UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

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UNITED STATES OF AMERICA,

v. Indictment No. 98 Cr. 965 (SS)

GALLO R. VELASTEGUI and

GMJ TRAVEL and SHIPPING CORP., MEMORANDUM OF LAW

Defendants.

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This memorandum of law is submitted in reply to the response by the Government dated October 13^th, 1998 to the Defendant/Movant’s motion to vacate the Restraining Order on the Defendants’ banking accounts.

The facts in this case are described in detail in the Defendants’ Motion to Dismiss the Indictment. However, an adumbration of the relevant facts follows: According to the Government, GMJ transmitted approximately $5 million dollars to Mexico on behalf of its customers during the calendar year 1997 and approximately $334,771 dollars to Mexico during the June/July 1998 period, without an appropriate state license.

On about September 2, 1998, the Government obtained an order of the Court, restraining various of Defendant’s accounts (the "Restraining Order"), which was more than a year after the alleged transmittals in 1997 and approximately one month after the transmittals alleged to have occurred in the June/July, 1998 period. Accordingly, none of the monies that the Government has restrained in this case are the same monies that were deposited by GMJ’s customers and transmitted to Mexico. The restrained accounts, therefore, are substitute assets.

In terms of the structuring, as described in excruciating detail in the Motion of Dismiss the indictment herein, the Defendants could not have structured and, did not structure, deposits. The Declaration by the Agent in this case was misleading in that it only partially described the circumstances concerning GMJs deposits at the bank. The Declaration omitted the fact that the law mandates that the bank prepare CTRs when multiple deposits are made in a single day aggregating more than $10,000, which was the case in virtually every instance referenced in the indictment; that the bank in fact prepared CTRs for all of GMJ’s deposits; and, that during the relevant period GMJ actually made 52 cash deposits on single slips in which the amount of the deposit exceeded $10,000. Furthermore, although the Agent in the Declaration supporting the Restraining Order makes some reference to her having experience with money laundering, no such allegation that the Defendants were involved in laundering or handling dirty money are made in this case. Indeed, the Government obtained records of all of the transmittals that GMJ made in this case, which records indicate in effect that "little people" deposited modest sums of monies with GMJ for transmittal to family and friends in Mexico and other countries.

Simply, the Government in this case is seizing upon what it perceives as a technical violation of a New York State Banking Law to forfeit every penny that the Defendant GMJ transmitted to Mexico on behalf of its customers during an approximately fourteen month period.

The Defendants’ position in this case can be outlined as follows:

1. The amount of monies the Government seeks to forfeit are not the same monies that were purportedly illegally transmitted to Mexico. They are instead, substitute assets, which the Government may not restrain post- indictment, pre-conviction; and
2. That the Government cannot establish the Defendant’s guilt of the counts in this indictment that the Defendants structured cash deposits, or that the Defendant had the intent to structure cash deposits. Even if the Defendants could be found to have structured cash deposits, the bank’s filing of CTRs is an affirmative defense to a conviction for structuring;
3. The purpose of the structuring and illegal money transmittal statutes is to deter and prosecute money laundering and the removal from the country of ill-gotten proceeds of criminal activities. None of the frozen monies at issue herein were ill-gotten or laundered. The Defendants’ transmittals were on behalf of "little people" who sent modest amounts of monies to their friends and relatives in Mexico.
4. The Defendant GMJ did not require a license to transmit money under the New York State Banking Law. Even though the banking regulations provide that an agent should transmit monies to foreign countries through its principal’s bank accounts, the failure to do so was not criminal and, indeed, the relevant NYS Banking Law did not put anyone on notice that violations of such banking regulations are criminal;
5. Even assuming that the Defendant could be convicted criminally, the Eighth Amendment of the Constitution prohibits excessive punishment and fines. The monies at issue in this case which were transmitted to Mexico were clients’ monies that merely passed through the Defendant GMJ, which acted as a mere conduit. GMJ received no benefit from such transmittals other than the commissions it received from the client.
6. The Defendants did not willfully violate the money transmittal or reporting statutes. Ratzlaf v. U.S., 510 U.S. 135 (1994) and Cheek v. U.S., 498 U.S. 192 (1991).

The issue of the Government’s ability to restrain substitute assets post-indictment, pre-trail was squarely decided by the Second Circuit in U.S. v. Gotti, 155 F.3d 144 (2d Cir. 1998) which decided that issue in the negative. In the Gotti case, the issue was whether the Government could restrain post-indictment, pre-conviction, assets of the defendant which were not directly forfeitable assets. The government argued that the forfeitable assets were not available and that the government needed to restrain other assets of the defendant in order to prevent the defendant from otherwise removing those assets prior to conviction. In so holding, the Second Circuit squarely held that such pre-conviction restraint of substitute assets is not permitted by the statute, stating at p. 149.

"In conclusion, while the pre-trial restraint of substitute assets might arguably serve the stated legislative purpose of preserving assets for forfeiture upon conviction, the unambiguous language of 18 U.S.C. §1963(d)(1)(A) provides no authority for the restraints. We therefore affirm the order of the district court."

And, in so holding, the Circuit Court agreed with the reasoning of the District Court, which held at 996 F.Supp. 323, 325 that:

"The Government is quite correct that in RICO cases where large amounts of cash proceeds are allegedly produced by racketeering activities, the forfeiture of substitute assets is crucial to furthering the remedial purpose of the statute and that the unavailability of pre-trial restraint of substitute assets would mean that, in some cases, assets ultimately subject to forfeiture could be dissipated, transferred or otherwise made unavailable for forfeiture. The government might be better able to preserve assets for post-trial forfeiture if Section 1983 authorized the pre-trial restraint of substitute assets. But, on our reading of the statute, that is not the policy that Congress has embraced, as evidenced by the language it chose to use."

And, even assuming a conviction could result in this case, the forfeiture of the Defendants’ assets would nevertheless not follow. This is so because the purported illegally transmitted monies were transmitted long before the restrained monies came to be in the Defendants’ possession. In other words, the Defendants’ current assets were not obtained from the purportedly improper transmittals, and the Defendants’ accounts did not derive from drug, money laundering or tax evasion activities. See, U.S. v. Bajakajian, 118 S.Ct. 2028 (1998).

21 Section 853, provides in relevant part as follows:

1. Property subject to criminal forfeiture. Any person convicted of a violation of this title … shall forfeit to the United States, … --

1. any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as a result of such violation;
2. any of the person’s property used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of such violation.

The statutory language of Section 853 is clear that the property sought to be forfeited must be the proceeds that the defendant directly or indirectly obtained as the result of the violation of the statute. Not only did GMJ obtain the transmitted funds legally, but the clients’ monies were clean funds, and not proceeds of drug or money laundering activities. GMJ’s customers deposited with GMJ monies that GMJ later transmitted to Mexico. Thus, GMJ did not obtain such monies by virtue of any violation of drug or money laundering laws, or violation of the New York State Banking Law, or any other law for that matter. If indeed a violation did occur, which the Defendant strongly asserts is not the case, that violation happened after the customers deposited their monies with GMJ for transmittals. The purported crime in this case was not in accepting the clients’ monies and depositing those monies into GMJ’s banking accounts; rather, the alleged criminal activity concerned GMJ’s subsequently transmitting legally obtained monies to Mexico without, as the Government alleges, GMJ having had a proper license to do so.

The restraint on the Defendant’s accounts took place on or about September 2, 1992, long after he monies referenced in the indictment had already been transmitted to Mexico. Further, the restraint was placed at a time when the Government acknowledges the Defendants were acting lawfully and properly. Accordingly, the restrained assets are substitute assets, and they may not be restrained pre-conviction.

In the Kahn case, the defendant Ahmed Kahn was involved in laundering the proceeds of heroin trafficking. The defendant masked his money laundering activities with money remitting business in Brooklyn, New York. The defendant did not have a license of any kind for conducting such a business nor was he an agent of a licensee; Kahn pleaded guilty to operating an unlicensed money remitting business. The issue before the District Court and the Court of Appeals was whether the individuals who deposited monies with Kahn, had standing to object to the seizure of Kahn’s assets. In the Kahn case, unlike the case at bar, no issue existed over the government’s right to seize Kahn’s property (post-conviction), when without dispute Kahn was directly involved in laundering drug money. The only issue in Kahn was whether third party claimants had any right to the post-conviction forfeited property.

In contrast to Kahn, the case at bar concerns a pre-conviction restraint of assets where the standards are completely different from those applicable to a post-conviction forfeiture. Prior to conviction, the Government’s right to forfeit property is quite restricted; the government may not restrain pre-conviction substitute assets of the Defendants.

The Supreme Court analyzed the Eighth Amendment’s provision against excessive fines reasoned that the Trial Courts as well as the Courts of Appeal must compare the amount of the forfeiture with the gravity of the defendant’s offense. And, if the amount of the forfeiture is grossly disproportional to the gravity of the defendant’s offense, it is unconstitutional. The Supreme Court held that the forfeiture of the respondent’s entire $357,144 would violate the excessive fines clause because the respondent’s crime was solely a reporting offense. It was permissible to transmit the currency out of the country so long as the defendant reported it. The Court reasoned that Section 982 provides that currency be forfeited for "willful" violations of the reporting requirement. Thus, the essence of the defendant Bajakajian’s crime was a willful failure to report the removal of currency from the United States. Furthermore, and importantly, the trial court in the Bajakajian case found that the defendant’s violation was unrelated to any other illegal activities. The $357,144 were the proceeds of legal activity and were to be used to repay a lawful debt. The Court found that whatever his other vices, the respondent Bajakajian did not fit into the class of persons for whom the statute was principally designed; he was not a money launder, a drug trafficker or a tax evader. The Supreme Court affirmed the lower court’s finding that a $15,000 fine was an appropriate amount to be forfeited and rejected the government’s petition for forfeiture of the full amount.

Similarly, in the case at bar, GMJ transmitted legal funds obtained from working Mexican-Americans. GMJ was not involved in drug trafficking, money laundering or tax evasion. The monies that GMJ transmitted were clean; and the law allows for such monies to be transmitted to foreign countries. The Government’s position herein is that GMJ did not transmit the monies through its principal’s accounts, but the Government acknowledges that had GMJ done so, (save the structuring allegation which is not relevant to this point), the Government would have no basis at all for seeking criminal prosecution and forfeiture from GMJ.

Thus, in the case at bar, even if the Defendant could be convicted of the criminal violations alleged in the indictment and even if the Government could obtain forfeiture, seeking to forfeit all of the monies which GMJ transmitted to Mexico on behalf of the its customers would be grossly disproportionate and excessive under any reading of the Eighth Amendment and the Supreme Court’s decision interpreting it. Finally, the Guidelines level for the Defendants’ conduct, even if he could be convicted, is level 6. See, 2S1.3(b)(2). The forfeiture of $5,000,000 sought by the Government is grossly disproportionate to the sentencing guideline for the Defendants’ alleged technical money transmittal violation.

In conclusion, the Government is not entitled to restrain pre-conviction the Defendant’s bank accounts, which are substitute assets and are not the same monies that the Defendant GMJ transmitted for the most part more than one year of the restraint on the Defendants’ accounts. Even if the Defendants could be convicted criminally, it would be excessive to allow the Government to forfeit from the Defendant a sum equal to all of the monies that the Defendant transmitted to Mexico on behalf of its clients. Accordingly, the restraint on the Defendant’s accounts must be vacated.

Respectfully submitted,

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Raymond J. Aab

Attorney for Defendants

233 Broadway

New York, New York 10279

(212) 406-1700