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United States v. Sum of $70

United States District Court, District of Columbia

February 13, 2015

UNITED STATES OF AMERICA, Plaintiff,
v.
SUM of $70, 990, 605, et al., Defendants in rem.

MEMORANDUM OPINION

ALAN KAY, Magistrate Judge.

Pending before the Court are "Claimant Afghanistan International Bank's Motion for an Order to Compel the Government to Respond to Pending Discovery and For an Enlargement of Time To Respond to The Government's Motion to Strike" ("Motion") [97] and "United States' Motion for a Protective Order Against Discovery Propounded by Afghanistan International Bank ("AIB") Until the Resolution of Dispositive Motions" ("Protective Order") [105]. Chief Judge Roberts, who was the initial trial judge assigned to the case, referred these two motions to the undersigned on July 16, 2014 (Minute Order, July 16, 2014), and the Court held a hearing on both motions on October 28, 2014. For the reasons set forth in this memorandum opinion, the undersigned will grant in part and deny in part the Motion to Compel and deny the Protective Order.

I. Background

The underlying case stems from a civil action in rem for the forfeiture of the defendant assets pursuant to 18 U.S.C. §§ 981(a)(1)(C), 981(k), and 984. The United States filed its Second Amended Verified Complaint for Forfeiture in rem ("Complaint") [15] seeking the forfeiture of the defendant assets. The United States alleges that these assets are the proceeds of a conspiracy to commit wire fraud in violation of 18 U.S.C. § 1343, through which Mr. Hikmatullah Shadman and his associates allegedly obtained more than $77 million in payments from the United States. (Complaint ¶ 10).

Both AIB and the United States state in their pleadings that a total of $10.1 million were seized from AIB's interbank[1] account at Standard Chartered Bank in New York. (Motion at 2; Complaint at ¶ 6(a)). The initial seizure from the interbank account occurred on May 10, 2013, when the Department of Justice served a Warrant of Arrest in rem seizing $1.5 million from the account. (Complaint ¶ 60; Afghanistan International Bank's Verified Claim of Interest in Defendant Property ("Claim") [41] at 2-3). On May 24, 2013, the Department of Justice served two warrants on the interbank account for seizures in the amount of $3.6 million and $5 million. (Complaint ¶¶ 61, 76; Claim at 3).

AIB stipulated that it had $4, 330, 287.03 on deposit in accounts controlled by or for the benefit of Mr. Shadman at the time of the seizures. (Stipulation for Return of Seized Funds ("Stipulation") [25] at 5). On September 4, 2013, pursuant to the Stipulation, the United States released to AIB $5, 769, 712.97, the difference between the $10.1 million that was originally seized and the amount on deposit. (Id. ) On October 16, 2013, AIB filed its verified claim of interest to $4, 330.287.03 plus interest seized from the AIB interbank account located at Standard Chartered Bank in New York. On May 30, 2014, AIB served the United States with its First Set of Interrogatories and Request for Production. (Motion at 2). In its Opposition, the United States stated that it received the discovery request on or about June 10, 2014. (United States Opposition to Putative Claimant Afghanistan International Bank's Motion for an Order to Compel the Government to Respond to Pending Discovery and For an Enlargement of Time to Respond to the Government's Motion to Strike ("Opposition") [106] at 2, n.1). On July 2, 2014, the United States moved to strike AIB's claim to the seized funds, arguing that AIB had no standing to challenge this forfeiture action. (United States' Motion to Strike Claim of Afghanistan International Bank ("Motion to Strike") [93]).

Chief Judge Roberts determined that the Motion to Strike would be resolved after the disposition of the Motion that is currently before this Court; Judge Moss, the current trial judge, has kept with that determination. Therefore, the Motion to Strike has not been fully briefed, and will not be fully briefed, until the resolution of the Motion to Compel. The Motion to Strike determination will resolve whether or not AIB has standing, and therefore the right to continue participating in this litigation. The undersigned must balance AIB's right to discovery to establish that standing with the possibility of harm to the United States.

While the undersigned is not charged to determine whether or not AIB has standing to contest this forfeiture action of the defendant assets, the narrow scope of discovery to which AIB is entitled implicates the issues of standing. Understanding the statutory standing provision is critical to this Motion's analysis, as AIB is entitled to any jurisdictional discovery that could help either establish itself as an "owner" or satisfy one of the two aforementioned exceptions to the ownership provision. Therefore, some discussion of standing and its effect on the two motions currently pending before the undersigned is warranted.

A claimant must establish two types of standing in a civil forfeiture action: Article III standing and statutory standing.

The term statutory standing' relates to a claimant's ability to show that he has satisfied whatever statutory requirements Congress has imposed for contesting a civil forfeiture action in federal court, while Article III standing' [or constitutional standing'] relates to the claimant's ability to show that he has a sufficient interest in the property to satisfy the case-or-controversy requirement of Article III of the Constitution.

Stefan D. Casella, Asset Forfeiture in the United States: A Treatise on Forfeiture Law, § 9-4 at 326 (2006).

The issue of Article III standing is uncontested; the United States has only argued, in both its briefings and at the October 28, 2014 hearing, that AIB lacks statutory standing. Therefore, the main issue with respect to standing is whether or not AIB can establish statutory standing under 981(k), as this was the authorizing statute that allowed the United States to execute arrest warrants in rem against the funds in the AIB interbank account.

18 U.S.C. § 981(k)(3) states that "[i]f a forfeiture action is instituted against funds restrained, seized, or arrested... the owner of the funds deposited into the account at the foreign financial institution... may contest the forfeiture by filing a claim under section 983" (emphasis added). The ability of AIB to establish statutory standing, therefore, turns on its ability to establish itself as an owner, the parameters of which are put forth in § 981(k)(4)(B). AIB disagrees, and argued at the October 28, 2014 hearing that the issue of "ownership" under the statute is part of the innocent owner affirmative defense, distinct from the issue of statutory standing. However, the undersigned reads the statute as requiring AIB to establish itself as an owner in order to have statutory standing, and this limits the jurisdictional discovery to which AIB is entitled at this point in the litigation.

Section 981(k)(4)(B)(i)(I) defines the term "owner" by reference to 18 U.S.C. § 983(d)(6). Section 981(k)(4)(B)(i)(II) makes clear that an owner "does not include either the foreign financial institution... or any financial institution acting as an intermediary in the transfer of the funds into the interbank account." This would, on its face, exclude AIB - a foreign financial institution - unless it can satisfy one of the two exceptions to this definition of "owner" that excludes foreign financial institutions.

First, a foreign financial institution may be considered the "owner" of the funds only if the basis of the forfeiture action is wrongdoing committed by the foreign financial institution. Section 981(k)(4)(B)(ii)(I). Second, if the foreign financial institution establishes, by a preponderance of the evidence, that prior to the restraint, seizure, or arrest of the funds, it discharged all or part of its obligation to the prior owner of the funds, it "shall be deemed the owner of the funds to the extent of such discharged obligation." Section 981(k)(4)(B)(ii)(II).

Absent an exception, however, § 981(k)(4)(B)(i)(I) makes clear that the owner of the deposited funds is the individual who owned the funds at the time that they were deposited into a foreign financial institution. United States v. Union Bank for Savings & Investment (Jordan ) 487 F.3d 8, 17 (1st Cir. 2007). By virtue of the statute, AIB cannot be an owner unless it establishes that one of the two exceptions apply in this situation - a determination that is ultimately for Judge Moss.

II. Standard of Review

A. Discovery, Motion to Compel, and ...


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