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UNITED STATES v. ELEVEN VEHICLES

October 21, 1993

UNITED STATES OF AMERICA, Plaintiff,
v.
ELEVEN VEHICLES, ET AL., Defendants.



The opinion of the court was delivered by: EDUARDO C. ROBRENO

 EDUARDO C. ROBRENO, J.

 OCTOBER 21, 1993

 Claimants Robert C. Ivy and Irene Ivy (the "Ivys") seek recovery of various properties seized by the U.S. Government, the plaintiff in this action, pending their forfeiture as proceeds of money laundering and/or wire fraud. The Ivys have filed a motion for summary judgment. For the following reasons, the motion will be granted in part and denied in part. *fn1"

 I. BACKGROUND

 The Government seeks the forfeiture of properties that are allegedly the proceeds of money laundering and/or wire fraud. The accusation of criminal activity giving rise to this forfeiture action is currently pending in a parallel criminal proceeding before this Court, United States v. Armaments Corporation of South Africa, Ltd., et al., Crim. A. No. 91-602 (E.D. Pa.) [hereinafter ARMSCOR ]. *fn2" Claimant Robert Ivy, along with various individuals and corporate entities, is charged with a passel of crimes, including conspiracy, securities fraud, and violation of the Arms Export Control Act. *fn3" Of import to the instant case are the six counts of money laundering, in violation of 18 U.S.C. §§ 1956, 1957, and the two counts of wire fraud, in violation of 18 U.S.C. § 1343, charged in the ARMSCOR indictment. See Pl.'s Complaint ex. 1 at 57-59, 61, 63, 65, 91-93 (the indictment in the ARMSCOR case). These crimes are the predicate offenses upon which the Government's forfeiture action is based. The applicable forfeiture statute, in relevant part, reads:

 
(a)(1) . . . The following property is subject to forfeiture to the United States:
 
(A) Any property, real or personal, involved in a transaction or attempted transaction in violation . . . of section 1956 or 1957 of this title, or any property traceable to such property.

 . . . .

 
(C) Any property, real or personal, which constitutes or is derived from proceeds traceable to a violation . . . of section . . . 1343 of [this] title affecting a financial institution.

 18 U.S.C. § 981(a)(1)(A), (C). The Government has alleged that the defendant properties sub judice are the proceeds of the money laundering and/or wire fraud violations outlined in the ARMSCOR indictment.

 The claimants' motion for summary judgment asserts that the Government has failed to establish probable cause that the properties, particularly those acquired before the alleged acts of money laundering, are the proceeds of the predicate crimes. Claimants also argue that, to the extent probable cause is established, some of the properties are not subject to forfeiture, because they were owned either jointly or solely by Irene Ivy, a self-professed innocent owner. Finally, claimants allege that the retroactive application of § 981, as amended in 1988, to money laundering transactions that occurred pre-1988, is a violation of the ex post facto clause. See U.S. Const. art. I, § 9, cl. 3. Although not expressly argued by the parties, the issue of whether § 981, the forfeiture statute upon which the Government relies, can reach properties acquired by the Ivys before the enactment of §§ 1956 and 1957, the statutes that supply the predicate acts, is central to the disposition of the case.

 II. DISCUSSION

 A. Standard of Review

 The standard for determining whether summary judgment is appropriate in a civil forfeiture proceeding is the same as that applicable in other civil actions, i.e., Federal Rule of Civil Procedure 56 and its interpreting case law. See United States v. 717 S. Woodward St., 2 F.3d 529, , 1993 WL 315531, at *2 (3d Cir. Aug. 20, 1993); United States v. One 1987 Cadillac DeVille, 774 F. Supp. 221, 222-23 (D. Del. 1991). Summary judgment shall be granted if the record before the Court shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." F.R.C.P. 56(c). A genuine issue is raised if "there is evidence from which a reasonable trier of fact could find in favor of the nonmoving party, viewing the record as a whole in light of the evidentiary burden the law places on that party." 717 S. Woodward St., 1993 WL 315531, at *2 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986)). If the movant makes a showing that there is no genuine issue of material fact, the nonmoving party cannot rest on its pleadings. Rather, it must come forward with facts showing that a genuine issue exists. See F.R.C.P. 56(e).

 A summary judgment motion in a forfeiture action is also evaluated in light of the procedural requirements of forfeiture law. See 717 S. Woodward St., 1993 WL 315531, at *3. Section 981 incorporates by reference a number of the customs laws applicable to seizures. See 18 U.S.C. § 981(d); 19 U.S.C. § 1602 et seq. Thus, in a forfeiture action, the Government must first make a showing of probable cause that the property at issue is forfeitable. "The burden then shifts to the claimant to prove by a preponderance of the evidence that the funds are not subject to forfeiture." United States v. Dollar Bank Money Market Account No. 1591768456, 980 F.2d 233, 237 (3d Cir. 1992) (citing 19 U.S.C. § 1615 and United States v. Wollman, 945 F.2d 79, 81 (4th Cir. 1991)). A claimant, then, is entitled to summary judgment if the Government fails to show probable cause or if the claimant shows the funds are not subject to forfeiture. See United States v. Four Parcels of Real Property, 941 F.2d 1428, 1439 (11th Cir. 1991) (en banc).

 B. Government's Showing of Probable Cause

 In a forfeiture case, the Government's burden to establish probable cause is a modest one. "'The determination of probable cause in a forfeiture proceeding simply involves the question whether the information relied on by the government is adequate and sufficiently reliable to warrant the belief by a reasonable person that' the property" is the proceeds of forfeitable conduct. United States v. 6109 Grubb Rd., 886 F.2d 618, 621 (3d Cir. 1989) (quoting United States v. One 56-Foot Motor Yacht Named Tahuna, 702 F.2d 1276, 1282 (9th Cir. 1983)). The totality of the circumstances must be considered in making the determination. See United States v. 92 Buena Vista Ave., 738 F. Supp. 854, 857 (D.N.J. 1990) (citing United States v. Rickus, 737 F.2d 360, 367 (3d Cir. 1984)), aff'd in part, 937 F.2d 98 (3d Cir. 1991), judgment aff'd, U.S. , 113 S. Ct. 1126 (1993). Hearsay evidence can be relied upon to meet the Government's burden. See 6109 Grubb Rd., 886 F.2d at 621.

 In this case, the Government is proceeding upon a combination of two separate theories of forfeitability. One, ISC and its affiliated companies *fn4" are subject to forfeiture as "facilitating property." See Pl.'s Mem. in Opp'n to Mot. for Summ. J. at 1-2, 9 [hereinafter Pl.'s Mem. in Opp'n]; Pl.'s Supp. Response Mem. at 2, 4; Letter from Pl. to the Court of 6/24/1993, at 1-2. Two, because ISC was used to facilitate the commission of a crime or crimes in violation of 18 U.S.C. §§ 1956, 1957, and is thus forfeitable under 18 U.S.C. § 981(a)(1)(A), the monies received by Charles Ivy from the operations of the facilitating property (ISC) are "proceeds." Ergo, argues the Government, the defendant properties, which were purchased with "proceeds" from the facilitating property, are themselves "proceeds" subject to forfeiture. See Pl.'s Supp. Response Mem. at 3-4. The Court will analyze the applicability to this case of each premise of the Government's syllogism.

 1. Facilitating Property

 Though § 981 does not contain the phrase "facilitating property," it has been interpreted by various district courts to encompass such property through its use of the phrase "involved in." See 18 U.S.C. § 981(a)(1)(A); United States v. Swank Corp., 797 F. Supp. 497, 500 (E.D. Va. 1992); United States v. Certain Accounts, 795 F. Supp. 391, 396-97 (S.D. Fla. 1992); United States v. Certain Funds on Deposit, 769 F. Supp. 80, 84 (E.D.N.Y. 1991); United States v. All Monies ($ 477,048.62) in Account No. 90-36117-3, 754 F. Supp. 1467, 1472-73 (D. Haw. 1991). As the court stated in All Monies, "even though § 981 does not expressly include the words 'facilitate' or 'facilitating,' the statute covers property 'involved in' illegal money laundering transactions. The legislative history makes it clear that 'property involved in' includes property used to facilitate money laundering offenses." *fn5" All Monies, 754 F. Supp. at 1473 (citation omitted). Such a reading of the statute is in accord with the conduct that § 981 seeks to deter, i.e., money laundering. The nature of money laundering is a mixture of "innocent" funds with "guilty" funds in an attempt to cover up the latter. See Certain Accounts, 795 F. Supp. at 397. Thus, the clean money serves as a tool to launder the ill-gotten money. There being no instruction by the Third Circuit on this issue, the Court is persuaded by the reasoning of its sister courts and holds that 18 U.S.C. § 981(a)(1)(A) authorizes the forfeiture of property that facilitates the commission of money laundering in violation of 18 U.S.C. §§ 1956, 1957.

 Property facilitates the commission of a crime if its "'use . . . [makes the violation] less difficult and allows it to remain more or less free from obstruction or hinderance.'" United States v. One 1977 Lincoln Mark V. Coupe, 643 F.2d 154, 157 (3d Cir.) (interpreting 21 U.S.C. § 881) (quoting United States v. One 1950 Buick Sedan, 231 F.2d 219, 222 (3d Cir. 1956)), cert. denied sub nom. Whitby v. United States, 454 U.S. 818, 70 L. Ed. 2d 88, 102 S. Ct. 97 (1981). This test has been adopted by the district courts that have ruled on facilitating property under § 981, see, e.g., Certain Funds on Deposit, 769 F. Supp. 80, 84; Certain Accounts, 795 F. Supp. at 396, as well as by the Third Circuit in deciding civil forfeiture cases under other statutes, see, e.g., United States v. RD 1, Box 1, 952 F.2d 53, 57 (3d Cir. 1991) (examining 21 U.S.C.A § 881(a)(7)). The Court adopts this formulation and will apply it to the instant case. *fn6"

 2. Proceeds of Facilitating Property

 The "proceeds" theory requires that the property sought to be forfeited be traced to property involved in one of the transactions delineated in § 981. See 18 U.S.C. § 981(a)(1)(A); United States v. $ 448,342.85, 969 F.2d 474, 476-77 (7th Cir. 1992). While the facilitating theory would allow forfeiture of "innocent" property serving as a cover for tainted property, the proceeds theory requires the Government to establish probable cause in regards to specific tainted property when there has been commingling with clean property. See id. at 476 (rejecting the contrary proposition); Certain Accounts, 795 F. Supp. at 398 (same); see also 2639 Meetinghouse Rd., 633 F. Supp. at 988 (holding, in construing 21 U.S.C. § 881(a)(6), a similar proceeds forfeiture statute, that property "is forfeitable only to the extent that the property itself has a traceable connection to drug transactions. . . . If legitimate assets . . . are commingled with drug proceeds, only the drug proceeds, whatever there form, are subject to forfeiture."). As the First Circuit has stated in construing a proceeds forfeiture action under the narcotics forfeiture statute, 21 U.S.C. § 881(a)(6):

 
We do not believe, however, that forfeitability spreads like a disease from one infected mortgage payment to the entire interest in the property acquired prior to the payment. After all, only the actual proceeds of drug transactions are forfeitable. Unless section 881(a)(6) deprives persons accused of dealing drugs of the right to own any property, the existence of an undivided interest ...

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