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UNITED STATES v. ALL FUNDS PRESENTLY ON DEPOSIT OR

August 31, 1993

UNITED STATES OF AMERICA, Plaintiff,
v.
ALL FUNDS PRESENTLY ON DEPOSIT OR ATTEMPTED TO BE DEPOSITED IN ANY ACCOUNTS MAINTAINED AT AMERICAN EXPRESS BANK, AMERICAN EXPRESS BANK, LTD., CITIBANK INTERNATIONAL, CITIBANK, N.A., DELTA NATIONAL BANK, AND CAPITOL BANK IN THE NAMES OF CAMBITUR, S.A., CASA DE CAMBIOS, CAMBIDEX, MULTICAMBIO, S.A., MICHEL DUCHAMP, JCJ, INC., AND ALL RELATED ENTITIES AND INDIVIDUALS (COLLECTIVELY REFERRED TO AS THE CLAIMANTS), INCLUDING, BUT NOT LIMITED TO, AMERICAN EXPRESS BANK ACCOUNT NO. 00800045, AMERICAN EXPRESS BANK, LTD. ACCOUNT NO. 000708008, CITIBANK N.A. ACCOUNT NO. 36964602, CITIBANK, N.A. ACCOUNT NO. 36994895, DELTA NATIONAL BANK ACCOUNT NO. 602187, AND CAPITOL BANK ACCOUNT NO. 140023033, AND ALL PROPERTY TRACEABLE THERETO, Defendants.



The opinion of the court was delivered by: I. LEO GLASSER

 GLASSER, United States District Judge:

 On November 12, 1992, the United States commenced this action to seize and forfeit monies on deposit at various designated bank accounts and all property traceable thereto, pursuant to 18 U.S.C. §§ 981, 984, 1956 and 1957 and 21 U.S.C. § 841 et seq. and 881(a)(6). On the same day that the government filed its verified complaint in rem, the Clerk of this Court issued a warrant of arrest, pursuant to Rule C(3) of the Supplemental Rules for Certain Admiralty and Maritime Claims (the "Supplemental Rules"), for the seizure of the defendant funds and all property traceable thereto. Subsequent amendments to the complaint allege violations of 31 U.S.C. §§ 5313 and 5324.

 Among the accounts that the government seized were the following:

 
American Express Bank accounts numbered 00800045 and 000708008,containing a total of approximately $ 1,562,994.42, both of which were held by the Bank in the name of Cambitur, S.A. ("Cambitur");
 
Citibank, N.A. account numbered 36964602 containing approximately $ 1,200,000, held in the name of Casa de Cambios, Cambidex("Cambidex"). *fn1"

 The United States alleges that the funds contained in these accounts are proceeds traceable to the sale of narcotics, have been used to facilitate the laundering of narcotics proceeds, and were obtained in violation of various reporting requirements. Claimant Cambitur and Cambidex now move this court for a grant of summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. *fn2" For the reasons described below, claimants' motions are granted in part and denied in part.

 FACTS

 I. The Herrera Narcotics Connection

 The original impetus for the government's seizure of the funds in this action appears to be evidence uncovered during a criminal investigation of Helmer Herrera and specifically through a search of the residence of an individual named Jesus Linier Morales Maya, a.k.a. Remendon ("Remendon"), a known narcotics trafficker. Helmer Herrera controls an organization (the "Herrera Organization") which, as part of the cocaine cartel headquartered in Cali, Columbia, engages in narcotics trafficking and money laundering activities. (Declarations of Special Agent Juan Arrivillaga at P 1). The Herrera Organization has been involved in distributing cocaine and laundering the proceeds of its narcotics trade in the New York City area. (Arrivillaga Decls. at P 2).

 The government contends that several confidential sources of information, previously proven to be reliable, have described the money laundering methods used by the Herrera Organization. (Arrivillaga Decls. at P 3). Specifically, the Organization uses individuals called "smurfs" to purchase money orders in a manner calculated to avoid the threshold reporting requirement of $ 10,000 and/or the threshold identification requirement of $ 3,000. The smurfs are told to purchase large volumes of small, even denominations of money orders which are then smuggled out of the United States to foreign countries, one of which is Ecuador. (Arrivillaga Decls. at PP 3-4). In Ecuador, individuals working for the Herrera Organization present the money orders to banks or money exchange houses to be cashed; the proceeds are allegedly given to representatives of the Herrera Organization in Ecuador or Columbia. (Arrivillaga Decls. at P 4). The money exchange houses profit from the purchase of money orders through a favorable exchange rate for Ecuadoran currency, and they maintain American bank accounts as repositories for the dollars that they use in exchange for Ecuadoran sucres.

 On or about March 26, 1991, law enforcement officers executed a search of the premises located at 1135-18 94th Street, Queens, New York, where Remendon then resided (the "Remendon premises"). (Arrivillaga Decls. at P 5). During this search, the government recovered approximately two million dollars ($ 2,000,000) in United States currency and approximately six million dollars ($ 6,000,000) in the form of carbon copy receipts of blank money orders (the "Remendon money orders"). (Arrivillaga Decls. at P 6). The Remendon money orders were in small, even denominations, and therefore appeared to the government to have been purchased in a manner calculated to avoid the $ 3,000 reporting requirement of 31 U.S.C. § 5325 and the $ 10,000 reporting requirement of 31 U.S.C. § 5313. (Arrivillaga Decl., dated May 7, 1993, at P 10). Remendon subsequently pled guilty before Judge Raggi to violations of 31 U.S.C. § 5316(b) in connection with the Herrera organization's money laundering activities; he is currently incarcerated and serving his eight-year sentence. (Arrivillaga Decls. at P 7).

 At Remendon's premises, law enforcement officers also discovered documents and written records containing several specific names in connection with codes and substantial sums of money. (Arrivillaga Decl., dated May 7, 1993, at PP 12-16). Subsequent investigations indicate that the written records relate to Remendon's receipt and distribution of narcotics proceeds in the form of cash and money orders on behalf of the Herrera Organization. (Arrivillaga Decl., dated May 7, 1993, at PP 12-16). *fn3" According to the government, the DEA has determined that a total of $ 5,139,183.00 in drug money was given to Remendon in March of 1991 and that from January to March 19, 1991 a total of 38 million dollars was received by Remendon. (Arrivillaga Decl., dated May 28, 1993, at P 12). The government contends that the documents and money order receipts uncovered in the Remendon search corroborate the information received from its confidential sources describing the smurf money laundering operation.

 As further corroboration of the money laundering scheme, the government points to the arrest of Sandra Lorena Gomez in late June of 1991 at John F. Kennedy International Airport in Queens, New York. At the time of Gomez's arrest for violations of 31 U.S.C. §§ 5313 et seq., law enforcement officers discovered approximately $ 250,000 in the form of small, even denominations of money orders (the "Gomez money orders") hidden in the false bottom of Gomez's suitcase. (Arrivillaga Decl., dated May 7, 1993, at P 17; Arrivillaga Decl., dated June 17, 1993, at P 14). Gomez was attempting to transport the suitcase from the United States to Ecuador. (Arrivillaga Decl., dated May 7, 1993, at P 17; Arrivillaga Decl., dated June 17, 1993, at P 15). The Gomez money orders bore similarities to the Remendon money orders: both sets were blank; both sets were in even hundred dollar denominations; and both had been purchased at substantially the same facilities. (Arrivillaga Decl., dated May 7, 1993, at P 19; Arrivillaga Decl., dated June 17, 1993, at P 16). According to Special Agent Arrivillaga, the government subsequently learned that Gomez was working for the Herrera Organization and was assisting in their money laundering activities by carrying money orders to Ecuador. (Arrivillaga Decl., dated May 7, 1993, at P 18). Her arrest also confirms prior information that the Herrera organization used small appliances and luggage to smuggle money orders and cash outside the United States. (Arrivillaga Decl., dated May 7, 1993, at P 16; Arrivillaga Decl., dated June 17, 1993, at P 13).

 II. Tracing the Money Orders to the Defendant Accounts

 After recovering the carbon copy receipts of the Remendon money orders in 1991, law enforcement officers discovered that approximately $ 1,250,000 of these money orders had been deposited into the Cambidex account at Citibank, a fact that Cambidex does not dispute. (Arrivillaga Decl., dated May 7, 1993, at P 8; Cambidex 3(g) Statement at P 2). Similarly, approximately $ 639,000 of the Remendon money orders had been deposited in the Cambitur account at American Express Bank in New York City. (Arrivillaga Decl., dated May 28, 1993, at P 18).

 All of the Remendon money orders were purchased at various post offices, banks, and other institutions licensed to sell money orders in the metropolitan New York area. (Arrivillaga Decls., dated May 7 & 28, 1993 at PP 9-10; Arrivillaga Decl., dated June 17, 1993 at PP 9, 24). In the majority of cases, the money orders were purchased in small, even denominations and in sequential series the aggregate value of which fell just below the $ 3,000 identification requirement and/or the $ 10,000 reporting requirement of Title 31. (Arrivillaga Decls. at PP 8-10; Callery Decl., dated May 7, 1993, at PP 9-11; Callery Decl., dated May 28, 1993, at PP 11-12; Callery Decl., dated June 17, 1993, at PP 10-11). None of the Remendon money orders which were deposited into the accounts of Cambitur or Cambidex listed any street address for the alleged remitters or purchasers; a few of those orders bore references to "N.Y." or "Calif." (Callery Decl., Dated May 28, 1993, at P 12; Callery Decl., Dated May 7, 1993, at P 11c; Callery Decl., dated June 17, 1993, at P 11). Several of the Remendon money orders bore an unusual seal or symbol on their reverse side which the government claims constitutes a device to identify narcotics proceeds. (Callery Decl., Dated May 7, 1993, at P 11c).

 The government alleges that after March 26, 1991, the date on which the Remendon search took place, and as recently as October of 1992, money orders in United States currency which were the proceeds of narcotics transactions were deposited into the Cambitur accounts. (Arrivillaga Decl. dated May 28, 1993, at PP 22-23). As an example, the government explains that sometime between February of 1991 and November of 1992, Cambitur paid approximately $ 1,250,000 to account no. 602187 at Delta National Bank in the name of "Michel Duchamp"; investigation revealed that "Michel Duchamp" is a fictitious name and that the Delta account was controlled by two citizens of Columbia who are associated with a company named Proaves, S.A. The incorporation papers of Proaves identify Edgar Alberto Garcia Montilla as one of the company's corporate officials. In April of 1992, Garcia Montilla was convicted in a Luxembourg court of laundering narcotics proceeds on behalf of Jose Santa Cruz Londono and others in the Cali Cartel; he is now incarcerated in Luxembourg and fighting extradition attempts by the United States to try him in this district for narcotics trafficking and money laundering violations. (Arrivillaga Decl. dated May 28, 1993, at P 23). Furthermore, discussions with law enforcement officers in conjunction with certain checks drawn on the Cambitur account between February of 1991 and November of 1992 indicate that payees of the checks are targets of ongoing money laundering and narcotics trafficking violations.

 The government also alleges that following March of 1991, money orders purchased in a manner calculated to avoid the reporting and identification requirements of Title 31 continued to be deposited into the defendant accounts. More specifically, according to Postal Inspector Callery, a review of records maintained by the United States Postal Service during the period from December 1991 through September 1992 reveals that approximately $ 1,900,000 (in the form of postal money orders which had been purchased to avoid identification) were deposited into Cambitur's American Express account. (Callery Decl., dated May 28, 1993, at PP 13-14). *fn4" Similarly "suspicious" deposits -- totalling approximately $ 51,000, allegedly were made into Cambidex's Citibank account on August 14, August 19, and November 13 of 1992. (Callery Decl., dated May 7, 1993, at PP 18-20).

 III. Commencement of this Action

 As mentioned above, the United States commenced this action to seize and forfeit monies on deposit in the above-listed defendant accounts by filing a verified complaint in rem on November 12, 1992, over eighteen months after the search of the Remendon premises. In that complaint, the government alleged that the funds contained in the accounts constituted proceeds traceable to the sale of narcotics and had been used to facilitate the laundering of said proceeds. The complaint cited as statutory authority: 18 U.S.C. § 981 (civil forfeiture provision for proceeds involved in money laundering in violation of 18 U.S.C. §§ 1956 and 1957 and 31 U.S.C. §§ 5313 and 5324); 18 U.S.C. § 984 (civil forfeiture of fungible property involved in money laundering in violation of 18 U.S.C. §§ 1956 and 1957 and 31 U.S.C. § 5322); and 21 U.S.C. § 881(a)(6) (civil forfeiture of property exchanged for or traceable to controlled substances). On the same day that the government filed its verified complaint, the Clerk of this Court issued a warrant of arrest, pursuant to Rule C(3) of the Supplemental Rules, for the seizure of the defendant funds and all property traceable thereto.

 In December of 1992, the United States filed a second amended verified complaint in rem against the defendant funds and accounts, alleging additional facts supporting a claim for relief under Sections 981 and 984, based upon failures to file currency reports and structuring violations prohibited by 31 U.S.C.§§ 5313 and 5324.

 IV. Claimants

 As mentioned above, each claimant is an exchange house or "casa de Cambios" located in Ecuador, South America: Casa de Cambios, Cambidex was incorporated in 1987 and is located in Cuenca, Ecuador (Cardenas Affs. P 2); Cambitur was incorporated in 1956 and is located in Guayaquil, Ecuador. (Real Aff. P 4). Both cambios allege that they follow careful record keeping procedures and comply with the banking laws of Ecuador, by, for example, requiring a Cedula (an Ecuadoran identification card), telephone number, and address from anyone negotiating a money order. (Cardenas Affs. P 2; Real Aff. PP 7-8). Based on the limited discovery to date, the United States disputes the cambios' representations concerning their record-keeping and the cambios' allegations that they have abided by all provisions of Ecuadoran law. (Counter 3(g) Statement P 1).

 In addition to representing that they have done everything within their power to avoid dealing with illegitimate funds, claimants assert that their accounts cannot be seized because any tainted funds that might have been deposited have already passed through those accounts. Cambidex attaches as Exhibit 5 to its moving papers what appear to be bi-weekly Citibank account statements from April 1, 1991 to December 1, 1992. Based upon these statements, Cambidex alleges that between the date of the search of the Remendon premises and the date on which the government filed its verified complaint in rem, the balance in its Citibank account dropped to as low as approximately twenty-four thousand dollars ($ 24,000). (Exh. 5, dated May 1, 1991). Cambidex also claims that during the same period of time "over 55 million dollars in totally legitimate funds have passed through the Defendant account." (Cambidex 3(g) Statement at P 3). Cambitur fails to present any similar factual claims.

 V. Discovery

 Discovery in this action is still at a preliminary stage. With respect to Cambidex, although no depositions have yet been taken, (AUSA Decl., dated May 7, 1993, at P 10), Cambidex did notice depositions of Special Agent Arrivillaga and approximately twenty Ecuadoran witnesses, including its moving affiants, (AUSA Decl., dated May 7, 1993, at P 5); these depositions were adjourned on consent to allow the government additional time to translate and analyze documents produced by Cambidex. (AUSA Decl., dated May 7, 1993, at P 7). The United States and Cambidex are still trying to work out their disputes over the production of various requested documents.

 As of the date of oral argument, Cambitur had failed to answer any of the government's interrogatories or produce any of the documents requested by the United States. (AUSA Decl., dated May 28, 1993, at PP 8-10). No depositions of Cambitur's representatives had been scheduled or taken. (AUSA Decl., dated May 28, 1993, at P 10). This court consequently ordered Cambitur to comply with discovery requests.

 DISCUSSION

 Federal Rule of Civil Procedure 56(c) provides in relevant part that summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The Supreme Court has established a clear test for whether an issue of fact is "genuine" for the purposes of summary judgment. In Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986), the Court stated that a "dispute about a material fact is 'genuine' . . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Thus, "if the evidence is merely colorable . . . or is not significantly probative, . . . summary judgment may be granted." Id. at 249-50.

 The existence of such a genuine issue of fact does not in itself defeat a motion for summary judgment, however; rather, the issue must be of a material fact. As the Court further stated in Anderson: "As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248. Thus, in order to evaluate the materiality of any disputed facts, this court must examine the substantive law underlying plaintiff's causes of action; it is only with reference to those governing standards that this court may determine whether or not the entry of summary judgment is appropriate.

 Finally, in considering a motion for summary judgment, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Id. at 249. Insofar as granting a motion for summary judgment "deprives a party of its day in court and the right to present its cause to a jury, the district court in examining the record must resolve all ambiguities and draw all reasonable inferences in favor of the nonmoving party." Gibson v. American Broadcasting Cos., 892 F.2d 1128, 1132 (2d Cir. 1989); see also Celotex Corp. v. Catrett, 477 U.S. 317, 330, n.2 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Taggart v. Time, Inc., 924 F.2d 43, 45-46 (2d Cir. 1991). As these rules make clear and contrary to claimants' assertions, they as moving parties bear the burden of proof on this motion. Should it appear from the affidavits of the party opposing the summary judgment motion -- in this case, the government -- that it cannot present facts essential to justify such opposition, the court may deny the motion or order a continuance to permit discovery to proceed. Fed. R. Civ. P. 56(f).

 As alluded to above, claimants in this case essentially make three arguments in favor of their motion for summary judgment. They first assert that based on the Second Circuit case of United States v. Banco Cafetero Panama, 797 F.2d 1154 (2d Cir. 1986), the government lacked probable cause to seize and forfeit the monies on deposit in the subject accounts since any tainted funds (or "traceable proceeds" had entered and left the accounts prior to the government's November 1992 seizure. Second, claimants assert that the statutory "fungible property" exception to this tracing analysis has a one-year limitations period which bars this action, since the defendant funds were seized more than twelve months after the Remendon search. Third, claimants contend that they are "innocent owners" of the funds. This court examines each of these arguments below.

 I. Banco Cafetero

 Probable cause to seize and forfeit an active bank account under civil forfeiture laws requires that the funds in that account be somehow "traceable" to the alleged unlawful activity that gave rise to the forfeiture in the first place. See 18 U.S.C. § 981(a)(1)(A); 21 U.S.C. § 881(a)(6). In Banco Cafetero, 797 F.2d 1154 (2d Cir. 1986), the government sought forfeiture of narcotics proceeds that had been deposited in various bank accounts in which the tainted funds were then commingled with allegedly legitimate money. The statutory basis for forfeiture was a provision of the Comprehensive Drug Abuse Prevention and Control Act of 1970, 18 U.S.C. § 881(a)(6), which provides that the United States may forfeit:

 
(6) All moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance in violation of this subchapter, all proceeds traceable to such an exchange, and all moneys, negotiable instruments, and securities used or intended to be used to facilitate any violation of this subchapter, except that no property shall be forfeited under this paragraph, to the extent of the interest of an owner, by reason of ...

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