U.S. Cautiously Begins to Seize Millions in Foreign Banks

By Eric Lichtblau, The New York Times, 30 May 2003

WASHINGTON, May 29—The Justice Department has begun using its expanded counterterrorism powers to seize millions of dollars from foreign banks that do business in the United States, creating tensions with the State Department and some allies.

Law enforcement officials say the tool has proven invaluable in seizing ill-gotten money that criminals hide overseas and that was once out of the government's reach. Under the counterterrorism measures approved by Congress after the Sept. 11 attacks, prosecutors are not even required to trace the money back to the target of an investigation.

Officials at the State Department, however, have raised concerns over the practice—in part because most of the seizures have involved fraud and money-laundering investigations that are unrelated to terrorism.

State Department officials worry that this might be seen by other countries as arbitrary or trying to extra-territorially impose our laws under the guise of fighting terrorism, said a Bush administration official who demanded anonymity. Diplomats from several nations, including Switzerland, have voiced private objections, officials said.

The Justice Department has seized at least 15 foreign-based bank accounts in the United States in recent months, confiscating what prosecutors say they believe to be tainted money belonging to overseas banks in Israel, Oman, Taiwan, India, Belize and elsewhere, according to law enforcement officials who spoke on condition of anonymity. Other seizures are also being considered, officials said.

Justice Department officials acknowledged the diplomatic problems that can be created by seizing money from foreign banks, and they said they have sought to use the new power sparingly after considering all other legal options.

The authority to seize ill-gotten foreign funds is a very powerful tool and one that can affect our international relationships, said Bryan Sierra, a spokesman for the Justice Department.

Mr. Sierra said that to protect the law enforcement relationships the United States has developed with governments around the world, the Justice Department scrutinizes prosecutors' use of this provision before it is exercised.

The Justice Department has sent out guidance to prosecutors around the country about how to use the new power and has reached an informal understanding with the State Department to consult more extensively with officials there before seizing foreign money. State Department officials had complained that the Justice Department had kept them out of the loop in some cases.

This is a process of last resort, said a senior law enforcement official. American diplomats are worried about it, and we understand that, which is why we want to use this judiciously, said the official.

The State Department declined to comment on the issue. But a department official who spoke on condition o anonymity acknowledged that there was still the potential for abuse in foreign seizures, despite the Justice Department's pledges to consider diplomatic issues in its decisions.

From a diplomatic point of view, we've got concerns, the official said. We're the ones who have to ensure diplomatic relations, and this complicates that.

Traditionally in money laundering and terror financing cases, federal authorities have worked through international law enforcement treaties in requesting that a country that is home to a foreign bank move to freeze dirty money and turn it over to the United States. In countries with no treaty with the United States, American authorities say, their efforts often ran into dead ends.

But a little-noticed provision in the sweeping antiterrorism legislation passed in October 2001, gave federal authorities in such cases the power to seize money that passes through banks in the United States without notifying the foreign government. Most overseas banks maintain what are called correspondent accounts in American banks, allowing them to exchange American currency and handle other financial transactions in this country. Section 319 of the Patriot Act, as the legislation that grew out of the Sept. 11 attacks is known, allows federal authorities to seize money from the foreign bank's correspondent account if they can convince a judge that the money deposited overseas at the bank was obtained illicitly.

Information about the seizures has been tightly guarded, and federal judges have sealed the records on most of them. The Justice Department acknowledged two cases in which authorities have seized a total of more than $2 million from foreign banks, but declined to give the total number of seizures.

Law enforcement officials said the Justice Department had employed the new tool in about a half-dozen investigations, seizing money from at least 15 bank accounts. Most of those came in recent months and involved fraud and laundering cases, officials said. Law enforcement officials said some of the seizures have involved money that they suspect was helping to finance terrorism, but they declined to discuss details. Officials also see the measure as a potentially powerful tool in seizing money from drug traffickers.

In a case that resulted in a guilty plea in federal court this week, federal authorities seized $310,000 from four banks in the New York City area that held correspondent accounts with foreign banks in Oman, India, and Taiwan.

In seizing the money, the authorities charged that a Sudanese citizen in Brooklyn, Ahmed Abdu, had illegally wired more than $5 million to bank accounts around the world. It was the first time the seizure tool had been used by federal prosecutors in New York's Southern District.

Mr. Abdu pleaded guilty on Wednesday to a charge of conspiring to run an unlicensed money transmitting business and faces up to five years in prison. The authorities seized the $310,000 from four banks in the New York City area that held correspondent accounts on behalf of overseas banks: Citibank, Standard Chartered Bank, Deutsche Bank, and HSBC Bank USA.

It was a strange thing for the banks, said a financial investigator with the Bureau of Immigration and Customs Enforcement in New York who spoke on condition of anonymity. There was resistance initially, because they weren't exactly sure what to do. They'd never seen something like this before.

The seizure power has opened up doors once closed in financial crime investigations, the investigator said. Now we can get ahold of money where we couldn't before, he said. But we proceed very cautiously. It's such a powerful tool, you could knock the economy of a country on its head if it were a big enough case.

A seizure in Belize, centering on a lawyer and financial manager who was accused of embezzling money from his clients, has become a model for how the law can be applied, officials said.

The lawyer, James Gibson, was accused of bilking clients out of millions of dollars and then fleeing to Central America. Prosecutors said that Mr. Gibson, indicted by a federal grand jury in 2001, deposited some of the money in banks in Belize.

Although the government of Belize initially agreed to freeze the money, a court there blocked the move, and prosecutors said they believed that Mr. Gibson and his wife were looting the accounts to buy yachts and other luxury items.

But after the passage of the Patriot Act, the Justice Department moved within weeks in late 2001 to seize the money from the Belizean banks' correspondent accounts in the United States, according to a report prosecutors gave Congress last week on the new law enforcement powers.

Officials said that the money seized from Belize totaled about $1.7 million, and that it would be used to compensate Mr. Gibson's victims.

Charles A. Intriago, a specialist in money laundering law in Miami who publishes Money Laundering Alert, said he considered the Justice Department's new power to seize foreign bank accounts maybe the most startling provision of the Patriot Act. He said: It's an awesome power, and it may even go too far because of the diplomatic problems it could cause.

But Mr. Intriago added that he did not fault the Justice Department for considering the new tool in a range of fraud, laundering and drug trafficking cases that are unrelated to their counterterrorism mandate.

If Congress had wanted this tool to be limited to terrorism, it would have done so, he said. It didn't.