United States v. $56,471,329.88 in Proceeds from the Sale of A Bond Belonging to Airbus Se

466 F.Supp.3d 63

UNITED STATES of America, Plaintiff,

v.$56,471,329.88 IN PROCEEDS FROM THE SALE OF A BOND BELONGING TO AIRBUS SE, Defendants.

Civil Action No. 20-cv-408

United States District Court, District of Columbia.

Filed June 3, 2020

Zia Mustafa Faruqui, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Plaintiff.

DEFAULT JUDGMENT AND ORDER OF FORFEITURE

THOMAS F. HOGAN, DISTRICT COURT JUDGE

This matter comes before the Court upon the Plaintiff's Motion for Entry of Default Judgment and Order of Forfeiture, as well as the Memorandum of Points and Authorities submitted in support of it. The Court has carefully reviewed the history of this case, which is a civil forfeiture action in rem against defendant property consisting of $56,471,329.88 in proceeds from the sale of a bond belonging to Airbus SE ("Defendant Property").

The Defendant Property is subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C), of all right, title, and interest in the Defendant Property, as property, real or personal, constituting or derived from proceeds traceable to a violation of the Arms Export Control Act ("AECA"), 22 U.S.C. § 2778, et seq. , and the AECA's implementing regulations, the International Traffic in Arms Regulations ("ITAR"), 22 C.F.R. § 130.9.

Notice Obligations Have Been Satisfied

On February 12, 2020, the plaintiff commenced this forfeiture action against the Defendant Property by filing a Verified Complaint for Forfeiture In Rem. See Complaint, ECF 1. Plaintiff identified Airbus SE as the only potential claimant with standing as to the Defendant Property; however, Airbus SE waived the direct notice requirement in its Deferred Prosecution Agreement ("DPA") and acknowledged that the Defendant Property was subject to forfeiture. See DPA, United States v. Airbus SE , No. 1:20-cr-00021 (TFH), 2020 WL 1226425 (D.D.C. Jan. 31, 2020). Such waivers extinguish any ownership interest held in the Defendant Property and any direct notice obligations on the government. See United States v. Assorted Artifacts , 2017 WL 1205086 (E.D. Va. Feb. 21, 2017), report and recommendation adopted , 2017 WL 1199735 (E.D. Va. Mar. 29, 2017) (government not required to send direct notice where it obtained a waiver from the only known interested party); see also United States v. Two AN/PVS-14 Monocular Night Vision Devices , 2018 U.S. Dist. LEXIS 55546 at 3-4 (D.C. Apr. 2, 2018) ("Company 1 provided to the Government a signed Consent and Agreement to Forfeiture, in which Company 1 waived any interest it had in the NVDs.").

The plaintiff provided notification of this civil forfeiture action by publication pursuant to Rule G(4)(a)(iv) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions. On February 14, 2020, the government commenced notification of this forfeiture action on an internet site, http://www.forfeiture.gov, for 30 consecutive days pursuant to the Verified Complaint for Forfeiture In Rem. Thus, any verified claim in response to notice by publication had to be filed not later than April 14, 2020.

No person filed a verified claim, thus, the Clerk of Court determined that the notice requirements were satisfied when it entered default in this matter on May 22, 2020. See Clerk's Entry of Default, ECF 6.

No other party or putative party filed a pleading to challenge forfeiture of the Defendant Property, or otherwise attempted to enter this case, and the time for filing a claim has expired. See Supplemental Rule G(5)(a)(ii).

The Well Pleaded Allegations in the Complaint Meet the Reasonable Belief Standard for Forfeitability

The United States has provided a well-pleaded basis for relief. When forfeitable funds are commingled, courts must employ "tracing rules" to "separat[e] tainted assets from untainted assets." Luis v. United States , ––– U.S. ––––, 136 S. Ct. 1083, 1095, 194 L.Ed.2d 256 (2016) ; see also United States v. Miller , 295 F. Supp. 3d 690, 703-704 (E.D. Va.), aff'd , 911 F.3d 229 (4th Cir. 2018) ("Where, as here, legitimate funds are commingled with fraud proceeds in a bank account, tracing rules allow courts to distinguish between legitimate and illegitimate funds and to track or trace the movement of illegitimate funds.").

Here, the plaintiff properly traced the Defendant Property to proceeds of the underlying AECA offense through its application of the lowest intermediate balance rule ("LIBR"). In Banco Cafetero , the Second Circuit adopted LIBR (also known as "drugs-in, last-out" rule) to trace forfeitable proceeds. United States v. Banco Cafetero Panama , 797 F.2d 1154, 1159 (2d Cir. 1986). Under LIBR, the tainted funds "remain in the account and are available to be traced provided that the balance does not fall below the amount of the disputed funds." Miller , 295 F. Supp. 3d at 703-04. That is, "if $100 from a drug sale is deposited into an active account, the proceeds in the account are ‘traceable’ to the extent of the $100 as long as the account balance never falls below that amount." United States v. All Funds Presently on Deposit or Attempted to be Deposited in Any Accounts Maintained at Am. Express Bank , 832 F. Supp. 542, 551 (E.D.N.Y. 1993) (citing Banco Cafetero , 797 F.2d at 1160 ). Other courts have considered alternate tracing principles. See Sean Michael Welsh, Tracing Commingled Funds in Asset Forfeiture , 88 Miss. L.J. 179 (2019). This Court adopts LIBR as the preferred tracing method, as it is the prevailing option. See Miller , 295 F. Supp. 3d at 704 (citing Sony Corp. of Am. v. Bank One , 85 F.3d 131, 138 (4th Cir. 1996) ). LIBR tracing was appropriately applied here.

The Plaintiff established that through the illegal sale of C-295s, Airbus received various payments to exceed 50,000,000 Euros. These payments were made to an Airbus D&S Spain EUR bank account, which was then swept into an Airbus SE EUR pooling account. The Airbus SE EUR pooling account was then used for the redistribution of funds to all relevant Airbus entities. Those funds not required by other Airbus entities were then transferred into an Airbus SE EUR Master Pooling Account. From the Airbus SE EUR Master Pooling Account, excess cash was invested into the Investment Account. The Investment Account was where a bond worth 50,000,000 Euros (the source of Defendant Property) was located. As acknowledged by Airbus SE, the lowest intermediate balance in each of these accounts, as the illicit proceeds traversed one account to another, never fell below 50,000,000 Euros, through the date Airbus SE purchased the bond in question. On or about February 10, 2020, Airbus liquidated this bond, and converted the proceeds of such sale from Euros into U.S. Dollars, which represents the Defendant Property.

The plaintiff further established that Defendant Property is proceeds of the AECA offense using a "but-for" test adopted by the D.C. Circuit. United States v. DeFries , 129 F.3d 1293, 1313 (D.C. Cir. 1997) ("Because the but-for test usefully articulates the requirement of a nexus between the targeted property and the racketeering activity, we adopt it."). If the DDTC knew that Airbus willfully submitted applications that contained false or incomplete certifications, the DDTC would not have approved the relevant license applications. 1:20-cr-00021, ECF 8 at 57. Thus, Airbus SE's entire "revenue stream" related to business stemming from these license applications "are subject to forfeiture because the transactions all resulted directly or indirectly from" the AECA violation. United States v. Smith , 749 F.3d 465, 488 (6th Cir. 2014). A single licensing violation cam subject a company to a multi-million dollar forfeiture, as is this case here.

The government, either through the facts in the complaint which are taken to be true or through supplemental pleadings, must demonstrate a "reasonable belief" that the Defendant Property is subject to forfeiture. See United States v. $ 1,071,251.44 of Funds Associated with Mingzheng Int'l Trading Ltd. , No. 17-cv-01166, 2018 WL 3949962, at *8 (D.D.C. June 29, 2018) This standard is "not particularly onerous." Id.

Typically default occurs "when the adversary process has been halted because of an essentially unresponsive party." Jackson , 636 F.2d at 836. Yet, that is not the case here. Airbus agreed to the filing on the instant complaint in its DPA, and to facts which established the forfeitability of the Defendant Property. A party's admission that is was responsible for certain criminal conduct giving rise to forfeiture "constitutes ‘sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial,’ as required by Supplemental Rule G(2)(f)" and warrants "default judgment." Assorted Artifacts , 2017 WL 1205086, at *4.

Such admissions normally are made as part of a guilty plea. See e.g. , United States v. One 1998 Chevrolet K2500 Pick-Up Truck , 2020 WL 376640, at *2 (D.D.C. Jan. 23, 2020) (granting summary judgment in civil forfeiture based on statements in factual proffer and plea agreement in related criminal case). However, for purposes of determining if the government has demonstrated reasonable belief that property is forfeitable, plea agreements and "DP...