United States v. $1,879,991.64 Previously Contained in Sberbank of Russia's Interbank

185 F.Supp.3d 493

United States of America, Plaintiff,

v.$1,879,991.64 Previously Contained in Sberbank of Russia's Interbank or Cor respondent Bank Account Numbers 0004403077 and 0004169401, Held at Deutsche Bank Trust Company Americas, Defendant in Rem.

Civ. No. 2:15–6442 (WJM)

United States District Court, D. New Jersey.

Signed May 10, 2016

Peter W. Gaeta, Office of the U.S. Attorney, Newark, NJ, for Plaintiff.

OPINION

WILLIAM J. MARTINI, UNITED STATES DISTRICT JUDGE.

Sberbank of Russia ("Sberbank") seeks a stay of the instant forfeiture action filed by the United States of America. Sberbank also moves for the entry of an order requiring the Department of Justice to expedite its review of the bank's request to have the forfeiture action terminated. For the reasons that follow, Sberbank's motion will be DENIED .

I. BACKGROUND

This action largely arises out of a separate criminal proceeding in which Alexander Brazhnikov Jr. ("Brazhnikov") pled guilty to conspiracy to commit money laundering, conspiracy to smuggle goods into the United States, and conspiracy to violate the International Emergency Economic Powers Act. See Criminal Docket, Crim. No. 2:15–300, ECF No. 27. As part of his plea agreement, Brazhnikov admitted to unlawfully exporting restricted items to Russian purchasers. Brazhnikov further admitted to concealing his illicit operation by making false statements and engaging in wire fraud. See id . Specifically, Brazhnikov created numerous shell companies, the sole purpose of which was to funnel unlawfully gotten funds to various bank accounts that he owned and operated. Complt. at ¶ 18.

Of particular relevance here are three transfers made by one of the shell companies to two personal bank accounts that Brazhnikov held at Sberbank, which represents itself to be the largest bank in Russia and one of the largest banks in the world.See Sberbank Mot. at 8. According to the Department of Justice, the shell company transferred a total amount of $1,880,000 to Brazhnikov's Sberbank accounts. Id . at ¶ 23.

After conducting an investigation, federal authorities successfully petitioned for a federal magistrate judge to issue 11 seizure warrants for various bank accounts held by Brazhhnikov, including a seizure warrant for $1,880,000 in Sberbank's interbank account held at Deutsche Bank Trust Company Americas. See id . at ¶ 24. The $1,880,000 figure held in the interbank account paralleled the amount of funds held in Brazhnikov's Sberbank accounts. On June 26, 2014, the FBI executed the seizure warrant, and the interbank funds were seized. See id .

Upon learning that its funds were seized, Sberbank submitted an administrative petition to the Attorney General, which sought to terminate the forfeiture pursuant to 18 U.S.C. § 981(k)(1)(B). See Sberbank Mot. at Ex. A. By way of background, Section 981(k)(1)(B) provides that the Attorney General, in consultation with the Secretary of the Treasury, may terminate a forfeiture proceeding where certain circumstances are present. Sberbank's petition was later transferred to the Asset Forfeiture & Money Laundering Section of the United States Department of Justice, Criminal Division ("AFMLS"). See id . at Ex. C. According to Sberbank, AFMLS has largely been nonresponsive to the bank's requests; however, the record shows that on August 5, 2015, an AFMLS attorney notified Sberbank that the Department of Justice was reviewing its petition. Additionally, on August 27, 2015, the Department of Justice served special interrogatories on Sberbank concerning the assets at issue. AFMLS sent additional correspondence to Sberbank at the end of 2015 and the beginning of 2016. See Sberbank Mot., Exs. C, E–G.

On June 11, 2015, Brazhnikov pled guilty to the alleged offenses. Shortly thereafter, the United States initiated the instant forfeiture action pursuant to 18 U.S.C. § 981, et seq . Through this action, the United States seeks the forfeiture of $1,879,991.64 previously contained in Sberbank's interbank account. ECF No. 1. On October 15, 2015, Sberbank filed a claim regarding the interbank funds pursuant to Rule G(5) of the Supplemental Rules for Admiralty or Maritime and Asset Forfeiture Claims, the Federal Rules of Civil Procedure, and 18 U.S.C. § 983(a)(4)(A). See ECF No. 4. Sberbank then filed an answer to the United States' complaint on November 5, 2015. See ECF No. 5. The answer states, among other things, that "Sberbank is a completely innocent party—an innocent owner—under the facts of this case." See Answer at 6. The answer further notes that Russia's bank secrecy laws prevent Sberbank from disclosing account balances and customer transaction records. See, e.g., id. at 9. Therefore, Sberbank cannot confirm nor deny any alleged deposits into its accounts, nor can it "demonstrate that [it] may have discharged all or part of its obligations to any depositor (including Brazhnikov, Jr.) prior to the seizure." Id .

Sberbank now moves for this Court to stay the forfeiture proceedings. Additionally, Sberbank asks this Court to order the Attorney General to respond to the Section 981(k)(1)(B) petition within thirty days. The United States opposes Sberbank's motion.

II. DISCUSSION

In order to adequately address the instant motion, the Court must first examine the statutory provisions governing the type of civil forfeiture at issue in this case. Then, the Court will determine whether Sberbank is entitled to the relief it seeks.

A. § 981(k)

The parties agree that this proceeding is governed by 18 U.S.C. § 981. The parties also agree that the funds at issue were seized from an interbank account of a foreign financial institution, and consequently, special statutory provisions governing such accounts will be of particular relevance in this case. See 18 U.S.C. § 981(k). An interbank account is defined as "an account held by one financial institution at another financial institution primarily for the purpose of facilitating customer transactions." 18 U.S.C. § 981(k)(4)(A) ; 18 U.S.C. § 984(c)(2)(B). In the context of Section 981, interbank accounts are treated the following way:

"[I]f funds are deposited into an account at a foreign financial institution ... and that foreign financial institution has an interbank account in the United States with a covered financial institution ..., the funds shall be deemed to have been deposited into the interbank account in the United States, and any restraining order, seizure warrant, or arrest warrant in rem regarding the funds may be served on the covered financial institution, and funds in the interbank account, up to the value of the funds deposited into the account at the foreign financial institution, may be restrained, seized, or arrested."

18 U.S.C. § 981(k)(1)(A). Therefore, the United States contends, because Brazhnikov's Sberbank accounts held an amount of funds that was subject to forfeiture, that same amount can be seized from Sberbank's interbank account and made subject to forfeiture.

The Government enjoys broad powers under 18 U.S.C. § 981(k). First, the statute provides that if a forfeiture action is brought against funds that have been seized from an interbank account, "it shall not be necessary for the Government to establish that the funds are directly traceable to the funds that were deposited into the foreign financial institution...." 18 U.S.C. § 981(k)(2). Therefore, the Government need not show that the funds seized from Sberbank's interbank account are in any way traceable to the funds that were deposited into Brazhnikov's own accounts. See United States v. Union Bank for Savings & Investment (Jordan), 487 F.3d 8, 16 (7th Cir.2007) ("[t]he funds in the interbank account are forfeitable even if those funds have no connection to the forfeitable funds deposited in the foreign account.")

Moreover, the statute allows only a narrow category of persons or entities to challenge a forfeiture in court. Only "the owner of the funds deposited into the account at the foreign financial institution ... may contest the forfeiture...." See 18 U.S.C. § 981(k)(4)(3) ; see also United States v. Sum of $70,990,605 et al., 128 F.Supp.3d 350, 355 (D.D.C.2015) (" Sum of $70,990,605 II ") (statute must be read to allow only an "owner" to challenge forfeiture). Therefore, in cases like this, only the "owner" has statutory standing to file a claim under 28 U.S.C. § 983. Sum of $70,990,605 II, 128 F.Supp.3d at 357 ("Because only ‘owners' may file claims under § 981(k), being an ‘owner’ is a requirement for statutory standing in a forfeiture action under that subsection."). However, the term "owner," as defined in the statute, does not include the foreign financial institution—in this case, Sberbank—unless either of the following circumstances are present:

(I) the basis for the forfeiture action is wrongdoing committed by the foreign financial institution; or

(II) the foreign financial institution establishes, by a preponderance of the evidence, that prior to the restraint, seizure, or arrest of the funds, the foreign financial institution ... had discharged all or part of its obligation to the prior owner of the funds, in which case the foreign financial institution ... shall be deemed the owner of the funds to the extent of such discharged obligation.

See 18 U.S.C. § 981(k)(4)(B)(ii)(I)–(II). Because Sberbank is adamant that "it is a completely innocent party," and federal authorities have not suggested otherwise, only the second exception is potentially in play. Moreover, as the statute provides, Sberbank must prove that the second exception applies by a preponderance of the evidence. 18 U.S.C. § 981(k)(4)(B)(ii)(II) ; United States v. Sum of $70,990,605 , 305 F.R.D. 20, 24 (D.D.C.2015) (" Sum of $70,990,605 I ").

If Sberbank cannot prove that the second exception applies, it does not have standing to challenge the forfeiture action in court. See U.S. v. $487,825,000 in U.S. Currency, 484 F.3d 662 (3d Cir.2007) ("In order to stand before a court and contest a...