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UNITED STATES v. ALL FUNDS ON DEPOSIT IN GREAT EAS

August 28, 1992

UNITED STATES OF AMERICA, Plaintiff, against ALL FUNDS ON DEPOSIT IN GREAT EASTERN BANK ACCOUNT NUMBER 11008117 IN THE NAME OF HADSON TOKO TRADING CO., a/k/a HADSON TOKO TRADING CO., INC., a/k/a HADSON TOKO TRADING CO., LTD., Defendants.


The opinion of the court was delivered by: CAROL BAGLEY AMON

 AMON, U.S. DISTRICT JUDGE

 Introduction

 The United States commenced this action seeking forfeiture of the funds on deposit in account number 11008117 at the Great Eastern Bank ("Account" or "frozen account"), pursuant to 18 U.S.C. § 981. Claimant Hadson Toko Trading Co., Inc. ("Hadson") subsequently moved this Court, pursuant to Fed. R. Civ. P. 12(b)(6) and Rule 12 of the Local Rules of the United States District Court for the Southern and Eastern Districts of New York for Admiralty and Maritime Claims, for an order dismissing the forfeiture action and vacating the warrant for the arrest of the defendant properties. In addition, plaintiff has moved for leave to amend its complaint to add additional factual assertions and a claim under 31 U.S.C. § 5324. The motions were referred to the Honorable John L. Caden, United States Magistrate Judge, for report and recommendation. Magistrate Judge Caden filed his report and recommended that the motion to dismiss and the application to vacate the warrant be denied, and that the motion to amend be granted. After a de novo review of the record, see 28 U.S.C. § 636(b)(1), the Court adopts Magistrate Judge Caden's recommendation that the motion to amend be granted and the motion to dismiss be denied, but finds that claimant's motion to vacate the warrant should be granted in part.

 Background

 On May 2, 1991, the government filed a civil complaint commencing this action for forfeiture of defendant monies pursuant to 18 U.S.C. § 981. The government also obtained a warrant pursuant to Rule C(3) of the Supplemental Rules for Certain Admiralty and Maritime Claims for the seizure of the funds in the Account. The warrant was served upon the Great Eastern Bank ("Bank") on May 3, 1991. Service of the complaint and warrant upon Hadson was made on May 31, 1991, and a claim was filed by Hadson on June 20, 1991, pursuant to Rule C(6) of the Supplemental Rules.

 On May 2, 1991, the day this action was commenced, the frozen account had a balance of $ 6,340.00. On May 3, 1991, the day the account was seized, a deposit of a check in the amount of $ 6,079.00 was made into the account. On May 6, 1991, a deposit was made into the account in the amount of $ 48,384.77 for which the Bank filed a currency transaction report ("CTR"). A number of checks have since cleared the account bringing the current balance to $ 51,563.40.

 The government alleges that between July 13, 1990 and December 26, 1990, 29 deposits of United States currency were made into the Account in amounts between $ 4,010.00 and $ 9,990.00 totaling $ 265,838.00. The government alleges as its first claim for relief that these deposits were structured to avoid the filing of currency transaction reports by the Great Eastern Bank in violation of 31 U.S.C. § 5313. This allegation is repeated, evidently erroneously, as the government's second cause of action. In its amended complaint the government seeks to expand the time period during which the structured transactions allegedly took place to cover over 80 deposits amounting to over $ 900,000.00 in cash. In addition, the government seeks to assert a second claim under 31 U.S.C. § 5324, the anti-structuring provision. The government contends that all monies in the frozen account are subject to forfeiture under 18 U.S.C. § 981, as property involved in violations or attempted violations of 31 U.S.C. §§ 5313 and 5324. Claimant argues that the funds currently on deposit are not subject to forfeiture since they were not involved in, nor traceable to, violations of Sections 5313 and 5324.

 Discussion

 A motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure should be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Green v. Maraio, 722 F.2d 1013, 1015-16 (2d Cir. 1983) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)). The court must accept as true all material facts well-pleaded in the complaint and must make all reasonable inferences in the light most favorable to the plaintiff. In re Energy Sys. Equip. Leasing Sec. Litig., 642 F. Supp. 718, 723 (E.D.N.Y. 1986).

 In this case, the United States seeks forfeiture of the defendant funds pursuant to 18 U.S.C. § 981(a)(1), which authorizes forfeiture of property "involved in a transaction or attempted transaction in violation of sections 5313(a) *fn1" or 5321 *fn2" of Title 31 . . . or any property traceable to such property."

  In response to this motion the government is only required to demonstrate probable cause for forfeiture, a claimant is not entitled to a hearing on this issue before trial. See United States v. Banco Cafetero Panama, 797 F.2d 1154, 1160 (2d Cir. 1986) (involving forfeiture action under 21 U.S.C. § 881, a forfeiture provision dealing with property connected to illegal drug transactions); United States v. 316 Units of Municipal Securities in the Name of Efrain Gonzalez, 725 F. Supp. 172 (S.D.N.Y. 1989) (applying probable cause requirement to forfeiture under 18 U.S.C. § 981). In order to establish probable cause the government must have reasonable grounds, rising above mere suspicion, to believe the property is subject to forfeiture. Banco Cafetero Panama, 797 F.2d at 1160. At trial the government need only prove that the claimants had knowledge of the reporting requirements of Section 5313 and acted to avoid them. 316 Units of Municipal Securities, 725 F. Supp. at 177 .

 As the Report and Recommendation of Magistrate Judge Caden correctly notes, the government has established probable cause to believe that deposits made into the frozen account were structured in violation of 31 U.S.C. §§ 5313 and 5324. See United States v. Nersesian, 824 F.2d 1294, 1314 (2d Cir. 1987). Indeed, claimant is willing to concede, for purposes of this motion, that structuring violations took place. The government, however, must still establish that all the seized property was involved in a transaction or attempted transaction in violation of Section 5324. 316 Units of Municipal Securities, 725 F. Supp. at 179 . The government has not demonstrated any nexus between the alleged violations and the entirety of the funds currently on deposit in the frozen account, see United States v. Property at 4492 S. Livonia Rd., 889 F.2d 1258, 1269 (2d Cir. 1989), nor has the government sought to trace the funds to the proceeds of illegal activity, see Banco Cafetero Panama, 797 F.2d at 1159. *fn3" Rather, the government argues that the entire current balance of $ 51,563.40 is forfeitable under a facilitation theory.

 Courts have applied a facilitation theory to authorize the forfeiture, pursuant to Section 981, of the contents of entire bank accounts used to facilitate instances of money laundering in violation of 18 U.S.C. §§ 1956 *fn4" and 1957. See United States v. Certain Funds on Deposit in Account No. 01-0-71417, located at the Bank of New York, 769 F. Supp. 80 (E.D.N.Y. 1991); United States v. All Monies ($ 477,048.62) in Account No. 90-3617-3, 754 F. Supp. 1467, 1473 (D.Hawaii 1991). These courts held that facilitation occurs when the subject property makes the underlying criminal activity "less difficult or 'more or less free from hinderance'". Bank of New York, 769 F. Supp. at 84 (quoting United States v. Schifferli, 895 F.2d 987, 990 (4th Cir. 1990); United States v. Premises known as 3639-2nd St., 869 F.2d 1093, 1096 (8th Cir. 1989)). If any portion of the property is used to facilitate the violation, then all the property is forfeitable. Bank of New York, 769 F. Supp. at 84; All Monies ($ 447,048.62), 754 F. Supp. at 1473. Where violations of 18 U.S.C. §§ 1956 and 1957 are alleged this facilitation theory is completely logical. When money from illegal sources is commingled with "clean" money, the illegal funds are cleansed and sheltered from detection. A common method of money laundering is the mixing of legitimate and illegitimate money. The clean funds are used to remove the taint of the money derived from illegal sources. Bank of New York, 769 F. Supp. at 84-85. Accordingly, the legitimate funds are subject to forfeiture since they facilitate the concealment of the proceeds of the unlawful activity. In the instant case there is no claim of tainted ...


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