United States v. BikundiUnited States v. Bikundi
For the reasons stated above, the Court will grant the remainder of Defendants’ motion for summary judgment in favor of SBA and deny Plaintiffs’ cross-motion for summary judgment as to SBA. An appropriate order accompanies this Memorandum Opinion.
William R. Martin, Kerry Brainard Verdi, Sasha Elizabeth H.W. Battle, Martin & Gitner, PLLC, Washington, DC, for Defendants.
MEMORANDUM OPINION
BERYL A. HOWELL, United States District Judge
The defendant Michael Bikundi, Sr. (“the defendant“), his wife, Florence Bikundi, and others, are charged in a multi-count Superseding Indictment for participating in an alleged scheme to defraud the District of Columbia Medicaid Program. Incident to the government‘s investigation and prosecution of the defendant and his alleged co-conspirators, the government seized significant assets alleged to have been derived from or otherwise involved in the charged offenses. Now pending before the Court is the defendant‘s motion to
I. BACKGROUND
On February 18, 2014, a U.S. Magistrate Judge of this Court issued seizure warrants for property, including sixty-four financial accounts and five vehicles, based upon a 136-page affidavit alleging probable cause to believe that the property was subject to criminal forfeiture (1) as property “involved in a transaction or attempted transaction in violation of” federal criminal money laundering statutes, and (2) as property “derived, directly or indirectly, from gross proceeds traceable to the commission of a Federal health care offense,” pursuant to
The following day, a grand jury indicted co-defendant Florence Bikundi on multiple counts of health care fraud and money laundering. Indictment, ECF No. 1. After further investigation, the grand jury returned a Superseding Indictment, on December 18, 2014, against eight additional defendants, including Michael Bikundi, who is charged with Conspiracy to Commit Health Care Fraud, in violation of
While the original indictment contained a “Criminal Forfeiture Allegation” seeking forfeiture of a real property parcel in Mitchellville, Maryland, and a general money judgment “in the amount of at least $75,000,000,” Indictment, Crim. Forfeiture Alleg. ¶¶ 1-2, the Superseding Indictment includes a more detailed “Forfeiture Allegation.” Superseding Indictment, Forfeiture Alleg. Specifically, the Superseding Indictment seeks forfeiture, upon conviction of the health care fraud offenses alleged in Counts One, Two, Thirteen, or Fourteen,2 of a money judgment “of at least $75,000,000,” as well as eighty-seven listed properties for which “the Grand Jury finds by probable cause ... [are] subject to forfeiture,” under
On September 5, 2014, a U.S. Magistrate Judge of this Court issued a second seizure warrant based upon a 15-page affidavit alleging probable cause to believe that five additional bank accounts held at Banque Internationale du Cameroun pour l‘Epargne et le Credit (“BICEC“) in Cameroon, including the foreign account at issue in the instant motion, were subject to both civil and criminal forfeiture, as property “traceable to” federal health care fraud and “involved in a transaction or attempted transaction in violation of” a federal money laundering offense, pursuant to
The government subsequently filed a Notice of Bill of Particulars for the Forfeiture Allegation in the Superseding Indictment identifying the five BICEC bank accounts listed in the Second Affidavit as subject to criminal forfeiture under
The defendant now seeks the release of a total of $132,165.00 previously held in four domestic bank accounts seized pursuant to the first seizure warrant and one of the BICEC accounts seized pursuant to the second seizure warrant. Def.‘s Mot. at 3-5. The First Affidavit designates the four domestic accounts containing Disputed Funds as Accounts H, I, W and AA. First Aff. ¶ 1. For each account, the First Affidavit identifies a total amount of funds traceable to Medicaid payments. Id. ¶¶ 234, 236, 238, 240. In contrast to the traceable funds, however, the affidavit also
- Account H: Between November 2009 and December 2013, approximately $317, 241.06 was deposited into this account. Id. ¶ 234. The First Affidavit alleges that $309,729.20 of these funds are traceable to Medicaid payments, but that “[o]ther deposits to the account include $7,200.00 in cash and $311.86 in interest earned on the account.” Id.
- Account I: Between November 2009 and January 2014, approximately $634,929.06 was deposited into this account. Id. ¶ 236. The First Affidavit alleges that $589,664.97 of these funds are traceable to Medicaid payments, but that “[o]ther deposits to the account include $5,500.00 deposited from third parties, $29,500.00 in cash deposits, and the deposit of a $10,000 cashier‘s check.” Id.
- Account W: Between March 2012 and November 2013, at least $140,756.66 was deposited into this account. Id. ¶ 238. The First Affidavit alleges that $123,688.94 of these funds are traceable to Medicaid payments, but that “[t]he rest of the funds deposited into this account consist of $8,750.00 in checks from third parties, $8,100.00 in cash, and $217.72 in interest.” Id.
- Account AA: Between March 2012 and November 2013, at least $464,771.16 was deposited into this account. Id. ¶ 240. The First Affidavit alleges that $430,360.00 of these funds are traceable to Medicaid payments, but “[o]ther deposits to the account include $17,500.00 in cash, $15,615.00 from the sale of a vehicle, and $126.16 in interest.” Id.
Finally, the defendant seeks release of Disputed Funds from a seized BICEC account, XXX-121. Def.‘s Mot. at 4-5. The Second Affidavit alleges that this account received deposits between May 12, 2008, when the defendant opened the account, and April 4, 2013, that originated in bank accounts referred to as Accounts AA and HHH in the First Affidavit. Second Aff. ¶¶ 14-17. To support the seizure of funds held in the BICEC account, the Second Affidavit incorporates the First Affidavit‘s allegations regarding Account AA and further alleges that Account HHH received funds traceable to Medicaid prior to being closed in March 2012. Id. The government has advised that the funds from BICEC account XXX-121 were transferred to a U.S. Department of Treasury Suspense Account on May 29, 2015. Gov‘t Supp. Br. Def.‘s Mot. Vacate Seizure Warr. (“Gov‘t Supp. Br.“) at 2-3, ECF No. 244.
Noting that the First Affidavit explicitly indicates that certain seized funds are not directly traceable to any alleged illegal conduct, the defendant asserts that the government has failed to establish probable cause that the Disputed Funds were subject to seizure and asks the Court to order their release. Def.‘s Mot. at 1-5. In total, the defendant requests the release of $102,165.00 from the four domestic accounts comprised of the following funds: (1) $62,300.00 in cash deposits; (2) $10,000.00 in cashier‘s check deposits; (3) $14,250.00 in deposits from checks issued by unidentified third parties; and (4) $15,615.00 in proceeds from the sale on an unspecified date of an unidentified vehicle. Id. at 4.
The defendant likewise seeks $30,000.00 seized from the BICEC account, which funds the defendant asserts was transferred into that account from Account AA. Id. at 4-5. The defendant contends that
II. DISCUSSION
As a threshold matter, the defendant asserts that access to the Disputed Funds is necessary to meet the costs of his “household necessities,” not to pay for his defense against the criminal charges. Def.‘s Mot. at 1. Consequently, he raises no Sixth Amendment claim that the seizure of the Disputed Funds implicates his right to counsel. Id. at 9 n.1; Def.‘s Reply Gov‘t Opp‘n Def.‘s Mot. Vacate Seizure Warr. (“Def.‘s Reply“) at 1-2, ECF No. 195. Nonetheless, the defendant argues that examination of the First Affidavit reveals that the Disputed Funds “are not traceable to Medicaid[,]” “are not part of the indicted offenses[,]” and “have absolutely no nexus to the criminal activity alleged in the indictment.” Def.‘s Reply at 2. Citing Kaley v. United States, — U.S. —, 134 S.Ct. 1090, 188 L.Ed.2d 46 (2014), the defendant asserts that the continued seizure of the Disputed Funds violates the Due Process Clause of the Fifth Amendment and requests a pretrial hearing to determine their traceability to the charged criminal conduct. Id. at 1-2.
In its initial and supplemental responses to the defendant‘s motion, the government objects to the defendant‘s request for the partial release of the Disputed Funds and for a pretrial hearing on their traceability to the charged offenses. The government‘s opposition rests principally on the following grounds: (1) the defendant‘s right to challenge the forfeitability of the disputed assets is limited to the post-trial procedures provided by
A. LEGAL FRAMEWORK APPLICABLE TO PRETRIAL SEIZURE OF POTENTIALLY FORFEITABLE PROPERTY
The Supreme Court has long recognized the “strong governmental interest in obtaining full recovery of all forfeitable assets.” Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, 631, 109 S.Ct. 2646, 105 L.Ed.2d 528 (1989). Forfeiture serves important punitive and deterrence functions, and forfeited property often is put to productive use in assisting crime victims and improving communities damaged by criminal behavior. See Kaley, 134 S.Ct. at 1094 (citing Caplin & Drysdale, 491 U.S. at 629-630). In this case, the government argues that the Disputed Funds are subject to seizure
Criminal forfeiture proceedings under these provisions, including pretrial seizure of property subject to forfeiture upon conviction, are governed by
Once the government has obtained a seizure warrant pursuant to
Notwithstanding the post-conviction process provided by Rule 32.2, the Supreme Court has made clear that pretrial seizure, pursuant to
In Kaley, the Supreme Court partially resolved the question left open in Monsanto “whether the Due Process Clause requires a hearing to establish either or both ... aspects of forfeitability.” 134 S.Ct. at 1095 (quoting Monsanto, 491 U.S. at 615 n. 10). Specifically, the Kaley Court held that an indicted defendant has no constitutional right to contest in a pretrial hearing a grand jury determination of probable cause to believe that a crime has been committed because, on this issue, “[t]he grand jury gets the final word.” Id. at 1105. Consequently, a grand jury indictment forecloses any further hearing on the first prong required for pretrial seizure of assets, namely, whether probable cause supports the charges. Id.
The Kaley Court expressly reserved judgment as to the availability of pretrial review of the second prong, that “the property at issue has the requisite connection to that crime.” Id. at 1095 & n. 3 (noting that lower courts generally have provided pretrial hearings to assess the traceability of seized property, but declining to “opine on the matter“). The Court, however, emphasized an important distinction between the grand jury‘s probable cause finding regarding guilt versus traceability, noting that “the tracing of assets is a technical matter far removed from the grand jury‘s core competence and traditional function.” Id. at 1099 n. 9. Moreover, the Kaley Court pointed out that “a judge‘s finding that assets are not traceable to the crime charged in no way casts doubt on the prosecution itself” and, consequently, such a judicial “determination does not similarly undermine the grand jury or create internal contradictions within the criminal justice system,” as would the second-guessing of a grand jury‘s finding on the first prong. Id.
Notwithstanding the policy distinctions articulated by the Supreme Court that might dictate different treatment of pretrial review of a grand jury‘s finding of probable cause of guilt and of potential forfeitability, the Kaley Court provides no clear guidance as to a defendant‘s entitlement to a pretrial hearing on the traceability of seized property, particularly where the defendant has not invoked his right to counsel.
The Kaley Court‘s holding abrogated a portion of the D.C. Circuit‘s prior ruling in United States v. E-Gold, Ltd., 521 F.3d 411, 421 (D.C.Cir.2008), that indicted defendants have a constitutional due process right to a post-asset deprivation, pre-trial hearing addressing the existence of probable cause as to the predicate criminal offense, “at least where access to the assets is necessary for an effective exercise of the Sixth Amendment right to counsel.” The Kaley Court, however, did not address the portion of the E-Gold Court‘s ruling that, when the Sixth Amendment right to counsel is implicated, a pre-trial hearing on the forfeitability of the specified property is required under the three-pronged test set out in Mathews v. Eldridge for “determining the due process rights of citizens who were subjected to the seizure of their property or other constitutionally protected interests.” Id. at 416-19. Thus, this aspect of the E-Gold holding remains binding on this Court. Notably, however, the D.C. Circuit expressly declined to consider the issue presented in this case: whether a pretrial hearing is constitutionally required to test the sufficiency of probable cause for the charged offense or forfeitability when no Sixth Amendment right is at stake. Id. at 421 (“We need not determine, nor do we determine, whether the due process rights of the defendants
The D.C. Circuit has had no occasion to revisit its holding in E-Gold in light of Kaley and has not otherwise addressed the availability of a pretrial probable cause hearing on, or judicial review of, the forfeitability of seized property, absent a Sixth Amendment claim. See Gov‘t Opp‘n at 5-6. Hence, both parties acknowledge that “the D.C. Circuit has never held that due process requires a pretrial hearing” in this circumstance. Gov‘t Opp‘n at 6; see also Def.‘s Mot. at 9 n.1 (acknowledging that E-Gold “was decided in the context of a Sixth Amendment claim“).
In short, the defendant‘s motion in this case squarely raises an issue left unresolved by the Supreme Court in both the Kaley and Monsanto opinions, and by the D.C. Circuit in E-Gold, regarding an indicted defendant‘s entitlement to pre-trial judicial review of the forfeitability, or traceability, of assets seized pursuant to a probable cause warrant—which probable cause finding in this case is bolstered by a grand jury finding—when no Sixth Amendment right to counsel is implicated.
Set against this legal backdrop, the Court now turns to the government‘s arguments in opposition to the defendant‘s motion.
B. DEFENDANT IS NOT LIMITED TO POST-TRIAL RELIEF UNDER FEDERAL RULE OF CRIMINAL PROCEDURE 32.2
The government urges the Court to deny any pretrial review of the potential forfeitability of the Disputed Funds because the “procedures in
Second, the Sunrise Court emphasized that the third-party petitioners presented “no evidence whatsoever” demonstrating their immediate need for the seized funds and, consequently, the Court found “no reason to believe that [they] will be signifi-
In sum, the Sunrise Court did not, and had no reason to, opine about the issue raised here whether an indicted defendant has a due process right to pretrial review of the traceability of assets seized pursuant to probable cause warrants and subject to a grand jury finding of probable cause of forfeitability, when those assets are needed for household support.5 The government acknowledges this fact but asserts that “[i]f third parties are not entitled to a hearing in advance of a defendant‘s criminal trial, there is no basis to conclude that indicted defendants are entitled to one.” Gov‘t Opp‘n at 9. This point misses the careful distinction the Sunrise Court drew between third parties and the additional rights implicated by an indictment against a defendant. Sunrise Acad., 791 F.Supp.2d at 207. Unlike a third party, an indicted defendant is cloaked with certain constitutional and statutory rights, including the Sixth Amendment right to counsel of his choice, which rights the defendant may feel pressured to relinquish as a result of the pretrial deprivation of funds and other property. This additional pressure on an indicted defendant is of particular concern since a probable cause finding in a seizure warrant or by a grand jury is ex parte, increasing the risk of an erroneous finding of probable cause about forfeitability, when the burden of establishing such probable cause indisputably rests with the government. See Kaley, 134 S.Ct. at 1103 (acknowledging “that the adversarial process leads to better, more accurate decision-making” but stating that “in this context—when the legal standard is merely probable cause and the grand jury has already made that finding—both our precedents and other courts’ experience indicate that a full-dress hearing will provide little benefit“); id. at 1113 (“It takes little imagination to see that seizures based entirely on ex parte proceedings create a heightened risk of error. Common sense tells us that secret decisions based on only one side of the story will prove inaccurate more often than those made after hearing from both sides.“) (C.J. Roberts, dissenting).
Consequently, the Court is not persuaded that Rule 32.2 precludes an indicted defendant from invoking his due process
C. AVAILABILITY OF PRETRIAL REVIEW REGARDING TRACEABILITY OF SEIZED PROPERTY
The government contends that, in this case, the Mathews factors “tip decidedly against the relief sought in the defendant‘s motion.” Gov‘t Opp‘n at 10. At the outset, this position by the government in this case appears to be inconsistent with the government‘s position before the Supreme Court in Kaley. The majority in Kaley noted that “the Government agreed that a defendant has a constitutional right to a hearing on that question” of “whether probable cause exists to believe that the assets in dispute are traceable or otherwise sufficiently related to the crime charged in the indictment,” although the Court reserved judgment on this issue. Kaley, 134 S.Ct. at 1095 & n. 3. The government‘s oral concession also prompted comment from Chief Justice Roberts, who stated, in dissent, that “[t]he Solicitor General concedes—and all Courts of Appeals to have considered the issue have held—that ‘defendants are entitled to show that the assets that are restrained are not actually the proceeds of the charged criminal offense‘; that is, that the second prong of the required showing is not satisfied.” Id. at 1108 (internal citation omitted).
While Kaley addressed the availability of pretrial probable cause review when the defendant asserts a Sixth Amendment claim, the government‘s concession before the Supreme Court does not appear to be so limited. The relevant portion of the transcript follows:
JUSTICE KENNEDY: Do you concede that there must be a traceability hearing?
[The Government]: If the defendant seeks one, yes. And there was the opportunity in this case for a hearing and the defendants—
JUSTICE KENNEDY: I mean, in the general run case, so you agree that due process does require a traceability hearing?
[The Government]: Yes. The defendants are entitled to show that the assets that are restrained are not actually the proceeds of the charged criminal offense or another way—
JUSTICE KENNEDY: And the defendants have the burden of proof in that hearing?
[The Government]: That would be up to this Court‘s decision.
JUSTICE KENNEDY: What- what is your view as to what the Constitution requires in that respect?
[The Government]: I‘d be happy to have the defendants bear the burden of proof, but I think the courts, typically, have placed the burden of proof on the government to show traceability, and the government, therefore, presents limited evidence, but it‘s all against the background of the crime not being called into question.
Transcript of Oral Argument at 45-46, Kaley v. United States, — U.S. —, 134 S.Ct. 1090, 188 L.Ed.2d 46 (2014) (No. 12-464) (emphasis added). Nevertheless, in its opposition to the instant motion, the government ignores this concession before the Supreme Court, see generally Gov‘t Opp‘n; Gov‘t Supp. Br., and offers no explanation for what appears to be the gov-
Despite the concession by the government at oral argument in Kaley, given the lack of clear guidance on this issue, the Court turns to the factors set out in Mathews v. Eldridge to determine whether a due process hearing is required. In re Seizure of Approximately $12,116,153.16 & Accrued Interest in U.S. Currency, 903 F:Supp.2d 19, 32 (D.D.C.2012) (“To determine whether due process requires a hearing in a particular case, a court must examine the factors set forth in Mathews v. Eldridge.“) (citing E-Gold, 521 F.3d at 415). These factors, as articulated by the Kaley Court, require a court to weigh “(1) the burdens that a requested procedure would impose on the Government against (2) the private interest at stake, as viewed alongside (3) the risk of an erroneous deprivation of that interest without the procedure and the probable value, if any, of the additional procedural safeguard.” Kaley, 134 S.Ct. at 1100 (quoting Mathews, 424 U.S. at 335, 96 S.Ct. 893) (internal quotations and alterations omitted). While the Court agrees with the government that the Mathews factors disfavor the defendant‘s “request for a pretrial evidentiary hearing,” Def.‘s Mot. at 1 (capitalization omitted), the Court disagrees that every “procedure” allowing judicial review of the forfeitability of the Disputed Funds is barred given the particular facts of this case.6
With respect to the first factor, regarding the burdens on the government of the requested pretrial evidentiary hearing, the government quotes extensively from the Kaley Court‘s litany of adverse consequences, Gov‘t Opp‘n at 10-11, including (1) “consum[ing] significant prosecutorial time and resources,” Kaley, 134 S.Ct. at 1101; (2) “rehears[ing] the case‘s merits, including the Government‘s theory and supporting evidence,” id.; (3) possible “litigat[ion over] a range of ancillary questions relating to the conduct of the hearing itself,” id.; and (4) “more seriously,” “undermin[ing] the Government‘s ability either to obtain a conviction or to preserve forfeitable property” by forcing the government to choose whether “to disclose all its witnesses and other evidence” and “case and strategy well before” such disclosure would otherwise be required, id. Yet, the Kaley Court‘s list relates to a pretrial hearing on the first prong, requiring a showing of probable cause for the charged offenses, not a pretrial hearing on the second prong regarding forfeitability. A hearing on the second prong is not as likely to trigger “a pre-trial mini-trial (or maybe a pre-trial not-so-mini-trial)” that the Kaley Court sought to avoid in holding that grand jury determination of probable cause of guilt—the first prong—“is conclu-
Nevertheless, the Court appreciates that the requested pretrial hearing would necessarily impose some burden of time and resources on the government to preview how allegedly fraudulently obtained funds were tracked to the four bank accounts at issue.7 Under the Mathews test, this burden must be weighed against the defendant‘s interests “alongside” the risk of erroneous deprivation without some procedural safeguard. Kaley, 134 S.Ct. at 1100 (quoting Mathews, 424 U.S. at 335). The government contends that the defendant‘s need for funds to pay for household expenses is “to maintain his pre-indictment lifestyle, not for basic necessities.” Gov‘t Opp‘n at 12 n. 6. Through exhibits and representations at the July 31, 2015 hearing, the defendant has presented evidence that he is unable to pay his utility bills, such that he must rely on borrowed funds to do so, and property taxes, such that his home is subject to a tax sale. See Def. Mot. at 10-11, Ex. 1-4. Defendant likewise has presented evidence that he is unable to pay for his children‘s preschool education and has recently lost private insurance coverage. Id. The defendant has not asserted that he cannot afford the counsel of his choice, but he has demonstrated a substantial need for the funds at issue to provide for household necessities. Id. The Court is not persuaded that the defendant‘s showing is in-
sufficient to warrant some procedural safeguard to reduce “the risk of erroneous deprivation.” Kaley, 134 S.Ct. at 1100.
This risk is particularly acute in this case in light of the express gaps in the First Affidavit regarding the traceability of the Disputed Assets. Indeed, the defendant‘s argument is straightforward: the First Affidavit supporting the seizure warrant for the four domestic bank accounts at issue expressly disclaimed that the Disputed Funds are traceable to the charged criminal activity. Thus, the defendant has done more than merely claim that certain assets held in the seized bank accounts are not traceable to the charged criminal activity but, instead, relies on the statements set out in the First Affidavit itself that undermine the government‘s showing that the Disputed Funds were subject to criminal forfeiture. Evaluation of this challenge to the forfeitability of the Disputed Funds does not require any additional evidentiary materials beyond those that the government has already been given an opportunity to provide.
On balance, the Court concludes that while the defendant‘s requested procedure of a “pretrial evidentiary hearing,” is not warranted, an alternative procedural safeguard of pretrial judicial review of the First Affidavit itself is. Indeed, it is a “normal process” for a court to review the legal sufficiency of an affidavit to support probable cause without an evidentiary hearing. United States v. Matthews, 753 F.3d 1321, 1326-1327 (D.C.Cir.2014); see also Massachusetts v. Upton, 466 U.S. 727, 728, 104 S.Ct. 2085, 80 L.Ed.2d 721 (1984) (per curiam) (“[T]he task of a reviewing
Having determined that the defendant is entitled to pretrial judicial review of the challenged seizure warrants, the Court next turns to evaluation of the legal sufficiency of the probable cause showing in the First Affidavit for seizure of the four different categories of Disputed Funds.
D. PROPERTY WITH NO ALLEGED CONNECTION TO THE CHARGED OFFENSES MUST BE RELEASED
Through the instant motion, the defendant challenges the legal sufficiency of the government‘s affidavits supporting the seizure and continued restraint of the Disputed Funds. As noted, the defendant argues that the government‘s affidavits make no allegation with respect to the traceability of the following Disputed Funds and, rather, explicitly distinguishes between funds traceable to alleged criminal conduct and these funds, which the defendant seeks to have released: (1) $62,300.00 in cash deposits; (2) $10,000.00 in cashier‘s check deposits; (3) $14,250.00 in deposits from checks issued by unidentified third parties; and (4) $15,615.00 in proceeds from the sale on an unspecified date of an unidentified vehicle. Def.‘s Mot. at 1, 3-5.
The government does not attempt to address the apparent gaps in the challenged affidavits regarding the traceability of the Disputed Funds with an additional factual proffer but instead contends in its supplemental briefing that the continued restraint of the Disputed Funds is supported under two alternative theories. First, the government contends that there is probable cause to find that the Disputed Funds, while not directly derived from the charged offenses, were in fact indirectly
To support this theory, the government relies on two out-of-circuit cases to suggest that circumstantial evidence that the defendant and his wife had no “verifiable income” other than illegal proceeds during the relevant period is sufficient to find probable cause that the Disputed Funds are either directly or indirectly traceable to criminal activity. Id. at 5. Specifically, the government cites United States v. Green, 516 Fed.Appx. 113, 135 (3d Cir. 2013) cert. denied, — U.S. —, 134 S.Ct. 2818, 189 L.Ed.2d 787 (2014), and United States v. Hailey, 887 F.Supp.2d 649 (D.Md.2012), for the proposition that circumstantial evidence of the defendant‘s lack of legitimate income raises an inference that all property in the defendant‘s possession during the period of alleged criminal conduct derived either directly or indirectly from that conduct. Gov‘t Supp. Br. at 5. Both affidavits allege that the Bikundis’ only known source of income during the period in which the accounts at issue were open derived from allegedly fraudulently obtained payments from the District of Columbia Medicaid Program. First Aff. ¶ 88; Second Aff. ¶ 6. Thus, the government contends that circumstantial evidence suggests that all of the funds held in the seized accounts derived directly or indirectly from the alleged fraud.
Critically, however, in both Green and Hailey, the court‘s probable cause finding was not based solely upon circumstantial9 evidence of the defendant‘s lack of legitimate income, but rested upon additional evidence supporting the government‘s proffered theory of traceability. See Green, 516 Fed.Appx. at 135 (describing trial testimony provided by a Secret Service agent that the purchase paperwork for the defendant‘s forfeited vehicle listed an illegible seller and bore the same notary stamp the defendant used to commit the charged fraud); Hailey, 887 F.Supp.2d at 653 (“The Court may consider the timing of the defendants’ acquisition of the property relative to his commission of the offense, his lack of other legitimate sources of income, and any steps taken to conceal his connection to the asset” in making a forfeiture determination). In effect, the government reads Green and Hailey to hold that it is the defendant‘s burden to demonstrate that the Disputed Funds were derived from a legitimate source. To the contrary, however, both Green and Hailey confirm that while evidence of the defendant‘s lack of legitimate income may raise an inference of traceability, this inference alone is insufficient to establish probable cause that the Disputed Funds are subject to criminal forfeiture.
For the Disputed Funds comprised of cash deposits and cashier‘s checks deposits, the government has presented additional evidence to supplement its suggested inference and support a probable cause finding regarding the funds’ traceability to the charged fraud. The First Affidavit alleges that approximately $7.2 million in cashier‘s checks were purchased, and $900,000 in cash was withdrawn, from accounts containing funds traceable to or derived from Medicaid payments. First Aff. ¶¶ 89, 91. According to the government, there is a “fair probability” that the “cash and cashier‘s checks deposited into
Certainly, the defendant has not disputed the government‘s allegations that the source of the cash and cashier‘s check deposits that are part of the Disputed Funds originated from Medicaid payments, or identified an alternative source for these funds, either by producing tax returns or other documentation, leading to an inference that these funds were derived from the charged criminal activity. Gov‘t Supp. Br. at 5. The government has supported this inference that these Disputed Funds were derived, at least indirectly, from the charged criminal activity with allegations that these funds were originally held in accounts that received proceeds of the alleged fraud. First Aff. ¶¶ 89, 91. As such, the government has presented sufficient evidence to support a finding of probable cause that the disputed cash and cashier‘s check deposits derived at least indirectly from the charged fraud offenses.
By contrast, the government has pointed to no evidence to support an inference that the third-party checks and vehicle sale proceeds are traceable to the charged offense. On the contrary, the government identifies no allegation in the First or Second Affidavits explaining the alleged connection or link between the third-party check deposits and sale of a vehicle and the charged offenses. See First Aff. ¶¶ 236, 238, 240. The affidavits are silent with respect to the most basic information about the source of these funds, proffering no evidence as to the identities of the third parties issuing the third-party checks or their alleged connection to the charged offenses. Similarly, as to the seized proceeds from the sale of a vehicle, the affidavits provide no information regarding the make and model of the vehicle, or the date on which the vehicle was acquired or sold by the defendant. Lacking this basic information, and in light of the fact that the government indeed disclaimed that these funds were derived from Medicaid payments, the government has failed to meet its burden of presenting sufficient evidence to find probable cause that these funds derived directly or indirectly from the charged fraud. Accord United States v. Sharaf, No. CR 15-MJ-139 (GMH), 2015 WL 4238784, at *2 (D.D.C. July 13, 2015) (noting that the government would “clearly fail” to establish probable cause under the criminal forfeiture statute as to the traceability of cars purchased before any charged criminal conduct). Thus, the continued restraint of funds tied to third-party deposits and the sale of an unidentified vehicle cannot be supported under the government‘s theory of indirect traceability.
Under its second theory, the government asserts that the Disputed Funds are subject to forfeiture as property “involved in” a money laundering offense under
Construing the federal money laundering statute, the D.C. Circuit has made clear that otherwise untainted money may become “involved” in a money laundering offense where those funds are commingled with illicit proceeds. United States v. Braxtonbrown-Smith, 278 F.3d 1348, 1351-55 (D.C.Cir.2002). The money laundering statute generally prohibits engaging in a financial transaction that “involves the proceeds” of specified illegal activities in order to facilitate those activities.
In Braxtonbrown-Smith, the D.C. Circuit interpreted the nearly identical phrase “involved in” as used in the money laundering statute that is also used in the criminal forfeiture statute,
Here, the government contends that the seizure affidavits contain sufficient allegations to support such a facilitation theory for pretrial restraint of the Disputed Funds. The First Affidavit describes the process of repeatedly shifting funds from an initial “intake” account through numerous levels of recipient accounts as “layering.” First Aff. ¶ 85. “Layering involves a financial transaction or series of financial transactions that separate unlawfully obtained proceeds from their source and, in the process, conceal the illegal nature of the proceeds and complicate an audit trail.” Id. Thus, the government contends that the transfer of funds among dozens of accounts controlled by the defendants was used to conceal the source of their illicitly obtained Medicaid payments. Id. These allegations under the government‘s second theory are adequate to show that the Disputed Funds consisting of cash and cashier‘s checks are “involved in” the money laundering offenses, and bolster the Court‘s finding that the probable cause finding on the forfeitability of these funds is sufficient for pretrial seizure.
While the government has sufficiently alleged that the Disputed Funds consisting of cash and cashier‘s checks were withdrawn from accounts containing Medicaid proceeds and subsequently deposited in the one of the four domestic accounts at issue here, the government has pointed to no allegation to suggest that the disputed third-party deposits and proceeds from the sale of an unidentified vehicle were used in “layering” or in any other way to facilitate the charged money laundering offenses. Thus, just as the government has not met its burden of establishing probable cause that these particular Disputed Funds were derived directly or indirectly from the charged Medicaid fraud, the government‘s allegations do not raise a fair probability that funds tied to third-party deposits or the alleged vehicle sale were used to facilitate the defendant‘s alleged illegal money laundering activity.
* * *
The government‘s affidavits show the requisite connection between some of the Disputed Funds but not others to the offenses charged in the Superseding Indictment. Specifically, the government has presented sufficient allegations showing that the disputed cash deposits and cashier‘s checks, totaling $72,300.00, are traceable and involved in the charged offenses to support the forfeitability of these funds and their pretrial seizure. The government has failed, however, to show probable cause for the forfeitability of the disputed funds derived from third-party deposits and the sale of an unidentified vehicle, totaling $29,865.00, which the seizure affidavits disclaim were traceable to the allegedly fraudulently obtained Medicaid payments. Thus, the defendant‘s motion to Partially Vacate the Seizure Warrant is granted in part and denied in part.
III. CONCLUSION
For the reasons stated above, the defendant‘s Request for a Pretrial Evidentiary Hearing is DENIED, and the defendant‘s motion to Partially Vacate the Seizure Warrant and to Permit Use of a Portion of Funds from Seized Bank Accounts for Purposes of Household Necessities is GRANTED in part and DENIED in part. The defendant‘s motion is (1) granted with
An appropriate Order accompanies this memorandum opinion.
BERYL A. HOWELL
UNITED STATES DISTRICT JUDGE