seizure in this case. AIB contends that under these circumstances it "has an ownership and possessory interest in the remaining seized defendant property of $4,330,287.03," and on this ground filed a claim in this action. Id.

On July 2, 2014, the United States filed a motion to strike AIB's claim. Dkt. 93. It argues that 18 U.S.C. § 981(k) authorizes only "owners" of seized funds to bring claims and that the foreign financial institution whose funds are seized pursuant to that section is explicitly excluded from the statutory definition of "owner." Id. at 8–12. The United States contends that AIB thus lacks statutory standing to bring its claim and that the claim must therefore be stricken pursuant to Supplemental Rule G(8)(c)(i)(B) of the Federal Rules of Civil Procedure. Id.

AIB argues in response that it need not demonstrate ownership in order to establish statutory standing; that, in any event, the United States has failed to trace the funds on deposit at AIB on which its seizure of funds from AIB's interbank is based to any criminal activity; and that prohibiting AIB from asserting a claim under circumstances in which AIB is unable to set off its losses by debiting the Shadman claimants' accounts in Afghanistan would violate due process. AIB also raises an admittedly premature argument that forfeiture in this case would violate the Excessive Fines Clause of the Eighth Amendment.

II. DISCUSSION

A. The Statutory Scheme

This case raises an issue not previously addressed in this Circuit relating to the interpretation and validity of 18 U.S.C. § 981(k), which was enacted as an amendment to § 981 by the USA PATRIOT Act, Pub.L. 107–56 (2001). Many foreign banks maintain "interbank" or "correspondence" accounts at banks in the United States in order to facilitate international funds transfers. If a depositor in Country A wishes to transfer funds to a recipient in Country B, his local bank can receive his funds and instruct the U.S. bank at which it holds an interbank account to transfer an equivalent amount of money to the U.S. interbank account of a bank in Country B. The bank in Country B is alerted to the transfer and correspondingly credits the ultimate recipient's local account. This system allows transfers to take place between banks in separate countries that have no direct relationship with one another and eliminates any immediate need for currency to move across national borders.

In theory, the interbank account system also exposes funds held by suspected criminals abroad to seizure in the United States: if criminal proceeds are deposited in a foreign bank and that bank holds an interbank account in the United States, seizing funds from the interbank account seems functionally equivalent to seizing funds directly from the suspected criminal's foreign account. Until the enactment of § 981(k), however, this rarely worked in practice. See 147 Cong. Rec. 510547–01. Foreign banks whose funds were seized from interbank accounts were the legal owners of those funds and, as such, were able to file claims to recover them. Id. Unless the foreign banks were actually implicated in the wrongdoing on which the seizure was predicated—which was unusual—they could successfully establish that they were "innocent owners" under the forfeiture laws and reclaim the funds. Id. This meant that suspected criminals abroad could take advantage of the United States financial system, by depositing their funds in banks that held interbank accounts, without exposing their assets to the risk of forfeiture in the United States.

Section 981(k) addresses this problem. It provides that forfeitable funds deposited with a foreign financial institution that maintains a U.S. interbank account "shall be deemed to have been deposited into the interbank account in the United States." 18 U.S.C. § 981(k)(1)(A). It therefore authorizes seizure of funds from the U.S. interbank account "up to the value of the funds deposited into the account at the foreign financial institution." Id. It also imposes a new limitation on claims against seized property. Only the "owner of the funds deposited into the account at the foreign financial institution ... may contest the forfeiture"–and, subject to two exceptions, the statute's definition of "owner" explicitly excludes "the foreign financial institution." Id. § 918(k)(3), (k)(4)(B)(i)(II)....