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UNITED STATES v. BCCI HOLDINGS

April 22, 1997

UNITED STATES OF AMERICA
v.
BCCI HOLDINGS (LUXEMBOURG), S.A., BANK OF CREDIT AND COMMERCE INTERNATIONAL, S.A., BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LIMITED, AND INTERNATIONAL CREDIT AND INVESTMENT COMPANY (OVERSEAS) LIMITED, Defendants.



The opinion of the court was delivered by: GREEN

 MEMORANDUM OPINION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

 Presently before the Court is the United States' Motion for Summary Judgment ("Motion for Summary Judgment") regarding the Petition of American Express Bank, Ltd., Pursuant to 18 U.S.C. § 1963(l) (1994) ("L-Claim"). This Court previously held that American Express Bank's exercise of its state law right of set off was sufficient to establish standing to assert a third-party claim under the criminal forfeiture provisions of 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 et seq. See United States v. BCCI Holdings, Inc. (In re Petition of American Express Bank), 941 F. Supp. 180 (D.D.C. 1996). Because there is no genuine dispute regarding any material fact and the United States is entitled to judgment as a matter of law, the Motion for Summary Judgment will be granted, and American Express Bank's L-Claim will be dismissed.

 Background

 The Court's previous opinion provided a detailed review of the historical background underlying the collapse of BCCI, see In re Petition of American Express Bank, 941 F. Supp. at 182-83, and only the facts material to the Motion for Summary Judgment will be repeated here. The following facts are not in dispute.

 American Express Bank's L-Claim arises from a series of foreign currency exchange transactions with BCCI and from an uncollateralized loan that American Express Bank made to BCCI on April 25, 1991. The currency transactions were to be completed on or before July 5, 1991, but before the transactions were concluded, banking regulators froze BCCI's assets, including those at American Express Bank. On July 5, 1991, Michael Lesser, the Assistant Deputy Superintendent of the Foreign Commercial Banks Division of the New State Banking Department advised an official at American Express Bank that the Superintendent had taken possession of BCCI's businesses and property. *fn1" Mr. Lesser then transmitted to American Express Bank copies of the closing orders. 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.

 On July 8th, with its accounts frozen by New York regulators, BCCI failed to pay American Express Bank the amounts due. American Express Bank then "exercised its right of set off as to the $ 22,848,928 in obligations owed to it by BCCI." Affidavit of Farhad Subjally P4 (July 21, 1992). On July 15, 1991, American Express Bank set off $ 500,000 more 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 P24.

 In the year prior to the massive worldwide intervention seizing BCCI's assets, BCCI's financial and legal troubles were well publicized. Between January 1990 and July 8, 1991, more than 65 articles appeared in the Wall Street Journal and the New York Times. *fn2" These articles were saturated with reports of BCCI's fraudulent conduct including its guilty plea to money laundering charges and allegations of widespread corruption. *fn3" See, e.g., "BCCI Unit Is Tied to Suit Alleging Insurance Fraud," Wall St. J., June 14, 1991; "The Americas: Peru - Another Link in the BCCI Money Laundering Chain?," Wall St. J., May 17, 1991; "Links Between First American, BCCI Spur Fed Speculation of Criminal Acts," Wall St. J., Feb. 22, 1991; "Noriega-Linked Bank Admits Laundering," Wall St. J., Jan. 17, 1990; "2 Foreign Bank Units Plead Guilty to Money Laundering," N.Y. Times, Jan. 17, 1990.

 Between July 5, 1991, when banking regulators intervened on an international scale, and July 8th, at least ten articles from the New York Times and the Wall St. Journal were devoted to the seizure of BCCI and the freezing of its assets. See, e.g., "Regulators World-Wide Close Down BCCI Branches in a Coordinated Move," Wall St. J., July 8, 1991; "Huge Foreign Bank Faces Possible Collapse," N.Y. Times, July 8, 1991; "A Well Tarnished Bank," N.Y. Times, July 7, 1991; "Scandal Reveals Holes In Rules For Foreign Banks," N.Y. Times, July 7, 1991; "BCCI: Big Money and Mysteries," N.Y. Times, July 6, 1991; "7 Nations Charge 'Fraud' and Seize a Banking Empire," N.Y. Times, July 6, 1991; "Warnings Reportedly Given," N.Y. Times, July 6, 1991; "Reaction from the Fed," N.Y. Times, July 6, 1991.

 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. See Transcript of Guilty Plea Proceedings (Jan. 24, 1992). In accordance with 18 U.S.C. § 1963, the Court then entered an Order of Forfeiture (as amended on January 31, 1992), which required American Express Bank to surrender BCCI's property at American Express Bank.

 The Court granted American Express Bank's request for a hearing, but rejected its arguments at that hearing. Thereafter, American Express Bank transferred the remaining amount of $ 23,537,303 to the United States Marshal, and then petitioned this Court to amend the Order of Forfeiture as to that set off amount.

 Through its five-count L-Claim, American Express Bank now 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. In Count I, the bank contends that the set off amount is its property and, therefore, the set off amount is not subject to forfeiture. *fn4" In Counts II and III, the petitioner stakes its entitlement to the set off amount by claiming, under 18 U.S.C. § 1963(l)(6)(A), that its rights were vested or superior to BCCI's (Count II) and by contending that, under 18 U.S.C. § 1963(l)(6)(B), it was a bona fide purchaser for value reasonably without cause to believe at the time of purchase that the property was subject to forfeiture (Count III). Count IV seeks protection from conflicting demands made to the petitioner by BCCI's regulators throughout the world to the set off amount, *fn5" and Count V contends that the Order of Forfeiture violated American Express Bank's constitutional rights. *fn6"

 On September 20, 1996, this Court denied the United States' motion to dismiss. See In re Petition of American Express Bank, 941 F. Supp. at 189. While the Court held that American Express Bank's exercise of its state law statutory right of set off was sufficient to establish standing, the Court did not reach the merits of the motion to dismiss, offering the petitioner a hearing pursuant to 18 U.S.C. § 1963(l)(5). Id. However, the petitioner consented to a procedure in which the United States would first file its motion for summary judgment. If the L-Claim survived summary judgment, a hearing would be held. On October 23, 1996, a Scheduling Order was issued, and on January 29, 1997, the motion for summary judgment became ripe. *fn7"

 Discussion

 BCCI's assets were forfeited pursuant to 18 U.S.C. § 1963, *fn8" which sets forth an orderly procedure by which third parties seeking to recover interests in forfeited property may obtain judicial resolution of their claims. It permits any person, other than the defendant, claiming a legal interest in forfeited property to petition the Court for a hearing to adjudicate the validity of that interest. 18 U.S.C. § 1963(l)(2). *fn9" Section 1963(l)(6) sets forth the substantive elements that a third party must establish to obtain amendment of an order of forfeiture:

 
If, after the hearing, the court determines that the petitioner has established by a preponderance of the evidence that--
 
(A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or
 
(B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section;
 
the court shall amend the order of forfeiture in accordance with its determination.

 18 U.S.C. § 1963(l)(6).

 A petitioner must first establish standing. Only by establishing standing and alleging the requisite elements of either § 1963(l)(6)(A) or § 1963(l)(6)(B) may a party obtain judicial relief from an order of forfeiture. See United States v. BCCI Holdings (Luxembourg), S.A., et al. (In re Petition of Chawla), 833 F. Supp. 9, 13 (D.D.C. 1993), aff'd, 310 U.S. App. D.C. 268, 46 F.3d 1185, 1188 (D.C. Cir.), cert. denied sub nom. Chawla v. United States, 515 U.S. 1160, 132 L. Ed. 2d 856, 115 S. Ct. 2613 (1995); United States v. Schwimmer, 968 F.2d 1570, 1584 (2nd Cir. 1992); United States v. Lavin, 942 F.2d 177, 187 (3rd Cir. 1991). While an unexercised right of set off leaves a bank in the position of a general creditor, see United States v. BCCI Holdings (Luxembourg), S.A., et al. (In re Petition of Security Pacific Int'l Bank), F. Supp. , 1997 WL , slip op. at 9 (D.D.C. Jan. 17, 1997), the timely exercise of a state law statutory right of set off, as occurred here, is sufficient to establish standing. In re Petition of American Express Bank, 941 F. Supp. at 189.

 Although the existence and nature of American Express Bank's legal interest in the property is determined by reference to state law, federal law provides the rule of decision in determining the consequences of such an interest. United States v. National Bank of Commerce, 472 U.S. 713, 722, 727, 86 L. Ed. 2d 565, 105 S. Ct. 2919 (1985); United States v. Lester, 85 F.3d 1409, 1412 (9th Cir. 1996); United States v. Infelise, 938 F. Supp. 1352, 1357 (N.D. Ill. 1996). American Express Bank's right of set off under state law may allow it to enjoy a preferred position against competing state law claims, but it does not guarantee any such preference under federal law. See, e.g., Aurora Maritime v. Abdullah Mohamed Fahem & Co., 85 F.3d 44, 48 (2nd Cir. 1996); United States v. Sterling Nat'l Bank & Trust Co., 494 F.2d 919, 922 (2nd Cir. 1974). And, American Express Bank must do more than merely demonstrate standing before the Court can grant a motion to amend the Order of Forfeiture. See United States v. Alcaraz-Garcia, 79 F.3d 769, 774 n.10 (9th Cir. 1996).

 Summary judgment is appropriate when there is "no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "The inquiry performed is the threshold inquiry of determining whether there is a need for trial--whether, in other words, there are any genuine issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The role of the Court on a motion for summary judgment is not to weigh the evidence, but to determine whether genuine issues of material fact exist for trial. Abraham v. Graphic Arts Int'l Union, 212 U.S. App. D.C. 412, 660 F.2d 811, 814 (D.C. Cir. 1981). To survive summary judgment, the nonmoving party must offer more than mere allegations, Anderson, 477 U.S. at 249, by going "beyond the pleadings and by its own affidavits, or by the 'depositions, answers to interrogatories, and admissions on file,' designate 'specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). If the material facts proffered by the nonmoving party are subject to diverse interpretations, summary judgment is not available. Tao v. Freeh, 307 U.S. App. D.C. 185, 27 F.3d 635, 638 (D.C. Cir. 1994). Any doubts must be resolved in favor of the nonmoving party, Abraham, 660 F.2d at 815, and the nonmoving party is entitled to all justifiable inferences. Anderson, 477 U.S. at 255. Since there is no genuine dispute as to any material fact, *fn10" summary judgment is appropriate, Fed.R.Civ.P. 56; see Anderson, 477 U.S. at 250, and the question is simply whether under 18 U.S.C. § 1963(l)(6) the United States is entitled to judgment as a matter of law.

 In moving for summary, judgment on Count II, the United States contends that American Express Bank cannot, under 18 U.S.C. § 1963(l)(6)(A), demonstrate that its right, title or interest was vested or superior to BCCI's at the time BCCI committed the offenses leading to the criminal forfeiture. See Motion for Summary Judgment at 6-8. Second, the United States moves for summary judgment on Count III, arguing that, under 18 U.S.C. § 1963(l)(6)(B), the bank is not a bona fide purchaser which, at the time of the purchase, was reasonably without cause to believe that the property was subject to forfeiture. Id. at 9-14.

 Subsection 1963(l)(6)(A)

 To prevail under 18 U.S.C. § 1963(l)(6)(A), the United States must demonstrate that, as a matter of law, American Express Bank cannot show that it has a legal right, title, or interest in the property which was vested in the petitioning bank or superior to BCCI's interest at the time BCCI committed the acts that gave rise to the forfeiture of the property. Under the statute, the relevant time period is, of course, when BCCI committed the criminal acts leading to the forfeiture of its assets. The problem for American Express Bank is therefore obvious. While the bank may have enjoyed a right of set off under New York law against BCCI's accounts, it did not exercise that right until July 8, 1991. Because the set offs were taken after BCCI committed the acts that gave rise to forfeiture, American Express Bank cannot prevail under Subsection (l)(6)(A), and the United States is entitled to judgment as a matter of law.

 In its opposition, American Express Bank attempts to shift the temporal focus to the date of forfeiture. See Opposition to the Motion for Summary Judgment at 10 & 16. The bank argues that it acquired its interest prior to the date that the amended Order of Forfeiture was entered. This may be true, but it does not matter for the purposes of 18 U.S.C. § 1963. American Express Bank's argument fails simply because it is contrary to the text and the legislative history of Subsection (l)(6)(A). The statute plainly requires that a petitioner demonstrate that its interest was vested or superior "at the time of the commission of the acts." 18 U.S.C. § 1963(l)(6)(A) (emphasis added); see also id. § 1963(c). *fn11"

 These provisions reflect Congress's concern that a defendant, aware of a pending investigation or indictment, would attempt to transfer the property to a third party before the defendant could be convicted and an order of forfeiture entered. Thus, Congress provided in 18 U.S.C. § 1963(c) that the critical time for evaluating the defendant's interest was at the time of the commission of the criminal offense. Any attempt by the defendant thereafter to transfer an interest in the property to a third party -- or any attempt by a third party to acquire an interest in the defendant's property - would be void, unless the third party was a bona fide purchaser under Subsection (l)(6)(B).

 The legislative history is as clear as the plain language of the statute. The Senate Report on the 1984 amendments states:

 
Subsection (c) of 18 U.S.C. § 1963, as amended by the bill, is a codification of the 'taint' theory that has long been recognized in forfeiture cases. Under this theory, forfeiture relates back to the time of the acts which give rise to the forfeiture. The interest of the United States in the property is to vest at that time, and is not necessarily extinguished simply because the defendant subsequently transfers his interest to another. Absent application of this principle a defendant could attempt to avoid criminal forfeiture by transferring his property to another person prior to conviction.

 S. Rep. No. 255, 98th Cong., 1st Sess. 200-01 (1983) (emphasis added.)

 The legislative regime is both unambiguous and internally consistent. If the defendant commits an act that gives rise to the forfeiture of his property, that property may be forfeited even if another person acquires an interest in the property before the defendant is convicted. The relevant time is when the criminal acts were committed, not when the defendant was convicted or when the Order of Forfeiture was entered. See United States v. Moffitt, Zwerling & Kemler, P.C., 83 F.3d 660, 668 & 670 (4th Cir. 1996), aff'g 864 F. Supp. 527 (E.D. Va. 1994) and rev'g in part and aff'g in part 875 F. Supp. 1152 (E.D. Va. 1995) and 875 F. Supp. 1190 (E.D. Va. 1995); United States v. Ginsburg, 773 F.2d 798, 803 (7th Cir. 1985) (en banc), cert. denied, 475 U.S. 1011, 89 L. Ed. 2d 302, 106 S. Ct. 1186 (1986); see, e.g., Infelise, 938 F. Supp. at 1357, 1362, 1367 & n.7; United States v. Sokolow, 1996 U.S. Dist. LEXIS 811, 1996 WL 32113 *17 (E.D. Pa. 1996), aff'd, 81 F.3d (3rd Cir. 1996); United States v. Rashid, 1996 U.S. Dist. LEXIS 10584, 1996 WL 421855 *1 (E.D. Pa. 1996). Attempts by third parties to acquire an interest later are void unless the third party is a bona fide purchaser for value under Subsection 1963(l)(6)(B). See, e.g., United States v. Scardino, 1996 U.S. Dist. LEXIS 19553, 1997 WL 7285 *5 (N.D. Ill. Jan. 2, 1997); Infelise, 938 F. Supp. at 1352, 1362 & 1368.

 Here, there is no dispute that the set off amount existed as a credit in BCCI's account at American Express Bank on July 5, 1991, when BCCI was shut down by banking regulators. It was not until July 8, 1991, that American Express Bank exercised its state law right of set off, thus acquiring a cognizable legal interest. See In re Petition of Security Pacific Int'l Bank, slip. op. at 9 (prior to exercise, right of set off is inchoate and insufficient to establish a cognizable property interest); In re Petition of American Express Bank, 941 F. Supp. at 187-89 (same). Because the petitioner's interest was inchoate until July 8th, a date well after the commission of the acts leading to forfeiture, ...


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