CHRISTOPHER R. COOPER, United States District Judge.
This case turns on what it means to be a "money transmitting business." A federal statute, 18 U.S.C. § 1960, makes it a crime to operate one without a license. And the proceeds of a business operated in violation of that statute are subject to civil forfeiture. The government typically deploys these statutory authorities against non-bank financial institutions like wire remitters and currency exchangers. Rarely, if ever, have they been applied to ostensible nonfinancial professional-services firms that also transfer funds for clients. Until now, apparently.
The government alleges that Pennsylvania-based lobbyist Joseph Szlavik ran an unlicensed money transmitting business by accepting large sums of money from foreign clients — principally the President of Gabon, Ali Bongo, and his associates — and then, for a commission, transferring those funds from accounts he controlled to numerous recipients in the United States as directed by the clients. The underlying funds, the government suggests, are derived from official corruption on the part of President Bongo and his family. On the basis of these allegations, the government filed a verified complaint seeking forfeiture of $475,405.21 in seized funds that it contends are connected to Szlavik's business.
Mr. Szlavik and his wife have asserted claims to the money and now move to dismiss the government's complaint. The Szlaviks insist that Mr. Szlavik does not operate a money transmitting business but rather a government-affairs and public-relations "consultancy" which is beyond the reach of the money transmitting statute as a matter of law. But this argument rests more on semantics than substance. While Szlavik may offer bona fide professional services to his clients, the complete nature of his business activities remains disputed at this stage. The government's theory is that among the suite of services he has provided is money transmitting. And its complaint, while novel perhaps, contains sufficient allegations concerning the volume, frequency, and circumstances of Szlavik's money transfers to bring his purported activities within the broad ambit of the statute, regardless of what name one assigns them. The Court will therefore deny the Szlaviks' motion to dismiss and permit the case to proceed to discovery, where the factual record can be developed further.
The government initiated this forfeiture action on May 9, 2017 by filing a verified complaint in rem against $475,405.21 in U.S. currency. Verified Compl. ("Compl.") ¶ 1. The Department of Homeland Security had seized these funds nearly four years earlier, in September 2013, upon a probable cause finding by a Magistrate Judge.
The government maintains that Mr. Szlavik operated an unlicensed money transmitting business between February 2010 and August 2013. Compl. ¶ 10. During this period, Szlavik allegedly received 19 wire transfers totaling $8.3 million into his accounts.
Several of the alleged wire transfers contained references to invoices to be paid with the transferred funds, including fees for Szlavik himself.
Finally, the complaint alleges that Szlavik "coordinated and participated in transferring large amounts of bulk cash currency into the United States."
After the government filed its complaint, Szlavik and his wife Andrea (who has an interest in at least one of the accounts) filed a verified claim to the seized funds. They have now moved to dismiss the complaint.
The pleading standard in a civil forfeiture action is governed by both the Federal Rules of Civil Procedure and the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions ("Supplemental Rules").
The government is seeking to recover the defendant funds under 18 U.S.C. § 981(a)(1)(A) and (C), which make property involved in or derived from violations of certain enumerated statutes subject to forfeiture. The government alleges underlying violations of four such statutes: 18 U.S.C. §§ 1960, 1956(c)(7)(A), 1956(a)(2)(A), and 1957. At bottom, however, the disposition of the Szlaviks' motion depends mainly on whether the government has adequately alleged that Mr. Szlavik's business meets 18 U.S.C. § 1960's definition of a "money transmitting business." So the Court will start there.
18 U.S.C § 1960 was enacted by Congress in 1990 "to combat the growing use of money transmitting businesses to transfer large amounts of monetary proceeds of unlawful enterprises."
The government alleges that Szlavik operated an "unlicensed money transmitting business" as described under both subsection (b)(1)(A) and (b)(1)(B). (Subsection (b)(1)(C) is not in play). Each of these offenses has its own specific requirements
Specifically, the Szlaviks argue that the government has not alleged that Mr. Szlavik "offered the services of his alleged `money transmitting business' to the public." Reply at 11 (citing § 1960(b)(2)). This argument faces two potential obstacles. First, as noted above, the statute says that "`money transmitting' includes transferring funds on or behalf of the public by all means...." 18 U.S.C. § 1960(b)(2). Congress's use of the word "includes" generally indicates that what comes next is "illustrative, not exclusive."
Which brings us to the second obstacle: even if "includes" in subsection (b)(2) is interpreted as "means," the government has nonetheless alleged that Mr. Szlavik operated a business "on behalf of the public." The Szlaviks argue that this is not so, in part because Mr. Szlavik "cater[ed] solely to a single client" — Gabon. Mot. Dismiss at 21. The complaint can be fairly read, however, to allege that Szlavik operated his business on behalf of multiple clients, including entities that wired him funds from Switzerland and the United Arab Emirates, and other entities and people to whom he ultimately provided funds upon request.
The Court will now turn to the two specific violations of § 1960 alleged by the government.
As noted above, § 1960's federal-registration offense, § 1960(b)(1)(B), defines an unlicensed money transmitting business as a "money transmitting business which affects interstate or foreign commerce" and "fails to comply with registration requirements" under 31 U.S.C. § 5330. Section 5330, in turn, requires that money transmitting businesses be registered with the Secretary of Treasury and includes its own definition of a money transmitting business: one that "provides ... money transmitting or remitting services ... or any other person who engages as a business in the transmission of funds" and "is required to file reports under 31 U.S.C. § 5313."
The Szlaviks argue that Mr. Szlavik's business cannot qualify as a "domestic financial institution" because the alleged money transmissions are not "systematic," nor are his services open to the public and a matter of "national concern." Mot. Dismiss at 23-24. But a business need not participate in systematic money transmissions that amount to matters of national concern in order to qualify as a "domestic financial institution." The actual definition of "domestic financial institution" is found in 31 U.S.C. § 5312, and it is broader than the label suggests. That statute defines "financial institution" as "any [] person who engages as a business in the transmission of funds, including ... as a business in an informal money transfer system." 31 U.S.C. § 5312(a)(2)(R). The relevant Treasury Department regulations echo this broad understanding of "financial institution" — the term covers "any person doing business, whether or not on a regular basis or as an organized business concern" who accepts currency or funds and transmits the currency or funds "by any means" or engages "in the transfer of funds." 31 C.F.R. §§ 1010.100(t)(3); (ff)(5)(i). Taking all of these statutes and regulations together, courts have broadly construed the definition of both a "money transmitting business" and a "financial institution."
The question, then, is whether the allegations in the complaint support a reasonable belief that the government will be able to prove that Mr. Szlavik operated an unlicensed money transmitting business under the above definitions, notwithstanding what other professional services he may have also provided to his clients.
The Szlaviks argue that Mr. Szlavik's business falls outside even these broad definitions of a "money transmitting business" and "financial institution" because any funds transfers that he executed were merely courtesies "incidental" to his nonfinancial consulting services. Mot. Dismiss at 21. Speaking to this point, the Treasury regulations provide that whether a person engages in money transmitting is "a matter of facts and circumstances" and someone who "[a]ccepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services" is not a money transmitter. 31 C.F.R. § 1010.100 (ff)(5)(ii). The facts and circumstances here may ultimately establish that the money transfers catalogued in the complaint fit within this safe harbor. But for now the government's allegations support an inference that Szlavik was paid specifically for transmitting funds rather than for other services — for instance, when he retained a "fee" from the bulk cash he allegedly imported from Gabon and distributed to people in the United States — and therefore that his funds transfers were not all "integral" to other bona fide transactions. Compl. ¶¶ 91-92. That is enough to sustain the government's complaint at this stage.
In a similar vein, the Szlaviks suggest that applying § 1960 to businesses that transfer funds as part of work they do for clients would subject other professional services firms, including law firms, to misguided prosecutions and civil forfeiture actions. Mot. Dismiss at 21. This concern may well be valid. But the Court's job at this juncture is to decide whether the government has statutory authority to seek forfeiture based on the conduct alleged in its complaint. It is not to predict how the government might choose to exercise its authority in future cases. In any event, the government has described a number of transfers — such as those to President Bongo's ex-wife, a jewelry store, and a dentist — that strike the Court as falling well beyond the heartland of customary government-affairs or legal services that the Szlaviks warn are threatened by the forfeiture sought in this case.
Finally, the Szlaviks argue that because some of the funds were transferred
The government also alleges a violation of 18 U.S.C. § 1960(b)(1)(A), the state-law counterpart to subsection (b)(1)(B). Under subsection (b)(1)(A), a "money transmitting business" must "affect interstate commerce" and be "operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law." The government alleges that Szlavik failed to obtain the required license in the District of Columbia and Pennsylvania.
The District of Columbia Money Transmitters Act states that "no person shall engage in the business of money transmission without obtaining a license issued by the Superintendent." D.C. Code § 26-1002. The Szlaviks argue that this statute is inapposite because it was not intended to apply to nonfinancial consulting businesses. Mot. Dismiss at 26. But this argument suffers from the same flaw as the Szlaviks' argument under § 1960(b)(1)(B): the nature of Mr. Szlavik's business activities is a matter of disputed fact that the Court cannot resolve at the motion to dismiss stage. Again, the question is whether the allegations in the complaint support a reasonable belief that the government can prove by a preponderance of the evidence that Szlavik violated the D.C. statute and, consequently, § 1960(b)(1)(A). The government argues that it has met this burden by alleging that Szlavik maintained offices in the District of Columbia for two of his businesses, Scribe Strategies & Consulting and Scribe Strategies & Advisors.
The Szlaviks counter that D.C. Code § 26-1002 did not obligate Mr. Szlavik to
In addition to violations of § 1960, the government alleges violations of three other statutory provisions: 18 U.S.C. §§ 1957, 1956(c)(7)(A), and 1956(a)(2)(A). As the Szlaviks correctly observe, these allegations rise and fall with the § 1960 claims because each depends on whether the defendant funds are derived from "specified unlawful activity" — in this case an unlicensed money transmitting business.
Besides challenging the application of § 1960 to Mr. Szlavik's business, the Szlaviks contend that all of the government's claims are barred by the statute of limitations. The federal statute of limitations for forfeiture suits is five years beginning when the government "discovered" the alleged offense. 19 U.S.C. § 1621. The conduct alleged in the complaint began in February 2010 and the complaint was filed in May 2017. The Szlaviks argue that the government was on "inquiry notice" of its claims as of February 2010, when the United States Senate Permanent Subcommittee on Investigations issued a report that detailed how President Bongo and his family used financial institutions to launder proceeds of corruption. According to the Szlaviks, the existence of this report put the government on notice of its claims in this case. Mot. Dismiss at 30-33.
But this Circuit has made clear that "because statute of limitations issues often depend on contested questions of fact, dismissal is appropriate only if the complaint on its face is conclusively time-barred."
The government has alleged facts that support a reasonable belief that it will be able to prove by a preponderance of the evidence that Szlavik operated an unlicensed money transmitting business in violation of 18 U.S.C. § 1960 and in violation of 18 U.S.C. §§ 1956(c)(7)(A), 1956(a)(2)(A), and 1957. It is therefore
