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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 23, 1994 Decided February 14, 1995

No. 93-5296

UNITED STATES OF AMERICA,

PLAINTIFF-APPELLEE

v.

BCCI HOLDINGS (LUXEMBOURG), S.A.,

BANK OF CREDIT AND COMMERCE INTERNATIONAL, S.A.,

BANK OF CREDIT AND COMMERCE INTERNATIONAL

(OVERSEAS) LIMITED, AND

INTERNATIONAL CREDIT AND INVESTMENT COMPANY

(OVERSEAS) LIMITED,

DEFENDANTS-APPELLEES

-

SHRICHAND CHAWLA, LEO D. CURRAN, WILLY HERMANS, AND

RED CIRCLE INVESTMENT, LTD., JALEH KHORASSANCHY,

AMIT PANDYA, SOHA, INC., IDRISS DEVCO, INC.,

AND S&L GENTRADE, INC.,

CLAIMANT-APPELLANTS

-

No. 93-5299

UNITED STATES OF AMERICA,

PLAINTIFF-APPELLEE

v.

BCCI HOLDINGS (LUXEMBOURG), S.A.,

BANK OF CREDIT AND COMMERCE INTERNATIONAL, S.A.,

BANK OF CREDIT AND COMMERCE INTERNATIONAL

(OVERSEAS) LIMITED, AND

INTERNATIONAL CREDIT AND INVESTMENT COMPANY

(OVERSEAS) LIMITED,

DEFENDANTS-APPELLEES

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1 These four organizations were BCCI Holdings (Luxembourg), S.A., Bank of Credit and

Commerce International (Luxembourg), S.A., Bank of Credit and Commerce International

(Overseas) Limited, and International Credit and Investment Company (Overseas) Limited. At

the time of the shutdown, these BCCI companies had operations in 69 countries worldwide. 

RAYMOND DAVIES, AS CONSERVATOR FOR THE BRANCH

IN SIERRA LEONE OF BANK OF CREDIT AND COMMERCE 

INTERNATIONAL (OVERSEAS) LIMITED,

CLAIMANT-APPELLANT

-

Appeal from the United States District Court

for the District of Columbia

(91cv0655)

-

William S. Dato argued the cause for appellants Shrichand Chawla, et al. With him on the briefs

were Leonard B. Simon and Kevin P. Roddy.

Maurice R. Garber argued the cause for appellant Raymond Davies.

Stefan D. Cassella, Attorney, Department ofJustice, argued the cause for appellee United States of

America. With him on the brief was Eric H. Holder, Jr., United States Attorney, Department of

Justice. Robert D. Sharp, entered an appearance.

Michael Nussbaum and Eric L. Lewis filed a brief for appellees BCCI.

Before: SILBERMAN, HENDERSON, and RANDOLPH, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: Appellants petitioned the district court to amend various court

orders forfeiting assets of the Bank of Credit and Commerce International (BCCI) pursuant to the

Racketeering and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (1988 & Supp. V 1993). The

petitions were dismissed. We affirm on the grounds that appellants' claims of entitlement to the funds

in question are not cognizable under the forfeiture provisions of the RICO Act.

I.

In July, 1991, bank regulatorsin several countriesjointlyseized and shut down the operations

of the four principal financial institutions that collectively made up the enterprise known as BCCI.1

These measures, prompted by evidence of insolvency and extensive dealings in criminal affairs, were

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followed by the appointment of fiduciaries for BCCI by courts in Luxembourg and the Cayman

Islands, the jurisdictions in which the principal entities were incorporated. A worldwide effort was

then begun to consolidate all BCCI assets wherever located for a general global distribution to

creditors and depositors.

BCCI's collapse prompted a flurry of civil and criminal investigations by various state and

federal agencies in the United States, and criminal charges were brought against BCCI in several

jurisdictions. Negotiations between law-enforcement officials and the court-appointed BCCI

fiduciaries ultimately led to a comprehensive plea agreement filed with the federal district court in the

District of Columbia. The agreement required BCCI to plead guilty to several state and federal

criminal and civil charges, including RICO violations, and to forfeit to the Justice Department all

BCCI assets located in the United States. It also provided, pursuant to the RICO statute, that half

of all sums recovered by the government would be surrendered to the global liquidation fund; the

other half was to be reserved for the Attorney General's discretionary allocation among several

enumerated purposes, which included offsetting lossesto "the Bank Insurance Fund of the FDIC and

United States taxpayers" resulting from BCCI's collapse and making further contributions to the

global liquidation fund. The plea agreement, with its forfeiture provision, was approved by

supervising courts in Luxembourg and the Cayman Islands.

The agreement was opposed, however, byvariousthird parties withclaims againstBCCI, who

saw that a total forfeiture of BCCI's U.S. assets would undermine their independent efforts at

recovery. Dissatisfied with the prospect of a heavily discounted distribution from the global

liquidation fund, these partiessought to block the plea agreement. In bankruptcy proceedings in New

York, putative tort creditors unsuccessfully tried to have the district court in D.C. enjoined from

accepting the agreement. See In re Smouha, 136 B.R. 921, 928 (S.D.N.Y.), appeal dismissed, 979

F.2d 845 (2d Cir. 1992). Still other parties contested the agreement directly before the district court.

These claimstoo were rejected, however, and the district court formally accepted the plea agreement

in January, 1992.

Shortly thereafter, the district court issued the first of three orders forfeiting all identified

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BCCI property located within the United States. The two later orders were issued in response to the

discovery of additional assets. The forfeited amountin aggregate approximately $552

millionlargely came from bank accounts maintained at various U.S. banks in the names ofspecific

overseas branches of BCCI. Following the district court's issuance of the three orders, numerous

third parties, appellants among them, filed petitions claiming legal interests in the BCCI assets

forfeited to the government.

Under the RICO Act, third parties are given an opportunity to challenge a forfeiture order if

they can assert that they have a "legal interest in property which has been ordered forfeited." 18

U.S.C. § 1963(l )(2). A partywho files a petition alleging a "legal interest" that, if established, would

compel amendment of the forfeiture is then entitled to a hearing. Id. Section 1963(l )(6) sets forth

the grounds upon which the court may grant relief.

If, after the hearing, the court determines that the petitioner has established by a

preponderance of the evidence that

(A) the petitioner has a legal right, title, or interest in the property, and such

right, title, or interest was vested in the petitioner rather than the defendant

or was superior to any right, title, or interest of the defendant at the time of

the commission of the acts which gave rise to the forfeiture of the property

under this section; or

(B) the petitioner is a bona fide purchaser for value of the right, title, or

interest in the property and was at the time of purchase reasonably without

cause to believe that the property wassubject to forfeiture under this section;

the court shall amend the order of forfeiture in accordance with its determination.

18 U.S.C. § 1963(l )(6).

Two of the petitions at issue in this appeal were filed by persons claiming to represent a class

of worldwide depositors in BCCI. These "class petitioners" had previously initiated a massive civil

RICO action against the founders, officers, and directors of BCCI as well as against numerous

allegedly blameworthy "related" third parties. See Hamid v. Price Waterhouse &Co., 15 RICO Law

Rep. 1234, 1242-43, 1251 (C.D. Cal. 1992) (dismissing complaint on standing grounds). The class

representatives' petitions merely asserted that the class members had an interest in the forfeited

property. The nature and extent of that interest, they stated, could be found in an appended copy of

the RICO complaint, 482 pages in length, filed in the Hamid case.

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Raymond Davies, the other petitioner in this case, was appointed by a Sierra Leone court as

conservator over BCCI's affairs in that country. As representative of the Sierra Leone branch

depositors, Davies filed a petition challenging the forfeiture of $2 million held in the name of BCCI

(Overseas) Sierra Leone at a New York bank. Davies alleged that the Sierra Leone depositors were

entitled to a constructive trust over the funds because the alternativepooling the Sierra Leone

branch funds with those ofthe bank as a wholewould unjustly enrichBCCI; once recognized, such

a trust would constitute a "superior" interest under § 1963(l )(6)(A). Alternatively, he argued that

the depositors qualified as "bona fide purchasers" entitled to amendment of the order under § 1963(l

)(6)(B).

The government moved to dismiss both parties' petitions on the ground that they had failed

to state claims entitling them to relief under the statute. The class petitioners urged the district court

to view their petitions as presenting the same legal theories Davies had advanced on behalf of the

Sierra Leone depositors. The district court somewhat skeptically granted this request and, further,

assumed that a constructive trust could qualify as a "legal interest" under the RICO Act. United

States v. BCCI Holdings(Luxembourg), S.A., 833 F. Supp. 9, 13-14 (D.D.C. 1993). It nevertheless

dismissed the class petitioners' claims. Their allegations, the court held, did not entitle them to the

equitable remedy of a constructive trust; that relief would be fundamentally inequitable to the other

depositors worldwide, who would not have the benefit of contributions from the forfeited assets to

the global liquidation fund. Id. The court also dismissed the class petitioners' alternative claim, based

on their asserted status as general creditors, for failure to satisfy § 1963(l )(2)'srequirement that third

parties claim an interest "in property" subject to forfeiture. Id. at 14-16. The Davies petition was

dismissed on similar grounds in a separate ruling. United States v. BCCI Holdings (Luxembourg),

S.A., 833 F. Supp. 32, 39-40 (D.D.C. 1993). The appeals were consolidated.

II.

Appellants argue that the district court improperly ruled on the merits of their constructive

trust allegations under § 1963(l )(6)(A) without granting them the benefit of an evidentiary hearing.

Theyalso assert that the district court incorrectly held that their alternative claims as general creditors

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could not satisfy the "bona fide purchaser" requirement of § 1963(l )(6)(B). The case turns, then, on

whether the district court was correct in rejecting the petitions as a matter of law.

The government claims that the class petitioners are not even entitled to rely on the

constructive trust theory on appeal because they did not properly raise it in their petitions below. The

class petitioners made the constructive trust claim to the district court only at oral argument on the

motions. For this reason, the district judge surely could have refused to permit the class

petitionerswhose petitions were so sketchy and who did not even assert the constructive trust

theory in their memorandum of lawto argue the issue at all. But she decided to "provide the

claimants a generous benefit of the doubt and treat their petitions as if they alleged interests arising

both from constructive trusts and from general debtor/creditor relationships." 833 F. Supp. at 13-

14. Since Davies had properly presented the issue in his petition, it is not surprising that the district

judge permitted the class petitioners, albeit grudgingly, to piggy-back on histheory, especially as the

court ultimately rejected the claim. In any event, the government only asserts that the class petitions

cannot support a constructive trust claim, not that the district court was in error in giving the class

petitioners such wide latitude; since the government does not actually challenge the district judge's

ruling, we do not understand why the government even raises the matter before us.

Asto the district court's disposition of the constructive trust claim, the government asksthat

we affirmbut on different grounds. It argues that since a constructive trust is a creation of equity

courts, see, e.g., Healy v. Commissioner, 345 U.S. 278, 282 (1953) ("A constructive trust is a fiction

imposed as an equitable device for achieving justice." (emphasis added) (citation omitted)), it cannot

be recognized under § 1963(l )(6)(A) as a "legal right, title, or interest" (emphasis added). A party

with any sort of equitable, as opposed to legal, claimusing the classic common law

distinctionmay only seek relief by appealing to the Attorney General, who may

grant petitions for mitigation or remission of forfeiture, restore forfeited property to

victims of a violation of this chapter, or take any other action to protect the rights of

innocent persons which is in the interest of justice and which is not inconsistent with

the provisions of this chapter ....

18 U.S.C. § 1963(g)(1). As recognized by the Second Circuit in United States v. Schwimmer, 968

F.2d 1570 (2d Cir. 1992), whether the statute recognizes equitable interests or only strictly "legal"

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ones is a close question. See id. at 1582 (a "legal interest" is an interest "in property or in claim

cognizable at law in contrast to equitable interest" (quoting Black's Law Dictionary, 894 (6th ed.

1990)). The legislative history of the 1984 amendments that created the § 1963(l ) proceedings

suggests that Congress contemplated a distinction between traditionally "legal" and traditionally

"equitable" interests. The Senate report indicated that § 1963(l ) hearings were for parties claiming

"a legal basis for relief" whereas the Attorney General's authority to grant relief under § 1963(g)(1)

wasthe "appropriate ex[cl]usive remedy" forthose asserting "merelyequitable grounds." S. Rep. No.

225, 98th Cong., 2d Sess. 208, reprinted in 1984 U.S. CONG. CODE & ADMIN. NEWS 3182, 3391.

The government, then, has some support in urging us to limit the scope of "interest" under § 1963(l

)(6)(A) to exclude equitable claims. But the congressional history is not dispositive. It is unclear

whether the drafters intended to use the words "legal" and "equitable" in their technical senses or

whether they were using the terms more as laymen do (and sometimes lawyers as well) with "legal"

meaning "legally enforceable" or "recognized under law" and "equitable" implying "fair and just."

Compare Black's Law Dictionary, 892 ("legal" defined as "according to law" or "proper or sufficient

to be recognized by the law"); id. at 537 ("equitable" defined as "conformable to the principles of

justice and right"). The Senate report apparently used the term "equitable" in its more expansive

sense when referring to the Attorney General's authority to refashion forfeitures to protect innocent

third parties, for § 1963(g)(1) allows the Attorney General to take any action "in the interest of

justice." It would follow that the word "legal" was used in the legislative historyand, presumably,

the statutein its broader sense as well.

At the end of the day, we agree with our sister circuits that have rejected the notion that

Congressintended to draw the ancient, but largely ignored, distinction between technically legal and

technically equitable claims in forfeiture challenges. See Schwimmer, 968 F.2d at 1582; United

States v. Lavin, 942 F.2d 177, 185 n.10 (3d Cir. 1991); United States v. Campos, 859 F.2d 1233,

1238-39 (6th Cir. 1988) (dicta). Prior to 1984, third parties claiming an interest in forfeited property

could only petition the Attorney General for relief. Section 1963(l ) was added to alleviate due

process concerns; obviously, only the property of the defendant (including property held by a third

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party pursuant to a voidable transaction) can be confiscated in a RICO proceeding. See S. Rep. No.

225, 98th Cong., 2d Sess. 208, reprinted in 1984 U.S. CONG. CODE & ADMIN. NEWS 3182, 3391.

It seems to us that it would just as much offend notions of due process for the government to scoop

up property in which a third party has certain kinds of equitable interests as it would for the

government to take property in which a third party has a "legal" interest. Suppose, for instance, that

a lawyer was a trustee who held assetsin trust for the benefit of others, and that the lawyer, who was

also part of a racketeering ring, used those assets in furtherance of criminal ends. We simply cannot

imagine that Congress would have intended that the trust corpus be forfeited to the government

without opportunityfor challenge bythe beneficiaries anymore than it would propertythat the lawyer

held as a bailee. Indeed, it seems to us that focusing on the distinction between equitable and legal

interests obscures Congress' real intent. The key words in section 1963(l )(6)(A) to identify

statutorily cognizable third party interests are "vested," "superior," and "at the time." To prevail

under that provision, a third party must establish that his interest had vested or was superior to the

defendant's interest "at the time of the commission of the acts which gave rise to the forfeiture."

It is because of that language in the section that we agree with the government that a

constructive trust may not be used to defeat the government's forfeiture claim. Congress intended

that as far as § 1963(l )(6)(A) is concerned, a third party's claim is to be measured not as it might

appear at the time of litigation, but rather as it existed at the time the illegal acts were committed.

A constructive trust is a remedy that a court devises after litigation. It is, as we have noted, a

fictional trustnot a real one. It could not have been shown to exist at the time the acts were

committed. Moreover, Congress provided under § 1963(c) of the RICO forfeiture Act that title in

all criminally acquired property of the defendant is deemed to "vest[ ] in the United States upon the

commission of the act giving rise to forfeiture." Congress, in other words, devised a statutory

remedial scheme that reaches back to the time of the criminal acts to forfeit the property to the

United States. The statute thus creates a retroactive legal fiction similar to a constructive trust for

the benefit of the United States. It is not open to a court to fashion another remedy (a competing

fiction) that also reaches back to snatch the property away from the United Stateswhich is exactly

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what a constructive trust would do.

We therefore disagree with those courtsthat have determined that a constructive trust can be

interposed as superior to the government's forfeiture claim. See Schwimmer, 968 F.2d at 1582;

Lavin, 942 F.2d at 187; Campos, 859 F.2d at 1238-39 (dicta); United States v. Marx, 844 F.2d

1303, 1307-08 (7th Cir. 1988). While those courts, in our view, properly rejected the government's

legal/equitable distinction, theydid not consider whether a judiciallyimposed constructive trust would

be inconsistent with the statutory remedial scheme.

III.

Alternatively, appellants arguein another effort to gain a direct claim against the forfeited

propertythat even if, as mere depositors, they are only general creditors, they should be thought

of as "bona fide purchasers" entitled to recover under § 1963(l )(6)(B). That section, it will be

recalled, provides that a petitioner can establish a statutory "interest" by demonstrating that he

is a bona fide purchaser for value of the right, title, or interest in the property and was

at the time of purchase reasonably without cause to believe that the property was

subject to forfeiture under this section;

18 U.S.C. § 1963(l )(6)(B). Appellants' claim appears rather anomalous on its face, since

bank depositors, as general creditors, have no interest in the specific accountsto which their deposits

might be traced, only in the defendant's estate as a wholeand therefore can have no interest in

particular assets forfeited, as required under both prongs of § 1963(l )(6), unless they have already

secured a judgment against the debtor and perfected a lien against a particular item. See Schwimmer,

968 F.2d at 1581; Campos, 859 F.2d at 1240. Nevertheless, petitioners argue that since the amount

of their claims (in the billions of dollars, we are told) exceeds BCCI's entire estate, their interest

necessarily extendsto any portion of the estate that has been forfeited to the government. They rely

primarily on a Fourth Circuit opinion, United States v. Reckmeyer, 836 F.2d 200 (4th Cir. 1987),

applying an identical statutory section that applies to drug trafficking crimes, 18 U.S.C. § 853(n)

(1988). Reckmeyer accepted the theory that general creditors have an interest in forfeited property

if that property represents their only means of recovery and, further, that under such circumstances

they should be regarded as "bona fide purchasers." Reckmeyer, 836 F.2d at 205, 207-08.

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The government argues that both parts of Reckmeyer 's holding are incorrect and should not

be followed. The Second Circuit, in Schwimmer, distinguished Reckmeyer on groundsthat whereas

the petitioners before it had asserted only an interest arising under 1963(l)(6)(A), which requiresthat

a claimant have a "vested" interest in forfeited property or one "superior" to the defendant-debtor,

Reckmeyer dealt with a "bona fide purchaser" claim under the provision of the drug crime for

forfeiture statute parallel to § 1963(l )(6)(B) of the RICO Act. See 968 F.2d at 1581 & n.8. It is this

latter provision upon which petitioners now rely.

We respectfully disagree with Reckmeyer. We think the government is correct that a general

creditor can never have an interest in specific forfeited property, no matter what the relative size of

his claim vis-a-vis the value of the defendant's post-forfeiture estate. Were it otherwise, the court

litigating the forfeiture issue would be converted into a bankruptcy court and would not be able to

grant forfeiture to the government until it determined that no general creditor would be unable to

satisfyits claimagainst the defendant. That result appears patently at odds with the statutory scheme,

which directs parties without an interest in specific property to seek relieffromthe Attorney General,

not the court adjudging the forfeiture. The Attorney General has authority to dispense confiscated

funds "to protect the rights of innocent persons," 18 U.S.C. § 1963(g)(1), and general creditorsseem

precisely the type of innocent persons Congress had in mind.

Although a general creditor whose claim exceedsthe value of the debtor's estate may in some

sense have a legal interest against the entire estate, that issimply not the same as an interest in specific

forfeited propertyand contrary to Reckmeyer, under either prong of § 1963(l )(6), only the latter

can defeat the government's claim. In addition to disregarding the statute's "in the property"

requirement, Reckmeyer also relied upon an even more troublesome interpretation of the statute at

the second stage of its analysis. The Fourth Circuit construed the term "bona fide purchasers for

value" "liberally," as it put it, to include a general creditor. It reached this conclusion by reasoning

that Congress could not have intended that "a car dealer who sold a car to a later convicted defendant

without knowledge of the potentialforfeitability of the defendant's assets could have the payment he

received for the car forfeited while a person who purchased otherwise forfeitable stock from the

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defendant would be protected." Reckmeyer, 836 F.2d at 208. But we do not understand why the

dealer'ssituation would be analogousto a general creditor'ssince, by hypothesis, he had already been

paid. Nor do we see how, in the first case, the cash received by the dealer would be forfeited as the

defendant's property(unless, perhaps, it had not been acquired in an arms-length transaction). Finally,

the conclusion which the Fourth Circuit reached by its reasoningthat Congress wished to protect

all those who engage in arms-length transactions with the defendantwould mean that all innocent

creditors would fall into the bona fide purchaser category. The difficulty with this position is that it

is contrary to the natural meaning of what Congress said. Bona fide purchasers are not the same

thing as general creditors.

* * *

In sum, we affirm the district court's dismissals of appellants' petitions on the grounds that

they failed to state claims under the statute.

So ordered.

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