US v. Bank of New York, Nos. 06-1187, 06-1423, 06-1444. On the one hand this could be a boring financial dispute that makes people with a political bent yawn. On the other hand, it could be a great civil liberties case. Whatever the case, it involves the “proper construction of 18 U.S.C. § 981(k), a civil forfeiture provision concerned with interbank accounts of foreign banks, which was added as part of the USA PATRIOT Act, Pub. L. No. 107-56, § 319(a), 115 Stat. 272, 311-12 (2001).” To give you some background, some funds are subject to forfeiture. Some “owners” of funds are innocent. Some are not. Some bank accounts in the US are “interbank” accounts, in that they are really the accounts of foreign banks “where the banks have no physical presence, and otherwise to facilitate transactions involving such jurisdictions.” So, in some cases, an American bank might have funds in a bank account, that is an interbank account, and those funds might be subject to forfeiture. However, a foreign bank might claim that they are entitled to those funds, as they were an “innocent” owner of such funds, even ultimate depositor was pure of spirit.
(An Eighth Amendment argument by a bank that the forfeiture was an excessive fine fails on the merits – not a standing issue.)
If you love America, you will read on.
Congress, in the Patriot Act, “also provided that generally the foreign depositor, and not the foreign bank, is considered an "owner" of the seized funds, eligible to challenge the forfeiture on innocent owner or other grounds. § 981(k)(4)(B)(I).” So, you see, this takes the foreign bank out of the picture. But, there is an exception, no such designation of ownership applies where the : foreign bank is the owner of the funds, to the extent that the bank has "discharged all or part of its “obligation” to the prior owner of the funds" by the time of the seizure. Id. § 981(k)(4)(B)(ii)(II). So, this probably lets the foreign bank keep the money, there were other obligations that would offset their obligations.
Got it? If you don’t, go back and start again.
Anyway, in this case, Bank of New York had maintained an interbank account for Union Bank for Savings & Investment (Jordan). The US brought a number of indictments basically alleging a massive fraud. It doesn’t seem very terrorist-related, and both Israelis and Palestinians seemed to have worked together to defraud Americans and Canadians. At the end of the day, cashiers checks were deposited into account of defendant, and his brother. The Jordanian bank argued that such exception applied, and they were the owner of the funds, because the “discharge of its obligations should be measured against its ability to obtain recourse from its depositors under banking law [e.g. that depositors have to make good on bad checks, and its obligation to pay its depositors].”
The First Circuit parses though the statute, the First notes that “...Ownership of the deposit is determined as if the transaction were wholly domestic” (citing 18 U.S.C. 983(d)(6)(A)), then, it notes that:
The statute does not define the term "obligation." Nevertheless, in the context of bank deposits, the meaning of the term is clear. A deposit of a certain amount into a bank account creates a corresponding obligation on the part of the bank to repay that amount on demand. But the First holds otherwise, by writing, “Recourse available to the bank is hardly an "obligation"; it is in the nature of a legal right or a contingency on an obligation. If a bank is left without recourse, then its obligation remains in full force, rather than being discharged. Nothing in the language of the statute ties the definition of ‘obligation‘ to the foreign bank's rights of recourse or setoff.”
The First goes a little off the map when it employs a bunch of rhetoric from the legislative history about “closing loopholes” and giving law enforcement “tools.”
Also, a late-filed claim by an intermediary, that was rejected, is considered not to be an abuse of discretion.
So, in the end, the bank loses, but the court holds that it was the “owner.”
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