The opinion of the court was delivered by: GREEN
Presently before the Court is the United States' Motion to Dismiss ("Motion to Dismiss") the Petition of American Express Bank, Ltd., Pursuant to 18 U.S.C. § 1963(l) (1994) ("L-Claim"). The question presented is whether a bank's right of set off against a depositor's general accounts, unexecuted at the time the accounts were seized by banking regulators, creates a legal interest sufficient to establish standing under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), Pub. L. No. 91-452, 84 Stat. 941 (1970), as amended, codified at 18 U.S.C. §§ 1961-1968 (1994). American Express Bank, Ltd., seeks to set off debts in the amount of $ 23,537,303 owed to it by the Bank of Credit and Commercial International ("BCCI").
For the reasons expressed below, the Motion to Dismiss will be denied, and in accordance with 18 U.S.C. § 1963(l)(5), a hearing will be held on the validity and sufficiency of the interests asserted in American Express Bank's L-Claim.
The facts surrounding BCCI's collapse are well known in the financial and legal communities, but certain facts bear repeating to set the stage for resolving the government's pending motion to dismiss. In early 1991, the Bank of England received troubling information about BCCI's financial condition and integrity. In response, it commissioned a special audit, which "disclosed evidence of a complex and massive fraud at BCCI, including substantial loan and treasury account losses, misappropriation of funds, unrecorded deposits, the creation and manipulation of fictitious accounts to conceal bank losses, and concealment from regulatory authorities of BCCI's mismanagement and true financial position." Corrigan, Mattingly & Taylor, The Federal Reserve's Views on BCCI, 26 Int'l Law. 963, 970-71 (1992) (based on testimony before the Committee on Banking, Finance and Urban Affairs of the United States House of Representatives on September 3, 1991).
The results of the audit were shared with banking regulators in other countries. Based upon that audit and independent domestic investigations, on July 5, 1991, regulators in the United Kingdom, Luxembourg and the United States, froze assets owned or controlled by BCCI. In New York, the Superintendent of Banks seized BCCI's assets at various New York banks, including those at American Express Bank. By July 6th, eighteen countries had shut down BCCI's operations in their jurisdictions, and as of July 29, 1991, forty-four countries had closed down BCCI branches.
On November 15, 1991, a three-count Indictment charging BCCI with conspiracy, wire fraud and racketeering was filed in this Court. On January 24, 1992, following findings of fact and conclusions of law with supporting reasons made in open court, this Court accepted the pleas of guilty of the four corporate defendants, collectively known as BCCI, and the Plea Agreement between them and the United States of America. See Transcript of Guilty Plea Proceedings, at 7 (Jan. 24, 1992). In accordance with 18 U.S.C. § 1963, the Court then entered an Order of Forfeiture.
Under paragraph 9 of the Plea Agreement, BCCI forfeited all of its property interests in the United States. Pursuant to paragraph 1(e) of the Forfeiture Order, this included BCCI's ownership interests in all real property, tangible and intangible personal property, however held, whether subsequently identified, determined or discovered in the course of the ongoing liquidation proceedings described therein or otherwise identified, determined, or discovered in any manner at any time (excluding property brought into the United States by or on behalf of Court-Appointed Fiduciaries of BCCI in the course of the management or disbursement of the liquidation estates). Attached to the Order of Forfeiture, as amended, was a list of BCCI accounts, with corresponding numbers, names, and approximate balances, which the United States Marshals Service was directed to seize forthwith.
At the time the Court entered the Order of Forfeiture, it was understood that the United States had been unable to identify all of BCCI's assets in the United States. Accordingly, the United States later petitioned the Court to amend the Order of Forfeiture to add the subsequently identified assets. The Court granted the United States' first request to amend the Order of Forfeiture and issued the First Supplemental Order on January 31, 1992. This Order directed the immediate seizure of the specific assets listed therein. Included among the assets seized at American Express Bank were account # 703876 and a brokerage account (number unknown), including offsets taken from those accounts.
The purpose of the U.S. Fund is more specific. In addition to allowing for reimbursement of the costs of investigation and prosecution of BCCI, bank insurance and other matters, the U.S. Fund is also available to provide "restitution to victims of BCCI, which may include remission to the Court Appointed Fiduciaries in accordance with 18 U.S.C. § 1963(g) for the purpose of facilitating an increase in assets available for distribution by the Court-Appointed Fiduciaries to innocent worldwide victims of BCCI." Id. P12(f). As a result of BCCI's guilty plea and the subsequent criminal forfeiture proceedings the United States has "recovered nearly $ 800 million, virtually all of which has been, or will be, distributed to the victims of the fraud." Testimony of Stefan Cassella before the Judiciary Committee of the House of Representatives (July 22, 1996), 1996 WL 410099, *5 (F.D.C.H.).
On February 14, 1992, pursuant to the amended Order of Forfeiture, American Express Bank transferred over $ 119 million to the United States Marshals Service. This amount represented what American Express Bank contended was the balance (or net) in BCCI's account after the bank set off $ 23,537,303 for debts that it claimed BCCI owed. After withholding the set off amount, American Express Bank filed a motion for a temporary restraining order and requested a pre-seizure hearing.
The Court granted American Express Bank's request for a hearing, but rejected its arguments. Thereafter, American Express Bank transferred the remaining amount of $ 23,537,303 to the United States Marshal on March 10, 1992. Through the instant L-Claim, American Express Bank claims title to, and seeks the return of $ 23,537,303, contending that it owned this sum pursuant to lawful set offs taken against BCCI before the Order of Forfeiture was entered.
The set offs arise from a series of foreign currency exchange transactions between American Express Bank and BCCI between July 2-5, 1991, and from an uncollateralized loan that American Express Bank made to BCCI on April 25, 1991. The currency transactions were to be accomplished on or before July 5, 1991,
but before they were completed, banking regulators froze BCCI's assets, including those at American Express Bank. At the time of the seizure, BCCI owed American Express Bank approximately $ 13,000,000 as a result of the foreign currency transactions. In addition, on July 8, 1991, BCCI's obligation came due to pay $ 10,052,743 on the uncollateralized loan of April 25, 1991. When BCCI failed to pay the amounts owed on July 8th, American Express Bank "exercised its right of set off as to the $ 22,848,928 in obligations owed to [American Express Bank] by BCCI." Affidavit of Farhad Subjally, P4 (July 21, 1992). On July 15, 1991, American Express Bank set off $ 500,000 arising from foreign currency obligations, and on July 23, 1991, the bank set off $ 188,375 "arising from the need to secure cover in the open market." Id.; see L-Claim, supra, at P24.