13 Jun 2016
Stefan Cassella of Asset Forfeiture Law, LLC discusses United States v. $1,879,991.64, a recent judgment which established that:
- to establish standing to contest the forfeiture of funds seized from its correspondent bank account under Section 981(k), a foreign bank must produce evidence that the forfeitable funds have been withdrawn from its customer’s account;
- foreign bank secrecy laws bar the foreign bank from complying with this requirement does not excuse the bank’s lack of compliance; courts in the U.S. cannot be concerned with the restrictions that foreign laws place on foreign banks; and
- the Attorney General has the sole discretion to decide whether the conflict of laws militates in favor of terminating the forfeiture action; the courts have no role in that decision, even to the extent of ordering the Attorney General to act more quickly than she would like.
[United States v. $1,879,991.64 (Previously Contained in Sberbank of Russia’s Interbank or Correspondent Bank Account, ___ F. Supp.3d ___, 2016 WL 2651424 (D.N.J. May 10, 2016).]
Defendant pled guilty to money laundering and to violating the International Emergency Economic Powers Act (IEEPA) in connection with exporting restricted items to Russian purchasers, and to laundering the proceeds through shell companies. Upon learning that one the shell companies had transferred $1.8 million in proceeds to Defendant’s bank account at a Russian bank, the Government obtained a seizure warrant and seized $1.8 million from the Russian bank’s correspondent account in the United States pursuant to 18 U.S.C. § 981(k).
In the ensuing civil forfeiture action, the Russian bank filed a claim contesting the forfeiture, but it refused to provide any evidence that Defendant’s $1.8 million in criminal proceeds was no longer on deposit in his foreign account – a necessary condition to the bank’s having standing to seek the release of its funds. Instead, it cited Russian laws barring the disclosure of a customer’s bank account information.
In addition, the Russian bank petitioned the Attorney General to dismiss the forfeiture action on the ground that Russia’s bank secrecy laws made it impossible to defend its interest in the seized funds, and it asked the court to order the Attorney General to act on its request within 30 days, and to stay the forfeiture action until the Attorney General did so.
Section 981(k) was enacted to give the Government the ability to recover criminal proceeds from foreign bank accounts by allowing it to seize and forfeit an equivalent sum of money from the foreign bank’s correspondent account in the United States. In such cases, it is the foreign bank’s customer, not the bank itself, that has standing to contest the forfeiture, unless the bank can show that the customer has withdrawn the forfeitable funds and that therefore there is no way for the bank to make itself whole by debiting the customer’s account if the Government were to forfeit its funds.
In this case, the court viewed the bank’s obligation to establish that the customer’s funds were no longer in his foreign bank account as a question of statutory standing: unless the bank produced evidence showing that the customer’s funds had been withdrawn, it did not have standing to contest the forfeiture action. Finding that the bank had not produced any evidence on that point, it held that the bank lacked standing and denied its motions.
To the bank’s claim that it was barred by Russian law from complying with the U.S. statute, the court was not sympathetic. “Section 981(k) is a tough pill for foreign financial institutions to swallow,” the court said, “and that is exactly what Congress intended.” The purpose of the statute was to prevent foreign criminals from hiding behind foreign bank secrecy laws to protect their criminal proceeds from forfeiture. If the effect of the statute is to place foreign banks operating in bank secrecy jurisdictions in a difficult position, that is too bad.
“If the court were to consider the unique banking laws of a foreign financial institution in the context of a Section 981(k) forfeiture, the entire statutory scheme envisioned by Congress would be frustrated,” the court said. “Criminals would seek to evade the United States Government’s broad Section 981(k) powers by gravitating to foreign institutions that operate under strict bank secrecy laws.”
Moreover, the court held that even if the Russian bank had standing to contest the forfeiture, it would decline either to order the Attorney General to move more quickly to determine whether to terminate the forfeiture action, or to stay the action while that decision was being made.
Recognizing the problems that the conflict of laws can create, Section 981(k)(1)(B) contains a provision allowing the Attorney General, in her discretion, to terminate a civil forfeiture action brought under the statute if it would be in the interests of justice to do so. In this case, the Attorney General referred the Russian bank’s request to the Asset Forfeiture and Money Laundering Section (AFMLS) but AFMLS had not yet acted on the request.
A request under Section 981(k)(1)(B), the court said, is wholly within the discretion of the Attorney General. Accordingly, the court has no role in the matter, and may not interfere even insofar as to order the Attorney General to act by a certain date, or to stay the forfeiture case until she has acted. Accordingly, the Russian bank’s motions were denied.
Comment: This case contains an excellent summary of the purpose of Section 981(k) and how it works, and contributes to the body of case law applying it in several respects.
First, it makes it clear that it is the foreign bank’s burden to produce evidence that it has “discharged its obligation” to its customer and thus could not make itself whole by debiting the customer’s account if the United States were to prevail in the forfeiture action. The court views this as a statutory standing requirement, and holds that if the bank, for whatever reason, does not comply with the requirement, it lacks standing to contest the forfeiture.
In that regard, the court pointedly rejects the bank’s complaint that it is barred by foreign bank secrecy laws from complying with the U.S. statute. As other courts have done in this context, it holds that such conflicts are simply some of the consequences of doing business in multiple countries. If the courts in the United States were to be worried about the consequences a foreign bank might face under foreign law, it could rarely enforce a U.S. statute in the way that Congress intended. See United States v. Union Bank for Savings and Investment (Jordan), 487 F.3d 8, 18-19 (1st Cir. 2007) (subjecting the application of the statute to the vagaries of foreign law was precisely what Congress intended to avoid); United States v. Sum of $70,990,605, 128 F.Supp.3d 350, 363-65 (D.D.C. 2015) (barring foreign bank from contesting forfeiture of its funds even if foreign law bars the bank from debiting its customer’s account does not violate due process; the bank’s right to petition the Attorney General to suspend or terminate the forfeiture action under § 981(k)(1)(B) is sufficient to protect its rights).
Finally, the court is apparently the first to hold that the courts must refrain from interfering in any way with the Attorney General’s sole authority to determine whether the termination of a civil forfeiture action under Section 981(k)(1)(B) would be in the interests of justice.
Stefan Cassella, Asset Forfeiture Law, LLC
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