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."
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.
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 in a felon's property which constitutes proceeds cannot mean that his entire property is proceeds.
United States v. Pole No. 3172, 852 F.2d 636, 639-40 (1st Cir. 1988) (emphasis added); see United States v. One 1990 Porsche Carrera, 807 F. Supp. 371, 373 (D. Md. 1992) (citing Pole No. 3172 in a forfeiture under § 981(a)(1)(C)).
Though the Government is required to identify the proceeds that it seeks to forfeit, the tracing need not be to a particular incident of money laundering or wire fraud. Rather, "'all that is required is that a court be able to look at the "aggregate" of the facts and find reasonable grounds to believe that the property probably was derived from [the malfeasance].'" United States v. 92 Buena Vista Ave., 937 F.2d 98, 104 (3d Cir. 1991) (interpreting 21 U.S.C. § 881(a)(6)) (quoting United States v. Parcels of Land, 903 F.2d 36, 38-39 (1st Cir. 1990)), judgment aff'd, U.S. , 113 S. Ct. 1126, 122 L. Ed. 2d 469 (1993). If, for example, the Government shows that probable cause exists to believe that the proceeds received by a claimant are greater than the value of the assets seized, it would be appropriate to shift the burden to the claimant to show other sources of legitimate income. See United States v. $ 448,342.85, 969 F.2d at 477.
3. Forfeiting Properties Acquired With the Proceeds of a Facilitating Property
The instant case is not one where the Government seeks the forfeiture of a business as a facilitating property. See, e.g., United States v. South Side Fin., Inc., 755 F. Supp. 791, 797-98 (N.D. Ill. 1991) (finding that the Government had established probable cause that an entire business had been used as facilitating property under 18 U.S.C. § 981(a)(1)(A)).
Nor is the Government seeking to forfeit the "actual proceeds," Pole No. 3172, 852 F.2d at 639, i.e., Ivy's salary from ISC. Rather, this is a case where the properties acquired with the proceeds of a facilitating business are sought to be forfeited. See Pl.'s Complaint PP 6, 11; Aff. of D.G. Herbert P 13 at 3-4 (stating that Robert Ivy received approximately $ 796,000.00 in remuneration from ISC, the facilitating property, in the period between November 1986 and December 1989, and that these proceeds were used to acquire the defendant properties). Because it has not shown that the defendant properties facilitated the commission of money laundering, nor has it traced the proceeds of the money laundering corpus directly to the defendant properties, the Government must rely on a combination of the facilitation and the proceeds theories. Only by extending the reach of § 981 to properties acquired with the "proceeds" of a "facilitating property," i.e., Ivy's salary, can the Government reach the defendant properties. See Certain Accounts, 795 F. Supp. at 395-99 (discussing a similar application of § 981).
Though this reading of § 981 is expansive, the Court concludes, as a matter of statutory construction, that it is the correct one. In the first place, the plain language of the statute allows the forfeiture of "any property traceable" to property that is involved in a violation of the money laundering statutes. See 18 U.S.C. § 981 (a)(1)(A); see also Estate of Cowart v. Nicklos Drilling Co., U.S. , 120 L. Ed. 2d 379, 112 S. Ct. 2589, 2594 (1992) ("In a statutory construction case, the beginning point must be the language of the statute, and when a statute speaks with clarity to an issue judicial inquiry into the statute's meaning, in all but the most extraordinary circumstance, is finished.") (citing Demarest v. Manspeaker, 498 U.S. 184, 190, 111 S. Ct. 599, 603, 112 L. Ed. 2d 608 (1991)). Allowing the forfeiture of the defendant properties is, therefore, entirely within the language of the statute. Secondly, the legislative history points to the need for a similarly broad reading of the statute. Because "'the degree of sophistication and complexity in a laundering scheme is virtually infinite, and is limited only by the creative imagination and expertise of the criminal entrepreneurs who devise such schemes,'" S. Rep. No. 433, 99th Cong., 2d Sess. 2 (1986) (quoting Comm'n on Organized Crime, The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering 8 (1984)), a narrowly tailored forfeiture statute could be easily evaded. Given the plain meaning of the statute, and viewed in light of the purpose for which it was enacted, the Court concludes that the statute authorizes the forfeiture of properties acquired with the proceeds of a facilitating property, provided the Government is able to trace the proceeds from the facilitating property to each defendant property.
This conclusion does not conflict with the court's holding in United States v. Certain Accounts. In Certain Accounts, the Government sought the forfeiture of thirty-one different bank accounts. See 795 F. Supp. at 393. Money orders were deposited into four of the accounts, the "direct accounts," in an attempt to launder funds. The remaining twenty-seven accounts, the "indirect accounts," received checks drawn on the direct accounts. See id. The court accepted the Government's argument that the direct accounts, which directly received the proceeds of money laundering, could be forfeited in their entirety under a facilitation theory. See Certain Accounts, 795 F. Supp. at 395-97. However, when the Government attempted to extend this theory to the indirect accounts, the court drew the line, holding that the Government would have to show more than a "tracing of checks written against a suspect account." See id. at 398. The mere fact that tainted funds were deposited in an account did not give rise to a showing of probable cause as to the entire account. While the court did not reject the Government's theory, i.e., that the proceeds of facilitating property were forfeitable, it did require a showing of probable cause as to identified proceeds in each indirect account. See id. at 398-99.
The defendant properties sub judice are akin to the indirect accounts in Certain Accounts. The Government in the instant case is entitled to the forfeiture of the defendant properties if it can establish by a showing of probable cause that the properties are the proceeds of property used to facilitate the violation of 18 U.S.C. §§ 1956 or 1957. In other words, the Government cannot establish probable cause as to the entirety of a defendant property merely by tracing proceeds to some part of a defendant property. See Pole No. 3172, 852 F.2d at 639-40; Certain Accounts, 795 F. Supp. at 398-99.
Applying these principles to this case, the Court concludes that the Government has satisfied its burden of establishing that there is probable cause to believe that ISC is a facilitating property. See Swank, 797 F. Supp. at 502; South Side Fin., 755 F. Supp. at 797-98. The affidavits filed by the Government in this case aver that various officers of ISC were involved in a long-running conspiracy to evade the U.S. arms embargo against the country of South Africa. See Pl.'s Complaint ex. 2. As part and parcel of the arms-running conspiracy, the officers engaged in money laundering and wire fraud. Special Agent O'Callaghan's affidavit establishes that ISC was involved in over $ 400 million worth of money laundering transactions in the period between November 1, 1986, and December 31, 1989. See Pl.'s Mem. in Opp'n ex. 1 at 1. The Court also concludes that the Government has established that there is probable cause to believe that the monies paid to Robert Ivy in salary and bonuses are the proceeds of this facilitating property and thus are forfeitable.
It is in the final link of the Government's argument, the one connecting Ivy's income to the defendant properties, where the case partially founders. Specifically, forfeiture of the properties acquired before October 27, 1986, is not available because, at the time the properties were acquired, the statutes upon which the Government relies to establish the predicate criminal activity had not yet been enacted. As to the properties acquired after October 27, 1986, the Government has established probable cause for forfeiture.
4. Pre-October 27, 1986 Properties
A violation of either § 1956 or § 1957 of Title 18 of the U.S. Code is a necessary predicate to the invocation of § 981 for forfeiture of property.
See 18 U.S.C. § 981(a)(1)(A). These money laundering statutes were enacted and became effective on October 27, 1986. See infra note . Logically, the properties cannot be proceeds of property "involved in a transaction or attempted transaction in violation" of the money laundering statutes, 18 U.S.C. § 981(a)(1)(A), when the statutes were enacted after the properties had been acquired. Even if the statutes had been in effect prior to October of 1986, the Government's claim would still fail, since the Government has not established probable cause to believe that "money laundering" occurred prior to November of 1986.
a. The money laundering statutes were not in effect before October 27, 1986
Though the conduct loosely described as "money laundering" was prohibited by a melange of statutes pre-1986, see G. Richard Strafer, Money Laundering: The Crime of the '90's, 27 Am. Crim. L. Rev. 149, 150 (1989) (stating that most "money laundering" prosecutions before the enactment of the statutes were a combination of charges under titles 18, 21, and 31 of the U.S. Code), the specific statutes criminalizing money laundering, and upon which the Government relies for the instant forfeiture, 18 U.S.C. §§ 1956 and 1957, were enacted by the Money Laundering Control Act of 1986, Pub. L. No. 99-570, §§ 1351-1367, 100 Stat. 3207, 3207-18 to -39 (1986), with the statutes becoming effective on the date of enactment, October 27, 1986.
What has been codified as 18 U.S.C. § 981, the forfeiture statute under which this claim is made, was also enacted by this Act.
Section 981 does not state that property involved in the crime of "money laundering" is forfeitable. Instead, § 981 authorizes the forfeiture of property involved in violations of § 1956 or § 1957. See United States v. Certain Funds, 998 F.2d 129, 133 (2d Cir. 1993) (stating that "if [the claimant] did not violate § 1956, then the government's forfeiture claim under 18 U.S.C. § 981(a)(1)(A) must necessarily fail"). Notwithstanding the assertions made by the Government in its filings and at the hearing of February 2, 1993,
any activities before October 27, 1986, the statutes' effective date, cannot, by definition, be money laundering in violation of 18 U.S.C. § 1956 or § 1957.
The claimants' uncontradicted affidavits, in conjunction with the exhibits attached thereto, establish that the following assets were acquired before the effective date of the money laundering statutes:
Shares in Balcor Pension Investments IV, acquired on August 30, 1985. See Aff. of R.C. Ivy P 3 at 7-8, ex. F-1 to -2; Aff. of I. Ivy P 4 at 7.