Free Reply - District Court of Arizona - Arizona

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PAUL K. CHARLTON United States Attorney District of Arizona Kevin M. Rapp Assistant U.S. Attorney Two R enaissance Square 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Arizona State Bar No. 014249 Telephone: (602) 514-7500 [email protected]

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA United States of America, CR-03-261-PHX-FJM Plaintiff, v. Samih Fadl Jamal, et al. Defendants. The United States of America, by and through its attorney PAUL K. CHARLTON, the GOVERNMENT'S REPLY IN SUPPORT OF MOTION SEEKING FORFEITURE

16 United States Attorney for the District of Arizona and KEVIN RAPP, Assistant United States 17 Attorney, respectfully files this Reply in support of its motion seeking forfeiture. 18 19 I. INTRODUCTION

After a guilty verdict in a jury trial, defendants requested that the forfeiture phase not be

20 presented to the jury which had returned the guilty verdicts and agreed to present the remaining 21 factual issues related to forfeiture to the Court. That proceeding was set for September 12, 2005. 22 The government submitted the forfeiture issues to the Court based upon the trial record and an 23 affidavit of an FBI Special Agent, who was present in Court and available for cross examination. 24 Despite the opportunity, no defendant presented any evidence at the proceeding, and all elected 25 to simply argue the government had not met its burden. Two memos were submitted in response 26 to an earlier pleading of the government. No evidence was presented by any defendant which 27 demonstrated any legitimate source for the funds nor an accounting for the purchase and sale of 28 infant formula which was acquired from allegedly legitimate sources. From the date of the jury
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1 verdict, no evidence has been presented demonstrating a defense to the forfeiture of the noticed 2 assets. The Court allowed, without objection, the filing of this Reply and has taken the matter 3 under advisement. The Court and parties are aware the Court must enter a Preliminary Order 4 prior to or at the time of sentencing. 5 The purpose of this Reply is to address the confusion regarding the legal theories involved

6 in the analysis of the motion seeking forfeiture and imposition of money judgments introduced 7 by counsel for the defense. This Reply is also supported by the attached Memorandum Regarding 8 Money Judgments and Tracing, hereby incorporated by this reference. The memo is a thorough 9 examination and analysis of the history of the asset forfeiture statutes and case law of the United 10 States, including 18 U.S.C. § 982(a)(1), which authorize the Court to enter a judgment for a sum 11 of money against a defendant who has been convicted of a money laundering offense. The 12 breadth and depth of the case law on this question, including the case law specifically holding the 13 Court's authority under the money laundering forfeiture statutes includes the authority to order 14 each of the defendants to pay a money judgment equal to the amount of money involved in the 15 laundering activity, whether or not the defendants retained any of that money for themselves. 16 Strict tracing is allowed but is not required. 17 18 II. 19 THE GOVERNMENT IS ENTITLED TO AN ORDER OF FORFEITURE Th e government seeks forfeiture of (1) the proceeds of interstate transportation of stolen

20 property, in violation of 18 U.S.C. § 2314 and § 2315 and a conspiracy to commit such acts in 21 violation of 18 U.S.C. § 371 as alleged in Counts 1-4 of the Superseding Indictment, under 18 22 U.S.C. § 981(a)(1)((C) and 28 U.S.C. § 2461(c); (2) a money judgment for the structuring 23 violations of Counts 9 through 19, subjected to forfeiture by 31 U.S.C. §5317(c)(1); (3) property 24 involved in the promotion and carring on of the specified unlawful activity (i.e. facilitating 25 property), which included bank accounts, forklifts, pallet jacks, and vehicles, pursuant to 18 26 U.S.C. § 982(a)(1), for a violation of 18 U.S.C. § 1956(a)(1)(A)(i); and (4) a money judgment for 27 the proceeds of the money laundering involved in the operation of the criminal enterprise engaged 28 in the sale of illegally obtained infant formula, pursuant to 18 U.S.C. § 982.
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The authority for a money judgment includes specific statutory authority for the entry of

2 a personal money judgment inherent in the nature of criminal forfeiture as an in personam 3 punishment, and the entry of personal money judgments is entirely consistent with the statutory 4 scheme set forth in 21 U.S.C. § 853 (which is incorporated by 18 U.S.C. § 982(b)(1)) and Rule 5 32.2 of the Federal Rules of Criminal Procedure. 6 7 III. 8 APPLICATION OF THE LAW TO THE IDENTIFIED PROPERTY The standard of proof in the forfeiture phase is by the preponderance of the evidence.

9 Since the jury verdict has been returned no additional evidence has been presented other than the 10 affidavit of FBI Special Agent Nordwall. Defendants may not continue to profess innocence in 11 the face of the verdicts of guilt. The standard is to then determine whether the uncontradicted 12 evidence presented by the government has met the minimum burden in order for the Court to enter 13 the forfeiture orders, as requested by the government. Rather than discuss each asset individually, 14 the following analysis will relate to the types of assets for which the arguments are identical. 15 16 A. Bank Accounts and Currency

Evidence presented during the trial and including the Nordwall affidavit demonstrate that

17 the manner in which this criminal enterprise was conducted relied upon large sums of currency 18 and the movement of currency through the identified bank accounts. Without question, the 19 currency and the need for currency, related to the need of the criminal enterprise to conduct 20 transactions in cash in an effort to avoid leaving a "paper trail." Defendants used the currency 21 and funds associated with these financial accounts to promote and carry on the specified unlawful 22 activity as described in the indictment and specifically related to the interstate transportation of 23 stolen property. Conducting such acts is prohibited by 18 U.S.C. § 1956(a)(1)(A)(i) and (h) and 24 is therefore property involved in the offense subject to forfeiture by 18 U.S.C. §982(a)(1). 25 Without question the funds in these accounts and the currency are also "proceeds" of the financial 26 transactions designed and intended to promote and carry on the criminal conduct and are also 27 directly forfeitable pursuant to 18 U.S.C. §981(a)(1)(C)and 28 U.S.C. § 2461(C). As noted 28 above, specific tracing of the sale a single can of stolen formula is not required for the Court to
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1 order the property forfeited. Defendants failed to produce any evidence the items sought to be 2 forfeited came from a legitimate source or were not involved in the criminal acts for which 3 defendants were convicted. Thus, no evidence exists to refute the government's presentation. 4 5 B. Forklifts, pallet jacks, truck, and guns.

Based upon the memos received and the oral arguments made on September 12, 2005, by

6 counsel for all defendants, it appears the forfeiture of these items is uncontested. It appears to be 7 conceded the items described in this section were involved in the operation of the criminal 8 enterprise and used in furtherance of the sale of stolen property and the conduct of financial 9 transactions described as money laundering. The forklifts, pallet jacks, and truck were used and 10 observed to be used to transport the stolen formula from one location to another, both inside the 11 warehouse facilities used by the criminal enterprise and from one establishment to another. The 12 two pistols were used to protect the large amounts of currency required for the operation and 13 conduct of the criminal enterprise. All were acquired with the proceeds of the criminal acts 14 during the course of the conspiracy and could also be considered traced from proceeds of the 15 criminal acts. These items are included in the prohibition of 18 U.S.C. § 1956(a)(1)(A)(i) and (h) 16 and are therefore property involved in the offense subject to forfeiture by 18 U.S.C. §982(a)(1). 17 They are also both proceeds and facilitating property subject to forfeiture pursuant to 18 U.S.C. 18 §981(a)(1)(C)and 28 U.S.C. § 2461(C). 19 20 21 22 C. Money Judgment regarding Money Laundering and Interstate Transportation and Receipt of Stolen Property in the amount of $2,600,000.

The sum requested by the government of $2,600,000, is a reasonable figure in the context

23 of the volume of financial transactions conducted in furtherance of the criminal enterprise 24 dedicated to re-sale of stolen formula. Defendants may not avoid forfeiture upon the allegation 25 that not all of the formula sold was stolen. Often legitimate property is co-mingled with tainted 26 property, simply in an effort to make the criminal enterprise appear. This enterprise did not exist 27 to re-sell legitimate formula. It was extremely profitable only due to theft and fraud involved in 28 the acquisition of formula. It would be impossible to make a tracing analysis, absent access to
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1 the records of legitimate transactions. In the context of the forfeiture portion of this criminal trial, 2 the burden to produce such records to reduce the value of the requested judgment was upon 3 defendants. Absent such evidence, the government's request should be granted and a money 4 judgment entered in the amount of $2,600,000, against all appropriate defendants, for which they 5 are jointly and severally liable. 6 D. 7 8 Money Judgment regarding currency structuring in the amount of $221,529.00.

This sum represents the value of the currency structured in financial transactions to avoid

9 detection. If the criminal enterprise were legitimate, there would have been no need to structure 10 financial transactions. The funds were involved in the criminal acts identified herein and would 11 be subject to forfeiture if they were seized. However, these funds were consumed in the course 12 of the criminal enterprise and are sought to be forfeited as a money judgment for the reasons 13 stated above. This judgment should be entered only with respect to Samih Fadl Jamal and 14 Mamoun Al-Jammal, for which they are jointly and severally liable. 15 16 E. Substitute Assets.

Contrary to the arguments of defense counsel, the government does not seek the forfeiture

17 of substitute assets in the form of the Preliminary Order of Forfeiture. Further, the government 18 does not contemplate making such an application until such time as substitute assets are located. 19 20 21 IV. AUTHORITY CITED BY DEFENSE

The Response filed on behalf of Samih Fadl Jammal cites no authority. Rather, it is based

22 upon unsupported allegations that the forfeiture request presented by the government is vague and 23 speculative. The argument is advanced despite the fact that guilty verdicts were returned, plaintiff 24 has presented unrebutted evidence of the scope and extent of the criminal enterprise upon which 25 the forfeiture requests are based, and not a single appellate case exists to support the argument. 26 See the attached memo. Simply stated, the argument made by counsel for Jammal, joined by 27 counsel for each of the defendants, is totally incorrect. 28
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Counsel for Mounir Daly presented a Response which, other than issues related to the

2 Eighth Amendment regarding disproportionate punishment, relies on only one case, United States 3 v. Rutgard, 116 F.3d 1270 (9th Cir. 1997). The reliance is misplaced. The case is distinguisable 4 both on the facts and the application of the law to the facts, as found by the Ninth Circuit. 5 Dr. Jeffrey Rutgard was a very skilled ophthalmologist who aggressively pursued patients

6 and encouraged medical procedures, apparently whether they were medically necessary or not. 7 In the context of substantial billings to Medicare, which only paid for medically necessary 8 procedures, there was substantial disagreement about which procedures were elligible for 9 payment. The medical practice of Dr. Rutgard included cataract surgery, YAG Laser procedures, 10 eyelid procedures, vitrectomy procedures, retrobulbar injections, W-5Modifier billings; EKG 11 tests, treatment of glaucoma with laser surgery. Dr. Rutguard was allowed to skip intership and 12 was accepted immediately out of medical school in a three year residency at the Medical School 13 of the University of Iowa. Upon completion of the residence, he moved to San Diego, California 14 and shortly thereafter began his own practice. Rutgard used aggressive practices to obtain 15 patients and perform surgery or other procedures which were questioned for the purposes of 16 payment by Medicare and insurance companies. The issue of whether the procedures were 17 medically necessary and whether records related to specific procedures were falsified, altered, or 18 manufactured were addressed in an indictment which included 132 counts for which Rutgard was 19 convicted. The time period of the commission of the criminal offenses alleged in the indictment 20 extended from 1988 to April of 1992. The government sought and obtained a judgment of 21 criminal forfeiture of the entire value of the medical practice on the basis that the entire practice 22 was a fraud on the insurers. 23 The Ninth Circuit reversed the forfeiture order based upon specific findings from the

24 evidence presented. 25 26 27 28
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The government did not, however provide sufficient evidence that Rutgard's entire medical practice was an insurance fraud. Three convergent reasons lead to that conclusion. First, .... nor did the government charge or prove a conspiracy to defraud the government ... The inescapable inference is that a fair amount of recording and billing in the Rutgard practice was performed without fraud....

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... It is not without significance that at trial both the defense and the government treated a number of entries in patient charts as reliable. Del Valle testified to fictitious entries when they were needed, not to fictitious entries in every file. Not every entry justifying treatment was a fraud. Second, there are portions of Rutgard's practice where no fraud was suggested ... no fraud was charged as to glaucoma patients. ... But fraud as to the retina was not charged. It was the burden undertaken by the government, not the defense, to show that 100 percent of Rutgard's medical practice was fraudulent. Third, no fraud was shown on the counts that we reverse with this opinion. In addition, the government did not charge or show fraud as to the cataract surgeries performed on its witnessess ... nor did the government show fraud as to the cataract surgeries performed on Rutgard patients ... ... The actually-proved instances of fraudulent pretense of medical necessity for cataract surgery are a tiny fraction of a practice that did thousands of cataract surgeries.... For these three reasons, converging to show that Rutgard's practice was not simply or wholly a scheme to defraud insurers, we hold that the government failed to prove beyond a reasonable doubt or even by a preponderance of the evidence that Rutgard's entire practice was a fraud and that all its proceeds were the fruit of fraud.

14 Id. at 1288-90. 15 This medical practice had included several different components, each of which had a While issues of medical necessity and lack of proper

16 substantial number of patients.

17 documentation for billing purposes clearly demonstrated a massive effort by Rutgard to defraud 18 Medicare and insurance companies, the Ninth Circuit found, after evaluation of all of the 19 evidence submitted by both parties, that the entire medical practice could not be forfeited as a 20 fraud. There were areas of this practice where Rutgard did not use fraudulent practices in an 21 attempt to enhance his income. The entire value of the practice could not be forfeited. 22 This case provides no relief for the defendants here. The entire criminal enterprise headed

23 by Jammal was devoted to one thing, the sale of infant formula. There are no other products or 24 services. The entire energy of the coconspirators is directed to the maximization of profit, not 25 from efficiency of operation, but from obtaining ever cheaper formula from criminal overt acts 26 alleged in the conspiracy count. While some small percentage of the formula sold may have 27 been from a legitimate source, there was an insufficient profit to justify the criminal enterprise. 28 Rather, the generation of substantial profit came from the low cost of goods sold which could
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1 only be accomplished with fraud and theft. The formula is not legitimately obtained if it is 2 acquired based upon fraud on the WIC program where the nourishment of infants is sacrificed 3 when a drug addicted adult buys the formula for $15 per can and sells it back for $5 cash to 4 satisfy a dependency. Theft by deception with the use of falsely obtained receipts or counterfeit 5 coupons does not demonstrate a legitimate source for formula. The sole purpose of the criminal 6 enterprise described in this action was to produce maximum profit based upon the criminal 7 activities of an ant like army of coconspirators. If innocently obtained formula was ever involved 8 in the operation of this criminal enterprise, it was due to circumstances which required the 9 acquisition of the relatively more expensive formula to complete an order, not the result of 10 confirmance with a business model or stated business practices. The presence of legitimately 11 obtained formula would serve only one purpose, to provide an apperance of legitimatcy to further 12 conceal the extent of the criminal activity involved. 13 During the trial, based upon the evidence submitted and the affidavit of Special Agent

14 Nordwall, the government proved by the preponderance that the entire criminal enterprise solely 15 existed for the sale of illegal infant formula. As such all of the noticed property was established 16 by the preponderance of the evidence to be subject to forfeiture. On September 12, 2005, 17 defendants had the opportunity to present evidence to contradict that showing, and each failed to 18 present any evidence. The unrebutted evidence supports forfeiture, even within the narrow 19 holding of Rutgard. 20 21 22 VI. EIGHTH AMENDMENT

Seeking the forfeiture of the proceeds of a fraud or money launering scheme cannot ever

23 be found to be violative of the Eighth Amendment because the forfeiture of the exact amount of 24 the criminal activity is perfectly proportional. Defendants can never profit from their crimes. 25 Forfeiture of the proceeds of the crime, even if dissipated, can never be "excessive." The issue 26 of an excessive punishment arises only in the context of a forfeiture of some property which is 27 not directly traced to proceeds of the criminal activity, such as property used to facilitate the 28 criminal conduct. In Austin v. United States, 509 U.S. 602, 113 S.Ct. 2801 (1993) the property
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1 was a family home and adjoining repair shop and tools, which facilitated the one time sale of a 2 small quantity of marijuana. The loss of the family home and the ability to earn a legitimate 3 living by the head of the family is without question an excessive punishment for the sale of a 4 baggy of marijuana. However, it is not comparable to the forfeiture issues before this Court. 5 The money judgment sought is for the proceeds of the criminal enterprise engaged in

6 money laundering to promote and carry on the sale of stolen baby formula. Because it is is for 7 no more than the proceeds of the criminal enterprise, indeed substantially less than the maximum 8 amount proven at trial, it cannot be considered excessive. 9 It is appropriate to consider the forseeability of the scope of the criminal enterprise

10 regarding the acts by the co-conspirators. Here, Defendants Jamal, Al-Jammal and Elrawy all 11 operated warehouses that dealt in the purchase and sale of stolen infant formula. The size of their 12 warehouses and volume of formula purchased and sold were basically the same. Further they had 13 numerous dealings with each other. They, therefore, could foresee that the other was dealing in 14 a similar amount of stolen formula. Regarding Daly, as demonstrated at trial, he was supplying 15 stolen formula to both Jamal and Al-Jammal. He had the opportunity to observe the the volume 16 of formula present in their respective warehouses. Moreover, he had the opportunity to observe 17 others bringing stolen formula to the warehouses. Like Jamal, Al-Jammal and Elrawy, Daly could 18 reasonably forsee a loss of $2,600,000.00. 19 20 21 VII. CONCLUSION

That a criminal forfeiture order may take the form of a personal money judgment is well-

22 established in the law. In scores of cases, courts have determined that a defendant is liable to pay 23 a judgment equal to the value of the forfeitable property whether or not the property remains (or 24 ever was) in the defendant's possession. In money laundering cases, the defendant is liable to pay 25 a judgment equal to the sum total of the property involved in the money laundering offenses for 26 which the defendant has been convicted. In fraud or theft cases, the defendant is liable to pay a 27 judgment equal to the sum total of the proceeds of the fraud or theft offenses. 28
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The money judgment does not give the government the right to seize any particular

2 property. To do that, the government must return to the court pursuant to Rule 32.2(e) to seek the 3 forfeiture of substitute assets. In that case, the money judgment sets the limit on the value of the 4 property that can be substituted. But none of this would be possible if the court did not have the 5 authority to enter the money judgment in the first place. 6 The authority to enter a money judgment is inherent in the in personam nature of criminal

7 forfeiture. The overwhelming, indeed the unanimous view of the Courts of Appeals,, is to that 8 effect. 9 10 11 12 S/ Kevin M. Rapp 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 KEVIN M. RAPP Assistant U. S. Attorney Respectfully submitted this 19th day of September, 2005. PAUL K. CHARLTON United States Attorney District of Arizona

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1 2 3 4 5 6 7 8 9 10 11 12 By: S/ Kevin M. Rapp 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

CERTIFICATE OF SERVICE

:

I hereby certify that on September 19, 2005, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM /ECF registrants: Robert J. Kavanagh Attorney for Samih Fadl Jamal Lawrence I. Kazan, Esq. Attorney for Mamoun Al-Jammal Nancy L. Hinchcliffe, Esq. Attorney for Mounir Midani Daly David Lamond Lockhart Attorney for Ibrahim Hassan Elrawy

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