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UNITED STATES v. BCCI HOLDINGS

August 26, 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

 Presently before the Court are the parties' cross motions for summary judgment regarding the First and Second Round Petitions of the People's Republic of Bangladesh and Bangladesh Bank (hereinafter referred to respectively as "First Round L-Claim" and "Second Round L-Claim" or collectively as "L-Claims"), which were filed pursuant to 18 U.S.C. § 1963(l) (1994). This Court previously held that the Government of Bangladesh had 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 BCCI(O) Foreign Branches, et al.), 833 F. Supp. 32, 36 (D.D.C. 1993), aff'd, 310 U.S. App. D.C. 268, 46 F.3d 1185 (D.C.Cir. 1985), cert. denied sub nom. Chawla v. United States, 515 U.S. 1160, 132 L. Ed. 2d 856, 115 S. Ct. 2613.

 Upon consideration of the parties' motions, memoranda and exhibits, their briefs in opposition and replies, as well as the entire record in this matter, it is clear that there is no genuine dispute regarding any material fact and that the United States is entitled to judgment as a matter of law. Accordingly, the United States' motion for summary judgment will be granted, the petitioner's motion for summary judgment will be denied, and the L-Claims will be dismissed.

 Background

 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 instant motions for summary judgment and Bangladesh's L-Claims. *fn1" 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 regulators in other countries, and, on July 5, 1991, banking 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, Ltd., and the Bank of California. 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, which included charges of conspiracy, wire fraud and racketeering against BCCI, was filed in this Court. On January 24, 1992, this Court, following findings of fact and conclusions of law with supporting reasons made in open 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, this 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, the corporate defendants forfeited to the United States their ownership interests in all property located in the United States, including, without limitation, real property and all 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 the 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 identify 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 were two accounts in the name of BCCI (Overseas) Ltd. ("BCCI(O)"), Dhaka and Chittagong branches, at the New York office of American Express Bank, which accounts were numbered 53066 and 53165, with respective balances of US$ 610,940.61 and US$ 4,305,427.70. A Second Supplemental Order of Forfeiture was issued on July 29, 1992, directing the seizure of assets including two accounts at the Bank of California in the name of BCCI(O) and its Bangladesh branches, numbered 91-212373-1121 and 91-209411-1121, with respective balances of US$ 398,724.15 and US$ 3,155,691.38.

 The Plea Agreement also established the Worldwide Victims Fund and the U.S. Fund. Under the terms of the Plea Agreement, forfeited assets were to be disbursed in equal amounts to the Worldwide Victims Fund and the U.S. Fund. See Plea Agreement P11(c). The broad purpose of the Worldwide Victims Fund, operated by the Court-Appointed Fiduciaries, is to distribute funds "only to innocent depositors, creditors and other victims of BCCI whose claims are not derived directly or indirectly through violations of United States or other laws concerning narcotics, terrorism, money laundering, crimes of violence, or other acts generally recognized as felonies or similar crimes under the law of countries subscribing to recognized norms of international justice." Id. P14.

 The purpose of the U.S. Fund is more specific, but no less compensatory. 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, and which may include claims related to the failure of CenTrust, if any." 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.). *fn2"

 The following facts are relevant to the instant L-Claims and are either not in dispute or not reasonably disputed. BCCI(O)'s Chittagong and Dhaka branches opened and maintained the accounts at issue with American Express Bank and the Bank of California. *fn3" On July 5, 1991, pursuant to orders by New York State banking regulators and the Federal Reserve, all BCCI accounts, including those of the Chittagong and Dhaka branches of BCCI(O) at American Express Bank and Bank of California, were frozen. The dollars in those accounts ("forfeited accounts") were subsequently seized pursuant to this Court's Orders of Forfeiture.

 By way of background, Defendant BCCI(O) was incorporated in the Cayman Islands and was registered (licensed) as a banking company in Bangladesh. BCCI(O), which had a single board of directors, operated three main branches in Bangladesh--at Dhaka, Chittagong and Khulna. These branches neither had separate boards of directors nor were they incorporated separately from BCCI(O). Each branch was, however, licensed separately in Bangladesh and authorized to operate as a dealer of foreign exchange. *fn4" Each of the branches was classified by BCCI(O) as a branch of the parent bank and not as an independent affiliate or subsidiary.

 BCCI(O) granted each of the Bangladesh branches only limited authority to make decisions. If a proposal was beyond a Bangladesh branch's authority, the proposal would be forwarded to the country committee for BCCI(O) in Bangladesh. If the proposal exceeded the authority of the country committee, it would be sent to BCCI(O)'s regional committee in Hong Kong. If the proposal exceeded the authority of the regional committee, it would be sent to BCCI(O)'s Central Bank Committee in London. And, if the proposal exceeded the Central Bank Committee's authority, it would be sent to the BCCI(O) Board of Directors.

 Bangladesh Bank (the "Bank") is an instrumentality of the Government of Bangladesh. As such, the Bank regulates foreign exchange within Bangladesh by setting the rate of exchange for foreign currency and by imposing a ceiling on the amount of foreign exchange that a bank in Bangladesh may hold at any given time. This foreign exchange ceiling, which is a monetary amount calculated in either Taka (the currency of Bangladesh) or in dollars and based on the volume of transactions involving foreign exchange, is established by the Bank and communicated to authorized dealers in Bangladesh through circulars and notifications. Once a bank in Bangladesh reaches it foreign exchange ceiling, the authorized dealer is required to transfer the amount in excess of the ceiling to Bangladesh Bank. Authorized dealers who fail to transfer excess foreign currency are subject to penalties under Bangladesh law. The BCCI(O) branches, like other authorized dealers in Bangladesh, were required to submit monthly reports to Bangladesh Bank on their foreign exchange operations.

 Pursuant to the Foreign Exchange Control Manual ("FECM"), foreign currencies held by authorized dealers are held "at the disposal of Bangladesh Bank." FECM, Chapter IV, p. 9, P2. The FECM states that the Bank "may give instructions with regard to the disposal of such currencies" and that it "may direct authorized dealers at any time to sell . . . foreign currency held by them to the Bangladesh Bank or to such other person or persons as the Bangladesh Bank may direct." Id. The undisputed evidence of record indicates that whenever Bangladesh Bank takes foreign exchange from an authorized deal, it has paid the dealer the equivalent value in Taka.

 Pursuant to past practice as documented in the record, when Bangladesh branches of BCCI(O) transferred dollars to Bangladesh Bank, the BCCI(O) branch would telex American Express Bank or Bank of California, directing them to debit BCCI(O)'s accounts for the amounts to be transferred. American Express Bank or the Bank of California, as applicable, would then transfer the specified dollar amount through an account at Morgan Guaranty Bank to Bangladesh Bank's account at the Federal Reserve. Once Bangladesh Bank received the dollars in its Federal Reserve account, it would then credit BCCI(O)'s account at Bangladesh Bank with the equivalent value of Taka. Such payments were reflected as credits on the Bank's books for BCCI(O)'s accounts, but were not recorded until after the Bank received the foreign exchange.

 In addition to transferring dollars to Bangladesh Bank, the BCCI(O) branches in Bangladesh would also buy foreign currency from the Bank. These branches would pay Taka when buying such foreign exchange, and the transfers would be reflected as debits in BCCI(O)'s Taka accounts at Bangladesh Bank.

 The petitioner has not identified any evidence of record, pursuant to Local Rule 108(h), indicating that, prior to July 5, 1991, Bangladesh Bank gave any instructions to the BCCI(O) branches directing disposal of the specific U.S. dollars in the forfeited accounts. The parties agree, however, that Bangladesh Bank did not, in general or specifically here, instruct the BCCI(O) branches to sell foreign exchange to it, and there is no evidence that the BCCI(O) branches had exceeded the foreign currency ceilings set by Bangladesh Bank. *fn5" After BCCI(O)'s accounts were frozen on July 5, 1991, there were, of course, no instructions for transfers that were honored, and therefore no transfers were made from those accounts to Bangladesh Bank. *fn6"

 This Court previously denied the United States' motion to dismiss, determining that the law of Bangladesh would provide the rule of decision to determine whether the petitioner had a superior or vested legal right, title or interest in the forfeited property. See In re Petition of BCCI(O) Foreign Branches, 833 F. Supp. at 36. The parties were provided with the opportunity to conduct discovery, see Order of Sept. 27, 1993, at 4, and the Court extended discovery once upon a joint request by the parties. See Joint Motion at 4 (filed and approved on Oct. 29, 1993). While the Court offered an evidentiary hearing on the ...


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