United States v. $429, 900.00 of Blocked Funds Associated With Ryer Int'l Trading

MEMORANDUM OPINION GRANTING PLAINTIFF'S MOTION FOR ENTRY OF DEFAULT JUDGMENT

RUDOLPH CONTRERAS, United States District Judge.

I. INTRODUCTION

This action arises out of an investigation by the Federal Bureau of Investigation. Plaintiff United States of America (“the Government”) seeks the forfeiture of $429, 900 associated with Ryer International Trading, Ltd. (“Ryer”) (“Defendant Funds 1”), $501, 771 associated with a U.S. Customs and Immigration Service EB-5 Immigrant Investment Program account held in the name of Tang Xin (“Tang”) (“Defendant Funds 2”), and $24, 209.85 associated with Tang and Li Xichun (“Li”) (“Defendant Funds 3”) (collectively, “Defendant Funds”). The Government argues that the Defendant Funds are subject to forfeiture because they (1) constitute (or are derived from) proceeds traceable to violation of, or conspiracy to violate, the International Emergency Economic Powers Act (“IEEPA”), and (2) are property involved in (or traceable to) money laundering offenses. No claimant responded to the Government's complaint, and the Clerk of Court entered default on May 3, 2021. The Government now asks this Court to enter default judgment against the Defendant Funds. For the reasons set forth below, the Court concludes that the government's factual allegations are sufficient to show that the Defendant

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Funds constitute or were derived from proceeds of IEEPA violations. Thus, the Court grants the Government's motion for default judgment.

II. FACTUAL BACKGROUND

This case involves two companies that the Government alleges acted as intermediaries in transmitting money from sanctioned North Korean banks to and through the United States financial system in violation of U.S. sanctions. The Government alleges that this scheme ran afoul of the IEEPA, 50 U.S.C. § 1701, and the federal money laundering statute and its accompanying conspiracy offense, 18 U.S.C. § 1956(a)(2)(A) and § 1956(h). The Government claims that, as such, the Defendant Funds are subject to forfeiture under 18 U.S.C. § 981(a)(1)(C) as property which constitutes or is derived from proceeds traceable to a violation of the IEEPA (or conspiracy to violate IEEPA) and 18 U.S.C. § 981(a)(1)(A) as property involved in a violation of the federal money laundering statute (or property traceable to such property). See Compl. ¶¶ 61-62, 64-65.

According to the Government, North Korean financial facilitators, funded by sanctioned North Korean banks-including the Foreign Trade Bank of the Democratic People's Republic of North Korea (“FTB”)-wired money to two affiliated front companies, Ryer and Rensy International Trading Co., Ltd. (“Rensy”), which worked in tandem to transmit the funds to and through the United States financial system. The Government also alleges that the relevant front companies assisted ZTE Corporation (“ZTE”), a China-based telecommunications company, in exporting controlled goods containing U.S.-origin components to North Korea, also in violation of U.S. sanctions. Compl. ¶¶ 12-19. Because no claimant to the funds has come forward, the Government asks this court to enter default judgment in its favor. See Pl.'s Mot. Def. J. (“Pl.'s Mot”), ECF No. 10; Mem. Supp. Pl.'s Mot. Def. J. (“Pl.'s Mem.”), ECF No. 10-1.

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A. Statutory and Regulatory Framework

The Government alleges that this scheme ran afoul of the IEEPA and the federal money laundering statute. The Court finds that the Government has sufficiently pleaded its allegations to connect the Defendant Funds to IEEPA violations.^[1] The Court summarizes the IEEPA below and then describes the alleged scheme in more detail.

The IEEPA authorizes the President to “deal with any unusual and extraordinary threat . . . to the national security, foreign policy, or economy of the United States” originating outside the United States. 50 U.S.C. § 1701(a). This authority includes the ability to investigate “transactions in [the] foreign exchange” or “the importing or exporting of currency.” Id. § 1702(a)(1)(A).

Section 206 of the IEEPA makes it “unlawful for a person to violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition issued under” the IEEPA. 50 U.S.C. § 1705(a). Property “which constitutes or is derived from proceeds traceable to” an IEEPA violation is subject to forfeiture. 18 U.S.C. § 981(a)(1)(C). “This chain of interlocking statutes can thus be summarized as follows: property that ‘constitutes or is derived from proceeds traceable to' violations of executive orders and [regulations] promulgated pursuant to the IEEPA is subject to forfeiture.” In re 650 Fifth Avenue & Related Props., 830 F.3d 66, 87 (2d Cir. 2016) (citing 18 U.S.C. §§ 981(a)(1)(C), 1956(c)(7)(D); 50 U.S.C. § 1705).

Exercising his IEEPA authority, President Clinton issued Executive Order 12, 938, which designates “Weapons of Mass. Destruction” (“WMDs”) as an “unusual and extraordinary threat”

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under the IEEPA. Exec. Order No. 12, 938, 59 Fed. Reg. 58, 099 (Nov. 14, 1994). A decade later, President George W. Bush issued Executive Order 13, 382 denying access to the United States banking system to anyone designated as a proliferator of WMDs. Exec. Order No. 13, 382, 70 Fed. Reg. 38, 567 (June 28, 2005). The “WMD Proliferators Sanctions Regulations, ” which implement Executive Order 13, 382, “block” any property interests, including money and other financial instruments, belonging to or used in support of individuals and entities designated as WMD proliferators. 31 C.F.R. §§ 544.201, 544.308. Those individuals and entities are placed on the “Specially Designated Nationals and Blocked Persons” list (the “SDN” list) administered by the Department of Treasury's Office of Foreign Assets Control (“OFAC”). See id. § 544.201(a). Department of Treasury regulations bar the “provision of funds, goods, or services by, to, or for the benefit of any person” designated as an SDN, unless OFAC licenses the transactions. Id. § 544.201(b); see also id. §§ 544.202(c), 544.301, 544.405.

On March 16, 2016, President Obama signed Executive Order 13, 722, which, among other things, prohibits the exportation of goods, services, and technology to North Korea unless done with the appropriate licensing from OFAC. Exec. Order No. 13, 722, 81 Fed. Reg. 14, 943 (Mar. 15, 2016); see 31 C.F.R. § 510.206 (2018); id. § 510.202(c) (“[A] license or other authorization issued by OFAC before, during, or after a transfer shall validate such transfer or make it enforceable to the same extent that it would be valid or enforceable ....”); see also Pl.'s Mem. at 15. In 2017, President Trump signed Executive Order 13, 810, blocking “all funds that are in the United States . . . that originate from, are destined for, or pass through a foreign bank account that has been determined by the Secretary of the Treasury . . . to have been used to transfer funds in which any North Korean person has an interest.” Exec. Order No. 13, 810, 82 Fed. Reg. 44, 705 (Sep. 20, 2017). The successive Presidents of the United States have renewed

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the national emergency underlying these sanctions annually, most recently in June of 2021. See, e.g., Notice, 86 Fed. Reg. 33, 075 (June 21, 2021).

A violation of any of the above orders and regulations would constitute a violation of the IEEPA under 50 U.S.C. § 1705(a), and, accordingly, any property or funds involved in or derived from unlicensed transactions in the United States with SDNs would be subject to forfeiture under 18 U.S.C. § 981(a)(1)(C).

B. Relevant Facts and Procedural History^[2]

In March 2017, ZTE agreed to plead guilty for conspiring to violate the IEEPA. Compl. ¶ 12. Documents from ZTE's legal proceedings “substantiate” that ZTE exported controlled items to North Korea in exchange for payment in U.S. dollars made by various shell corporations. Id. ¶ 13. Two of these shell companies included Ryer and Rensy. Id. ¶ 18.

Ryer is registered in Hong Kong with its primary place of business in Shanghai, and Rensy was incorporated in Shenzhen and headquartered in Shanghai. Id. ¶¶ 11, 20, 27. The Government alleges that both companies were used by sanctioned North Korean banks and financial facilitators to transmit funds through the United States financial system in violation of U.S. sanctions and without proper licensing from the OFAC. Id. ¶¶ 4, 24, 34, 36-46. The Government also alleges that the companies assisted ZTE in effecting trade with North Korea in violation of U.S. sanctions. Id. ¶¶ 17-18. Most of ZTE's contracts with North Korea serviced the Korea Posts and Telecommunications Company (“KPTC”), a state-owned telecommunications company in North Korea. Id. ¶ 16.

The Government alleges that Tang and Li, a married couple, helped carry out the Ryer and Rensy scheme. Tang served as Ryer's legal representative and Li “described his duties [at

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Ryer] as ‘being in charge of the company's overall operation and management.'” Id. ¶¶ 20-21. Li was previously the North Korean Account Manager for ZTE and worked out of ZTE's North Korean office. Id. ¶¶ 22-23. Ryer was the sole source of income for both individuals after they began work with the company in 2009. Id. ¶ 51.

According to the Government, designated North Korean financial facilitators, paid by sanctioned North Korean banks, would funnel money to Ryer, which would then transit the money through the United States and deliver payment in U.S. dollars. Id. ¶¶ 24, 34. In particular, Li made at least two requests that the FTB transfer U.S. dollars to a designated entity, each request made on Rensy letterhead. Id. ¶¶ 40, 47-48. The Government alleges that Ryer received...