You are on page 1of 30

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 1 of 30

Robert J. Cleary Proskauer Rose LLP Eleven Times Square New York, NY 10036 Telephone: (212) 969-3000 Facsimile: (212) 969-2900 rjcleary@proskauer.com UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK UNITED STATES OF AMERICA, Plaintiff, v. ANY AND ALL FUNDS ON DEPOSIT AT JPMORGAN CHASE ACCOUNT NUMBER 61442003 HELD IN THE NAME OF CIA MINERA AURIFERA SANTA ROSA SA, AKA COMARSA, et al., Defendants in rem; -andCIA MINERA SAN SIMON S.A., et al. Claimants. X : : : : : : : : : : : : : : : : : : : X

Case No.: 12-CV-7530 (GBD/JCF) ECF Case MEMORANDUM OF LAW IN SUPPORT OF CLAIMANTS MOTION TO DISMISS THE AMENDED COMPLAINT PURSUANT TO SUPPLEMENTAL RULE G(8)(B) AND FED. R. CIV. P. 12(B)(6)

MEMORANDUM OF LAW IN SUPPORT OF CLAIMANTS MOTION TO DISMISS THE AMENDED COMPLAINT

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 2 of 30

TABLE OF CONTENTS Page I. II. Introduction..........................................................................................................................1 Summary of the Allegations ................................................................................................2 A. B. III. IV. V. Drug Trafficking Allegations...................................................................................2 Money Laundering Allegations ...............................................................................4

Legal Standards....................................................................................................................6 Applicable Law....................................................................................................................7 Argument .............................................................................................................................9 A. B. The Government Fails to Plead Specific Facts that Support its Money Laundering Cause of Action. ...................................................................................9 The Amended Complaint does not Allege Facts that Tie the Seized Funds to Drug Activity. ....................................................................................................13 1. The Government Has Failed to Allege a Substantial Connection Between the Seized Funds and Decades Old Narcotics Trafficking Allegations. ................................................................................................14 Allegations Regarding Closed Peruvian Investigations Fail to Establish a Substantial Connection Between the Seized Funds and Narcotics Trafficking. ................................................................................16 Allegations that a Claimant Lacks Legitimate Sources of Income Are Insufficient to Connect the Seized Funds to Narcotics Trafficking. ................................................................................................19 Profile Based Allegations are Insufficient to Establish a Connection Between Seized Funds and Narcotics Trafficking. ................20 Allegations that Claimants are Shell Companies are Insufficient to Establish a Connection Between the Seized Funds and Narcotics Trafficking. ................................................................................................21

2.

3.

4. 5.

C. VI.

The Government Has Not Pled Facts that Show that Any of the Claimant Accounts are Traceable to Narcotics Trafficking ..................................................23

Conclusion .........................................................................................................................25

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 3 of 30

TABLE OF AUTHORITIES Page(s) CASES In re Initial Pub. Offering Secs. Litig., 544 F. Supp. 2d 277 (S.D.N.Y. 2008)........................................................................................9 Jordan (Bermuda) Inv. Co., Ltd., v. Hunter Green Invs. Ltd., 154 F. Supp. 2d 682 (S.D.N.Y. 2001)................................................................................18, 19 Lopez v. United States, No. Civ. A. 96-1972 AK, 2006 WL 2788999 (D.D.C. Sept. 26, 2006) ......................15, 16, 18 Ortiz v. Green Bull Inc., No. 10-CV-3747 ADS ETB, 2011 WL 55554522 (E.D.N.Y. Nov. 14, 2011) ........................10 United States v. $1,399,313.74 in United States Currency, 591 F. Supp. 2d 365 (S.D.N.Y. 2008)..............................................................................6, 7, 11 United States v. $1,399,313.74 in United States Currency, 592 F. Supp. 2d 495 (S.D.N.Y. 2008)..........................................................................12, 14, 20 United States v. $22,173.00 in United States Currency, 716 F. Supp. 2d 245 (S.D.N.Y. 2010)....................................................................................7, 8 United States v. Banco Cafetero Panama, 797 F.2d 1154 (2d Cir. 1986)...................................................................................................23 United States v. Contents in Account No. 059-644190-69, 253 F. Supp. 2d 789 (D. Vt. 2003)...........................................................................................23 United States v. Daccarett, 6 F.3d 37 (2d Cir. 1993).............................................................................................................6 United States v. Fernandez, 559 F.3d 303 (5th Cir. 2009) .....................................................................................................9 United States v. Iacaboni, 221 F. Supp. 2d 104 (D. Mass. 2002) .................................................................................. 9-10 United States v. One Tyrannosaurus Bataar Skeleton, No. 12 Civ. 4760 PKC, 2012 WL 5834899 (S.D.N.Y. Nov. 14, 2012) ........................7, 17, 19 United States v. Pole No. 3172, Hopkinton, 852 F.2d 636 (1st Cir. 1988)....................................................................................................17

ii

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 4 of 30

United States v. Real Property and Premises Known as 90-23 201st Street, Hollis, New York, 775 F. Supp. 2d 545 (E.D.N.Y. 2011) ............................................................................. passim Williams v. Calderoni, No. 11 Civ. 3020 CM, 2012 WL 691832 (S.D.N.Y. Mar. 1, 2012) ........................................25 Wilson v. Merrill Lynch & Co., 671 F.3d 120 (2d Cir. 2011).....................................................................................................25

STATUTES 18 U.S.C. 981(a)(1)(A) .......................................................................................................6, 8, 23 18 U.S.C. 983(c)(1).......................................................................................................................7 18 U.S.C. 983(c)(3).......................................................................................................................8 18 U.S.C. 1956 et seq....................................................................................................6, 8, 10, 16 18 U.S.C. 1957 et seq..........................................................................................................6, 8, 16 21 U.S.C. 881(a)(6).......................................................................................................6, 8, 23, 24

OTHER AUTHORITIES Federal Rule of Civil Procedure 12(b)(6) ....................................................................................1, 6 Rule 12(b) ........................................................................................................................................6 Supplemental Rule E(2)(A) .......................................................................................................6, 12 Supplemental Rule G(2)(f) ..................................................................................................6, 10, 13 Supplemental Rule G(8)(b)..........................................................................................................1, 6

iii

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 5 of 30

Claimants Cia Minera San Simon (San Simon), Pacific Gateway Corporation (Pacific), Advancer Logistics LLC (Advancer), Horizonte Dorado SRL (Horizonte), and Carlos Alberto Sanchez Alayo (Carlos Alayo) (together, the San Simon Claimants) respectfully submit this memorandum of law in support of their motion to dismiss the Amended Complaint pursuant to Rule G(8)(b) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (Supplemental Rules) and Rule 12(b)(6) of the Federal Rules of Civil Procedure. I. Introduction The Supplemental Rules impose a heightened pleading standard that requires the Government to allege sufficiently detailed facts to demonstrate that it will be able to meet its burden of proof at trial. Here, the Government must allege particularized facts to support a reasonable inference that it will be able to prove a substantial connection between the funds seized from the San Simon Claimants and the alleged drug activity. It has failed to do so. On October 9, 2012, based upon an ex parte affidavit and seizure warrant executed on September 7, 2012, the Government filed this civil in rem forfeiture action against seized funds associated with, inter alia, San Simon, a gold mining company located in Peru, its intermediary U.S. broking entities (Pacific and Advancer), its managing entity (Horizonte), and Carlos Alayo (one of the officers of Horizonte and Advancer). The Government seized approximately $2 million on the premise that these funds were derived from money laundering and drug trafficking activity. But the original complaint suffered from fatal pleading defects. It failed to allege a coherent theory of money laundering, its allegations of drug trafficking lacked any specificity, it failed to demonstrate any connection between those allegations and the seized funds, it did not make a single factual allegation that demonstrated that the Government was entitled to forfeit the

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 6 of 30

San Simon Claimants property, and it was replete with factual inaccuracies of basic biographical and substantive information. The Government has not cured any of those deficiencies in the Amended Complaint. Its amended pleading is equally devoid of specific, detailed facts that the Government must but plainly cannot allege to meet the particular pleading requirement imposed by the Supplemental Rules. Like its predecessor, the Amended Complaint turns on two types of allegations. First, the Government alleges drug trafficking dating back to the 1970s, 1980s and 1990s nothing more recent than that and a 2007 Peruvian investigation into the purchase and use of a controlled substance, calcium oxide, that is used legitimately in the mining process but apparently can also be used to produce cocaine. Second, the Government alleges that intermediary companies San Simon used to broker the sale of gold to a metal refinery in the U.S. were shells for money laundering under its original theory of layering and a newly-minted commingling theory. Critically, there is not a single factual allegation in the Amended Complaint that substantially connects the seized funds to drug trafficking. Indeed, the Amended Complaint is categorically devoid of any factual allegation that ties the decades-old allegations of drug activity to any of the alleged financial transactions all of which are dated between 2009 and 2012 much less to the actual funds seized by the Government in September 2012. Thus, even if these dated drug allegations were true, the Amended Complaint does not contain any set of facts that entitles the Government to forfeit the San Simon Claimants funds, and should be dismissed with prejudice. II. Summary of the Allegations A. Drug Trafficking Allegations

The Government alleges that the Sanchez-Paredes family are foreign nationals who live and work in countries that are known source(s) of narcotics, have been involved in 2

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 7 of 30

narcotics trafficking since the 1970s, and under investigation by Peruvian authorities for decades. Am. Compl. 4, 8-9, 10, 14. A lengthy investigation in Peru resulted in an April 2010 criminal complaint. Id. 9. The Government contends that the Peruvian complaint is still pending, but acknowledges that the Peruvian prosecutor has recommended that the case be archived. Id. Based upon information provided by an unnamed cooperating witness and other unidentified sources, the Government alleges that two members of the Sanchez-Paredes family, Segundo Simon Sanchez Paredes (Segundo Simon) and Percyles Hermenegildo Sanchez Paredes (Percyles), were involved in international drug trafficking in the 1970s, 1980s and 1990s, and assassinated in 1987 and 1991, respectively, as a result of that involvement. See id. 10-13. The same unnamed cooperating witness allegedly claimed that a nephew, Fidel Sanchez Alayo (Fidel), partnered with Percyles in managing a drug trafficking organization (DTO) purportedly affiliated with the Sanchez-Paredes family prior to Percyles death in 1991. Id. 16. According to these allegations, Fidel was one of the main contributors to the Mexican cocaine trade at the time of Segundo Simons death in 1987 when Fidel was only 17 years old. See id. These allegations are devoid of any factual specificity. They are mere conclusions. According to the unnamed cooperating witness, Fidel and Ruben Santana (Santana) brought drugs into the U.S. at some unspecified date. See Am. Compl. 17. The Government further alleges that, in 1995, Santana and other individuals were arrested during a Florida cocaine bust, and claims, in conclusory fashion, that Fidel was involved in some unspecified way, but concedes that Fidel was not arrested. See id. The Government further alleges a seizure of 125 tons of calcium oxide a chemical used legitimately in the gold mining business that can also allegedly be used in cocaine production

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 8 of 30

from some unspecified entity in 2007. See id. 19. The Government also separately alleges that Peruvian authorities reviewed the books of San Simons supplier, Calcareos e Inversiones Amazones (Calcareos) and that Calcareos books showed an absence of 179 tons of calcium oxide. Id. 20. The Government concludes, without any specific factual basis, that the missing chemicals were sold to San Simon. Id. Significantly, there is no allegation that any of the calcium oxide was used by San Simon for any illegal purposes.1 B. Money Laundering Allegations

The Government alleges that Peruvian authorities tied members of the SanchezParedes family to various entities through which they have the ability to layer and disguise drug money. Id. 18. The Government posits a theory that the family has financed various businesses for the purpose of laundering enormous amounts of money stemming from narcotics trafficking. Id. Allegedly, the family used multiple bank accounts including the seized property, to launder narcotics proceeds derived from the familys cocaine operation, dating back to the 1970s. Id. 22. No facts are alleged to support these conclusory statements. The Amended Complaint further baldly asserts, without factual support, that members of the Sanchez-Paredes family, including Segundo Manuel Sanchez Paredes (Segundo Manuel), Miguel Angel Sanchez Alayo (Miguel), and Carlos Alayo have been unable to substantiate their income. See Am. Compl. 15, 54.2 The Government speculates that the Sanchez-Paredes DTO may be using COMARSA and San Simon to launder drug proceeds by commingling drug proceeds into the business operations of these companies. Id. 23 (emphasis added). The Government hypothesizes that

1 2

In contrast, the Amended Complaint does make such an allegation with respect to Comarsa. Am. Compl. 19.

Segundo Manuel, Miguel, Fidel, and Carlos Alayo are members of the Sanchez Alayo family, not the Sanchez Paredes family.

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 9 of 30

[t]he use of drug proceeds to fund mining operationsfor example by using drug money to pay for equipment, labor, or materials, or even purchasing gold on the secondary market with drug money and adulterating that gold to disguise it as mined mineralswould all launder money by converting drug proceeds into mining output. Id. (emphasis added). Under this theory, bars of minerals that were extracted or created with drug proceeds would appear to be legitimate items of commerce. Id. These allegations, according to the Government, provide example[s] of how money could be clean[ed]. Id. Critically, there is no specific allegation that San Simon in fact engaged in any of these activities. The Government then concludes that Pacific, Exim Logistics (Exim) another intermediary broking entity and Advancer, appear to be shell companies created and managed by the Sanchez-Parades DTO, and that they were organized to facilitate the laundering of drug proceeds through their associated bank accounts and to create additional layers of apparently legitimate transactions to enable the laundering of drug money. See id. 32-37, 38-43, 44-49. Allegedly, Carlos Alayo manages some of these shell companies for the Sanchez-Paredes DTO, and oversees transfers of what appear to be narcotics proceeds from the intermediary brokers. See id. 54. No specific facts are alleged here either. The Amended Complaint argues that the use of family members as corporate officers, limited numbers of employees, minimal infrastructure, lack of Internet presence, and limited sales volume and revenue suggest that these intermediary brokers are fronts for drug trafficking. See generally, 32-37, 38-43, 44-49. And, according to the Amended Complaint, San Simon has been subject to and is run by members of the family who have been involved in unspecified investigations, and previously sold gold to a metal refining company that pleaded guilty in 2004 to money laundering traceable to customs violations. See id. 14, 61-63.

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 10 of 30

Based upon these allegations, the Government claims the right to forfeit funds in the seized accounts under 18 U.S.C. 981(a)(1)(A) and 21 U.S.C. 881(a)(6). See id. 1, 68, 74. The Government asserts predicate violations of 18 U.S.C. 1956, which criminalizes knowingly conducting financial transactions involving proceeds of specified unlawful activity with intent to promote or conceal such activity, and transmitting the same to or through the United States, as well as 18 U.S.C. 1957, which criminalizes knowingly engaging in financial transactions with criminally derived property.3 Id. 72. III. Legal Standards A complaint must be dismissed if the allegations do not state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6); see also Supp. Rules G(8)(b) (establishing claimants right to move to dismiss a civil forfeiture action under Rule 12(b)). Under the Supplemental Rules, the Governments pleading burden is enhanced. Because of the drastic nature of the civil forfeiture remedy, the Government must satisfy a stringent pleading standard. United States v. $1,399,313.74 in United States Currency, 591 F. Supp. 2d 365, 369 (S.D.N.Y. 2008)4; see also United States v. Daccarett, 6 F.3d 37, 47 (2d Cir. 1993) (heightened pleading is intended to counterbalance claimants deprivation of property without due process). The complaint must assert specific facts supporting an inference that the property is in fact subject to forfeiture. $1,399,313.74 in United States Currency, 591 F. Supp. 2d at 369 (granting motion to dismiss for failure to state a claim) (emphasis added). Pursuant to Supplemental Rule G, the complaint must state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial. Supp. Rule G(2)(f) (emphasis added). Under Supplemental Rule E(2)(a), the complaint must be pleaded with such
3 4

Section 1956(h) criminalizes conspiring to violate 1957. Unless otherwise noted, all internal citations and quotation marks omitted throughout.

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 11 of 30

particularity that the . . . claimant will be able, without moving for a more definite statement, to commence an investigation of the facts and to frame a responsive pleading. $1,399,313.74 in United States Currency, 591 F. Supp. 2d at 369. A complaint devoid of any facts to support its bare allegations and consisting solely of speculative assertions and innuendo cannot stand. Id. at 374. Although it does not have to satisfy its evidentiary burden at the pleading stage, the Government may not seize and continue to hold property upon conclusory allegations that the defendant property is forfeitable. Id. at 369 (quoting United States v. Certain Accounts Together With All Monies On Deposit Therein, 795 F. Supp. 391, 394 (S.D. Fla. 1992)). The Federal Rules of Civil Procedure also apply to civil forfeiture actions. United States v. $22,173.00 in United States Currency, 716 F. Supp. 2d 245 (S.D.N.Y. 2010). On a motion to dismiss under Rule 12(b)(6), courts accept the well-pleaded factual allegations in the complaint as true and draw all reasonable inferences from those allegations in the light most favorable to the non-movant. $1,399,313.74 in United States Currency, 591 F. Supp. 2d at 370. Conclusory allegations and legal conclusions, however, are not entitled to any presumption of truth, and must be disregarded. See United States v. One Tyrannosaurus Bataar Skeleton, No. 12 Civ. 4760 PKC, 2012 WL 5834899, at *3 (S.D.N.Y. Nov. 14, 2012). Accordingly, a complaint should be dismissed for failure to state a claim if its factual allegations fail to raise a right to relief above the speculative level. $1,399,313.74 in United States Currency, 591 F. Supp. 2d at 370.5 IV. Applicable Law To meet its burden, the Government must establish that the seized property is subject to forfeiture by a preponderance of the evidence. 18 U.S.C. 983(c)(1). For its first cause of

Further, as is relevant here, the Court may consider on a motion to dismiss matters of which judicial notice may be taken, or documents either in plaintiffs possession or of which plaintiffs had knowledge and relied on in bringing suit. One Tyrannosaurus Bataar Skeleton, 2012 WL 5834899, at *4.

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 12 of 30

action, the Government claims the right to forfeit funds in the seized accounts under 18 U.S.C. 981(a)(1)(A), which authorizes forfeiture of property involved in money laundering under 1956 and 1957. The Government pleads its second cause of action under 21 U.S.C. 881(a)(6), which allows the Government to seek forfeiture of money that is furnished by any person in exchange for a controlled substance, traceable to such an exchange, or used or intended to be used to facilitate any violation of this subchapter. Pursuant to 18 U.S.C. 983(c)(3), if the Governments theory of forfeiture is that the property was used to commit or facilitate the commission of a criminal offense, or was involved in the commission of a criminal offense, as the Government alleges here, it shall establish that there was a substantial connection between the property and the offense (emphasis added). Although the Government does not have to prove a connection to a specific drug transaction, it must show a substantial connection to drug trafficking. See $22,173.00 in United States Currency, 716 F. Supp. 2d at 249-50; United States v. Real Property and Premises Known as 9023 201st Street, Hollis, New York, 775 F. Supp. 2d 545, 564 (E.D.N.Y. 2011) (when the Governments theory of forfeiture is premised upon facilitation it must show a substantial connection between the . . . property [seized] and narcotics activity). Predicate evidence establishing a substantial connection between the funds seized and the alleged illegal activity is therefore an indispensable part of the Governments evidentiary burden. The Government may not rely upon unsubstantiated or dated evidence of a claimants involvement in drug trafficking or a prior narcotics conviction to make this showing. See Real Property, 775 F. Supp. 2d at 564 (governments reliance on 1987 and 2000 narcotics convictions insufficient to carry its burden on summary judgment in the absence of other evidence showing a substantial connection between the seized funds and drug activity). Nor may

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 13 of 30

the Government simply rely upon assertions that a claimant lacks legitimate sources of income to satisfy its burden. See id. (court refused to infer a connection from evidence that the claimant lacked sufficient income to afford the defendant property). Indeed, prior drug activity and questionable sources of income are relevant, if at all, as supporting evidence. See id. This type of supporting evidence, alone, is not sufficient to demonstrate a substantial connection between the supposed drug activity and the seized funds. See id. V. Argument A. The Government Fails to Plead Specific Facts that Support its Money Laundering Cause of Action

The Government appears to rely on two distinct theories of money laundering in the Amended Complaint. First, as in the original complaint, the Government refers, obliquely, to the ability to layer and disguise narcotics proceeds with respect to a number of entities, including San Simon, Exim, Pacific and Advancer. See Am. Compl. 18-19, 37, 43, 49. The amended pleading supplements this layering theory with a newly-minted, but unspecific, allegation, namely, a belie[f] that drug money may be laundered by commingling drug proceeds into the business operations of San Simon and Comarsa. See id. 23. That is not a factual allegation, it is mere opinion. See In re Initial Pub. Offering Secs. Litig., 544 F. Supp. 2d 277, 284 (S.D.N.Y. 2008) (opinions couched as factual allegations not entitled to a presumption of truth). Layering is a term used to describe a sophisticated money laundering technique that involves multiple levels of transactions, often involving shell companies or fictitious entities. See United States v. Fernandez, 559 F.3d 303, 320 (5th Cir. 2009). Commingling, by contrast, describes money laundering by means of mixing tainted funds with legitimate funds for the purpose of concealing their nature or source. See United States v. Iacaboni, 221 F. Supp. 2d 9

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 14 of 30

104, 117 (D. Mass. 2002). While both layering and commingling are theories of concealment, see 18 U.S.C. 1956(a)(1)(B), they are conceptually distinct. The Government has failed to allege either theory with the requisite particularity. The layering allegations are as deficient as they were in the initial complaint there are simply some more of them. The Amended Complaint does not allege facts that support layering by any of the accounts affiliated with the San Simon Claimants. Rather, other than general layering allegations (see Am. Compl. 18, 43, 49), the Government simply tracks the language of 18 U.S.C. 1956, and then merely asserts, in the most conclusory fashion, that certain accounts seem suspicious. For instance, it alleges that because the intermediary Pacific had few employees, little overhead, and minimal office structure, Pacifics wire transfers appear to have been conducted to disguise SAN SIMONs role in providing gold to be sold, and thus to create additional layers of apparently legitimate transactions to facilitate the narcotics trafficking activities. Am. Compl. 36-37 (emphasis added). There are no sufficiently detailed facts, Supp. Rule G(2)(f), to support this conclusory and entirely speculative allegation. Indeed, there are no facts alleged at all to support a reasonable conclusion that the Pacific funds that were seized were related to the alleged predicate offenses. To the contrary, the allegation accepts that San Simon was legitimately selling gold in the first instance (but just wanted to hide itself). Any notion that San Simon was trying to obfuscate its role in the gold transactions is directly refuted by documents filed with the State of Florida, which clearly identify the corporate officers of Pacific and Advancer (another intermediary) as members of the Sanchez Alayo family.6 Other

Attached hereto as Exhibit A to the Declaration of Robert J. Cleary (Cleary Decl.) are incorporation and organization documents filed by Pacific and Advancer with the Florida Department of State, Division of Corporations (Ex. A), of which the Court may take judicial notice. See Ortiz v. Green Bull, Inc., No. 10-CV-3747 ADS ETB, 2011 WL 5554522, at *1 (E.D.N.Y. Nov. 14, 2011).

10

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 15 of 30

allegations related to the funds seized from Advancer, Horizonte, and Carlos Alayo follow the same pattern and are equally deficient. See, e.g. Am. Compl. 48-49, 54, 56, 58. Likewise, the Governments new commingling allegation is entirely vacuous and is bereft of any specific fact alleged in support. By its own terms, it is a mere statement of conjecture about what could have happened. Id. 23. But there are no facts alleged in support of these musings. As alleged, commingling would involve mixing drug proceeds into the business operations of legitimate enterprises. The Government states that it believes that San Simon may be laundering drug proceeds by using them to pay for equipment, labor, materials, and/or gold on the secondary market, or even to purchase gold on the secondary market and adulterating that gold to disguise it as mined minerals creating clean funds from purchasers, who need not know of the illicit origins of the minerals. Id. There is absolutely no fact cited in support and the allegation is speculative under any construction. These hypotheses and that is all they are fail to articulate in any way what the Government asserts that the San Simon Claimants have actually done. They are also devoid of any facts indicating the basis of the Governments alleged belief. Although the Government is not required to set forth all of the facts and evidence at the pleading stage, it must plead some facts that support its theory. See $1,399, 313.74 in United States Currency, 591 F. Supp. 2d at 376. It has not done so here. This theory fails to raise a right to relief above the speculative level. Id. at 370. Even if the Government were to allege that San Simon in fact laundered funds by utilizing drug proceeds to pay for equipment, labor, materials, or gold on the secondary market, it bears note that San Simon is an active, productive gold mining company which utilizes extensive amounts of equipment, labor, and material.7 Absent detailed facts connecting identifiable portions of the seized funds to narcotics activity through particular transactions, it
7

The Government no longer disputes this fact.

11

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 16 of 30

would be impossible for San Simon to determine which sales or resales of gold are alleged to constitute money laundering under either of the Governments named theories. The absence of any particularity with regard to the Governments theory, and any facts that conceivably underlie it, severely hampers the San Simon Claimants ability to file a responsive pleading. See United States v. $1,399,313.74 in United States Currency, 592 F. Supp. 2d 495, 500 (S.D.N.Y. 2008) (There is simply no way to investigate and respond to the allegation that Defendant Funds are criminally derived on the ground that they were exchanged on markets that are sometimes used to launder money, but which have many legitimate uses.). Finally, the Amended Complaint conflates these two theories of money laundering, making it impossible to discern which theory the Government relies on for forfeiture, and how to defend against it. For example, the Amended Complaint alleges that Pacific conducted wire transfers to disguise San Simons role in providing gold to be sold, and thus to create additional layers of apparently legitimate transactions[.] Am. Compl. 37. This makes it unclear whether the Government is relying on commingling, layering, or some combination of the two theories. The Governments theory of commingling suggests that the sale and resale of gold in one form or another could be money laundering. See id. 23. Accordingly, the allegations in 37 of the Amended Complaint could be interpreted as alleging that the provision of gold by San Simon for sale or resale constituted commingling, and therefore money laundering. Paragraph 37, however, also suggests that the legitimate sale of gold actually amounts to layering (create[s] additional layers). By failing to clearly identify which theory the Government is alleging and intends to prove and on the basis of what facts the Amended Complaint is deficient. See Supp. Rules E(2)(A).

12

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 17 of 30

The Government provides even less clarity and creates more confusion in articulating the theory of money laundering it relies on to support forfeiture of San Simons funds. The Amended Complaint alleges that the San Simon Account is believed to be facilitating the laundering of narcotics proceeds. Id. 66. But there is no indication whether San Simon supposedly facilitates the laundering of narcotics proceeds through commingling or layering. This is particularly problematic where, as here, the Amended Complaint identifies two broad and distinct theories of money laundering and implies that each of these theories could apply to this case. See id. 18 (the Sanchez-Paredes DTO may be layering funds through San Simon); 23 (suggesting that the Sanchez-Parades DTO may be commingling drug proceeds into business operations). And, with respect to Horizonte, San Simons management company, the Government fails to allege any identifiable theory of money laundering at all, only alleging that Horizonte received transfers from Advancer. See id. 55-58. In light of the Governments failures to meet its pleading burden, there is no reasonable basis to believe that it could prove any theory of its case at trial and its claims should be dismissed with prejudice as against the San Simon Claimants. See Supp. Rules G(2)(f). B. The Amended Complaint does not Allege Facts that Tie the Seized Funds to Drug Activity

Beyond the failure to plead with the required particularity, the Amended Complaint is devoid of any factual allegations that support a reasonable belief that the seized funds are even tangentially linked, much less substantially connected, to the manufacture, sale or distribution of cocaine. Even a cursory review of the Amended Complaint makes this obvious: all of the drug trafficking allegations are decades old. The financial transactions at issue all occurred in the past few years. It speaks volumes that the Amended Complaint does not even try to bridge this wide

13

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 18 of 30

gulf. There is simply no connection let alone a substantial one between the drug allegations and the relevant financial transactions. Without facts to make this requisite connection, the Government resorts to general allegations of dated criminal activity as well as money laundering and drug trafficking investigations that were repeatedly rejected by Peruvian prosecutors for lack of merit and that never resulted in any convictions. The Government also piles on conclusory statements of unsubstantiated income, assertions that the Sanchez-Paredes family fit a highly specious criminal profile of foreign nationals who own and operate businesses in South America, and mischaracterizations of the intermediary brokers. These categorical allegations are insufficient as a matter of law to demonstrate a substantial connection between the supposed drug activity and the seized funds. See Real Property, 775 F. Supp. 2d at 564; $1,399, 313.74 in United States Currency, 592 F. Supp. 2d at 495. 1. The Government Has Failed to Allege a Substantial Connection Between the Seized Funds and Decades Old Narcotics Trafficking Allegations

Much of the Amended Complaint relies on a series of questionable criminal allegations that are way too old to have any relevance to financial transactions that occurred between 2009 and 2012 or to the funds seized by the Government in 2012. The Government also fails to specifically allege that the San Simon Claimants were aware that any of the seized funds amounted to proceeds of a criminal activity, as required by the intent elements of the money laundering statutes. The Government tries in vain to meet its pleading burden by relying on the assertion that two members of the Sanchez-Paredes family, Percyles and Segundo Simon, were involved in narcotics trafficking in the 1970s 40 years ago. See Am. Compl. 10-14. They were both deceased by 1991. Id. 11-12. The Amended Complaint struggles to make the alleged drug14

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 19 of 30

related activities of Percyles and Segundo Simon appear relevant by the somewhat remarkable allegation that Fidel partnered with Percyles in managing the DTO and that by 1987 was a leading contributor to the Mexican drug trade at the age of 17. Id. 11, 16. Other than this, there are no allegations linking anyone affiliated with the San Simon Claimants to Percyles and Segundo Simons purported illegal activities. More importantly, there is no alleged factual link from the asserted activities of Percyles and Fidel, to the relevant financial transactions. The allegations are far too dated to support any inference of a connection let alone a substantial one between the seized property and narcotics trafficking. See Real Property, 775 F. Supp. 2d at 564 (rejecting Governments reliance on prior drug convictions dating to 1987 and 2000). The Government attempts to buttress Fidels purported links to narcotics trafficking by alleging that he was generally involved in a number of cocaine shipments to the U.S. and that a 1995 shipment of cocaine was seized by American authorities. See Am. Compl. 17. This fails for the same reason: the Amended Complaint contains no allegation connecting these claimed activities to the funds seized at least 17 years later. That should end the inquiry. But there is more. The Amended Complaint makes clear that Fidel was not even arrested in connection with any of these purported activities. See id. While the Government may rely on a claimants narcotics conviction as one factor under its burden to demonstrate a substantial connection, see Real Property, 775 F. Supp. 2d at 564, in the absence of a conviction, as here, the Government may not rely on general allegations of involvement in drug activities as a basis for its claims. Id.; see also Lopez v. United States, No. Civ. A. 96-1972 AK, 2006 WL 2788999, at *14 (D.D.C. Sept. 26, 2006) (claimants history of drug trafficking, standing alone, does not even establish probable cause, much less establish by a preponderance of the evidence, that the [money] at issue here had a substantial connection to drug activity).

15

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 20 of 30

Even, assuming arguendo, that Percyles and Segundo Simon participated in cocaine trafficking, and assuming that Fidel was somehow involved in cocaine shipments to the U.S. in the 1990s, the Government does not connect those actions in any way to the seized funds. The inference that the Government seeks that, because two deceased family members were allegedly involved in drug trafficking (albeit never convicted of drug-related offenses), and because the nephew of those deceased individuals allegedly worked with one of them over twenty years ago, the rest of the family, and by implication, their legitimate businesses and accounts, are currently involved in the laundering of drug proceeds is preposterous. Indeed, to state the proposition is to reject it. See Lopez, 2006 WL 2788999, at *14-16. In sum, the stale and irrelevant allegations of narcotics trafficking are insufficiently connected to the seized funds to support forfeiture.8 As an additional pleading deficiency, the Amended Complaint contains no allegation that any Claimant knew or should have known that any wire transfer, deposit, or any funds in the seized accounts were proceeds of narcotics activities. The omission of this element alone requires dismissal. See 18 U.S.C. 1956(a)(1); 18 U.S.C. 1957(a). 2. Allegations Regarding Closed Peruvian Investigations Fail to Establish a Substantial Connection Between the Seized Funds and Narcotics Trafficking

Throughout the Amended Complaint, the Government also relies on one or more Peruvian governmental investigations into various members of the Sanchez-Paredes DTO, the Sanchez-Paredes family, the Sanchez Alayo family, San Simon, and the alleged diversion of calcium oxide, in an attempt to establish a connection between the seized properties and
The Governments allegation that an officer (Officer 1) of Advancer was arrested for purchasing a kilogram of cocaine in 2010, see Am. Compl. 46, does not save the Governments claims. The Government has failed to allege that Officer 1s actions were related to the Sanchez-Paredes family or to any of the seized property. Moreover, the Amended Complaint does not assert that Officer 1s alleged trafficking was tied to any financial transaction associated with the seized funds.
8

16

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 21 of 30

narcotics trafficking. See Am. Compl. 9, 14, 19-20, 45, 64. As an initial matter, none of the allegations concerning the Peruvian investigations are relevant in any way to the question at hand, i.e., whether the Government has alleged a substantial connection between the supposed drug trafficking and the financial transactions at issue. This is because the fact that some foreign law enforcement authority has merely investigated whether a predicate offense was committed does not address in any way whether in fact there was such a predicate offense. See, e.g. United States v. Pole No. 3172, Hopkinton, 852 F.2d 636, 639 (1st Cir. 1988) (dismissing complaint in part because third-hand allegations [in a seizure warrant]that [claimant] was arrested in connection with an unsuccessful drug run in 1978, although charges against him were subsequently dropped could not alleviate deficient pleading). This is especially true here, where the Government never alleges that any of these investigations resulted in a conviction for any criminal offense, much less any San Simon Claimants conviction. To the contrary, whereas the original complaint alleged that a multi-decade investigation culminated in the April 16, 2010 Peruvian Criminal Complaint against numerous members of the Sanchez-Paredes DTO, Dkt. 1 9, the Government now concedes that the prosecutor handling the Peruvian Criminal Complaint in fact recommended that the case be archived. Am. Compl. 9. The Government thus heavily relies, inappropriately, on an investigation that has been shelved at the request of the prosecutor himself.9

Attached hereto as Exhibits B, C and D to the Cleary Decl. are the Ruling, First District Attorneys Office, dated March 19, 2010, at 22 (Ex. B) (declining case against Carlos, Simon, Manuel Andres Sanchez Alayo (Manuel) and Lola Rosmery Sanchez Alayo (Lola) for lack of evidence of involvement in the laundering of drug proceeds); an excerpt from the Advisory Opinion of the Attorney Generals Office, Second Superior Public Prosecutors Office Specialized in Organized Crime, dated Mar. 29, 2012, at 296 (Ex. C) (dismissing San Simon, Segundo Manuel, Fidel and Manuel from the investigation), and the Resolution of the Government Attorney Generals Office, Supreme State Attorneys Office for Internal Control, dated Dec. 3, 2012, at 7-8 (Ex. D) (affirming prosecutors determination to decline charges). Documents relating to the Peruvian Criminal Complaint and the prosecutors recommendation, as referred to and relied on in 9 of the Amended Complaint, are properly before the Court on a motion to dismiss. See One Tyrannosaurus Bataar Skeleton, 2012 WL 5834899, at *4. The Court may also take

17

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 22 of 30

The Peruvian governments archived investigation does nothing to establish a connection between the seized funds and narcotics trafficking where the prosecutor determined that the Peruvian government lacked sufficient evidence to formally charge any criminal activity. Cf. Real Property, 775 F. Supp. 2d at 564; Lopez, 2006 WL 2788999, at *14-16. But even if these investigations were, as the Government erroneously asserts, still pending, see Am. Compl. 9, that would not satisfy its pleading burden. It is pure speculation to infer any particular underlying fact from the mere existence of the investigation. Moreover, the allegations concerning the investigations fail to link the seized funds to narcotics trafficking. In the absence of such a connection, the Amended Complaint does not pass muster.10 Nor can the entirely speculative allegations regarding the Peruvian calcium oxide investigation save the day. The Government alleges that Peruvian authorities seized 125 tons of calcium oxide in March 2007. Id. 19. One of the purchasers of this calcium oxide was purportedly identified as San Simon. Id. Separately, the Government alleges that San Simons supplier of calcium oxide was missing 179 tons of calcium oxide which is believed to have been sold to San Simon. Id. 20. But there is no allegation that any of the calcium oxide was used by San Simon for illegal purposes.11 And there is no allegation that the calcium oxide investigation

judicial notice of foreign judgments. See Jordan (Bermuda) Inv. Co., Ltd., v. Hunter Green Invs. Ltd., 154 F. Supp. 2d 682, 689 (S.D.N.Y. 2001) (taking judicial notice of judgment of B.V. I. court).
10

For these same reasons, the Amended Complaint is not salvaged by its bare allegations that various members of the Sanchez Paredes and Sanchez Alayo families have been identified as targets of investigations into money laundering and narcotics trafficking at some unidentified points in time, and that San Simon was investigated in July 2007, November 2007, and January 2008 for drug trafficking. See Am. Compl. 14, 39, 54, 61. There is no allegation that any of these investigations ever resulted in formal charges, much less a conviction. The mere existence of closed investigations cannot substantially connect the seized funds to narcotics trafficking.
11

Tellingly, the Government does allege as much against Comarsa. Id. 19, 64.

18

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 23 of 30

ever resulted in formal charges.12 In short, the investigations cited in the Amended Complaint fail to establish any connection between the seized funds and narcotics trafficking. 3. Allegations that a Claimant Lacks Legitimate Sources of Income Are Insufficient to Connect the Seized Funds to Narcotics Trafficking

Based on unidentified alleged expert accounting reports from the Peruvian money laundering investigation, the Government tries, and fails, to connect the seized funds to narcotics trafficking by alleging that Segundo Manuel and Miguel have claimed substantial amounts of unsubstantiated income over the years, and that Carlos Alayo appears to have no source of legitimate income.13 Am. Compl. 15, 54. Beyond the fact that these allegations are mere conclusions with no specific facts pled, even if pled with sufficient particularity, they would still be legally insufficient to establish a reasonable belief that the seized funds are substantially connected to narcotics trafficking. See Real Property, 775 F. Supp. 2d at 565 ([w]hile [claimants] unexplained income supports an inference of illegal activity, it does not support an inference of narcotics-related activity.). Accordingly, even assuming that allegations of unsubstantiated income attributable to Segundo Manuel, Miguel, and Carlos Alayo were adequately pled and they are not such allegations would be insufficient to establish the requisite connection between the seized funds and narcotics trafficking.

12

The calcium oxide investigation referred to in 61 of the Amended Complaint was declared groundless by the Attorney Generals office. Attached hereto as Exhibit E to the Cleary Decl. is an excerpt from the Resolution of Complaint, Government Attorney Generals Office, District Attorneys Office Specialized in Organized Crime, dated January 10, 2013, at 75-77 (Ex. E). Documents referred to and relied on in the Amended Complaint are properly before the Court on a motion to dismiss. See One Tyrannosaurus Bataar Skeleton, 2012 WL 5834899, at *4. The Court may also take judicial notice of foreign judgments. See Jordan (Bermuda) Inv. Co., 154 F. Supp. 2d at 689.
13

The Amended Complaint makes this same allegation against Santos Orlando. But he is affiliated with Comarsa and not with San Simon.

19

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 24 of 30

4.

Profile Based Allegations are Insufficient to Establish a Connection Between Seized Funds and Narcotics Trafficking

In the absence of any facts tying the seized funds to drug trafficking, the Government resorts to broad, sweeping profile-based allegations, which lack specificity and are woefully inadequate to prove the required substantial connection. For example, the Government alleges generically, without any reference to the San Simon Claimants, that suppliers of narcotics located in . . . South American countries, which are known source locations of narcotics, frequently utilize domestic and foreign banks . . . in order to . . . make their narcotics profits appear to be from legitimate sources[.] Am. Compl. 4-5; see also 10, 13 (referring to drug activity based out of Peru, Colombia and Mexico in the 1970s to mid 1990s). These generalized claims are insufficient as a matter of law. Judge Scheindlins opinion in $1,399,313.74 in United States Currency, 592 F. Supp. 2d at 495, is instructive. There, the Government filed a civil asset forfeiture suit against a bank account used by the claimant to conduct monthly exchanges of dollars and Columbian pesos. Id. at 497. Based on allegations that the transactions between claimant and a peso broker, who frequently wired funds through Latvian banks, bore the hallmarks of a Black Market Peso Exchange (BMPE) transaction, the Government seized funds it said were derived from narcotics trafficking, claiming that the vast majority of funds transferred through the BMPE and Latvian banking systems were derived from narcotics trafficking. Id. at 497-98. Judge Scheindlin granted claimants motion to dismiss, concluding that the Governments sweeping allegations based on conjecture were not sufficiently particular to permit Claimants to commence an investigation of the facts and to frame a responsive pleading, as required by the Supplemental Rules and, that because the BMPE also had many legitimate uses, it was

20

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 25 of 30

impossible for the claimant to investigate the Governments claims absent any specific allegations of the claimants own activities. Id. at 500. The allegations in the Amended Complaint closely mirror those appropriately rejected by Judge Scheindlin. Similar to the general allegations relating to the BMPE and Latvian accounts, here the Government alleges that because some South American suppliers of narcotics use domestic and foreign banks to launder money, the seized funds at issue in this case represent laundered proceeds of narcotics trafficking. See Am. Compl. 4-8. Such profile-based allegations are insufficient to support the Governments burden under the Supplemental Rules. 5. Allegations that Claimants are Shell Companies are Insufficient to Establish a Connection Between the Seized Funds and Narcotics Trafficking

The Governments attempts to link the seized funds to narcotics trafficking through Pacific, Exim, Advancer, and Horizonte are similarly unavailing. Even assuming for purposes of this motion that those companies are shells they are not the allegations do not establish a connection between those entities (or their seized funds) and narcotics trafficking. This is because the only funds alleged to pass through these entities are the proceeds of legitimate gold sales. For example, at the center of the Governments attempt to link Pacific, Advancer, and Exim to narcotics trafficking are the alleged wire transfers from Refining Company A. See id. 34, 36, 42, 47-48. In the Amended Complaint, the Government no longer contends that Refining Company A is complicit in narcotics trafficking or money laundering. Therefore, the wire transfers from Refining Company A are not in themselves indicative of illicit activity. Nor can the mere existence of wire transfers involving Refining Company A, Pacific, Advancer, Exim, Horizonte, and San Simon establish a substantial connection to narcotics trafficking. Upon receipt from Refining Company A of the purchase price of the gold, the 21

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 26 of 30

intermediary brokers (Pacific, Exim, and Advancer) then transferred those receipts to San Simon and Horizonte.14 Id. 34, 36, 42, 48. The logical (and correct) inference drawn from the transfers from Refining Company A is that the alleged illicit funds were, instead, the product of fully transparent transfers of sales proceeds from a gold refining company to a gold mining company that were routed through an intermediary broker. There is no hint of a connection to narcotics trafficking suggested by the payment from Refining Company A to San Simon and Horizonte, through Pacific, Advancer, and Exim. The Governments attempts to link these intermediaries to drug trafficking through their associations with certain individuals or with abandoned investigations also fail. For instance, allegations that Miguel, one of Pacifics officers, has a familial relationship to a trafficker who has been deceased for more than twenty years, has been investigated but never charged, and has unsubstantiated income are insufficient to connect him, or Pacific, to narcotics trafficking. Am. Compl. 14, 15, 35; see Real Property, 775 F. Supp. 2d at 564-65 (dated criminal convictions and unsubstantiated income insufficient to establish the requisite connection between narcotics activity and claimant). See also Point V.B.1 and 3, above.15 Finally, the Amended Complaints catch-all contentions that Pacific, Exim, and Advancer engaged in financial transactions to facilitate the narcotics trafficking activities of the Sanchez-Paredes family fail to tie these entities to narcotics trafficking because they are not

14 15

The Amended Complaint acknowledges that San Simon is in fact a mining company. Id. 61.

The same holds true for the Governments attempts to link Exim, Advancer, and Horizonte to narcotics trafficking through Carlos Alayo, Manuel, Simon, and Lola Alayos familial ties to Percyles and Segundo Simon (two men who have been dead for decades). See id. 39, 45, 56, 58. Nor does the repeated reliance on the family members allegedly investigated in the archived Peruvian criminal investigation (or any other unidentified investigation), for the reasons stated in Point V.B.2., carry the Governments burden. See id. 39, 45, 56, 58.

22

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 27 of 30

pled with the particularity required by the Supplemental Rules. See id. 37, 43, 49.16 Simply stated, the Amended Complaint is devoid of a single specific factual allegation tying any member of the Sanchez-Paredes family, much less the San Simon Claimants, to narcotics trafficking after 1995. C. The Government Has Not Pled Facts that Show that Any of the Claimant Accounts are Traceable to Narcotics Trafficking

In an apparent attempt to invoke the traceability provisions of 21 U.S.C. 881(a)(6) and 18 U.S.C. 981(a)(1)(A), the Government also alleges that funds seized in the Advancer and San Simon accounts are subject to forfeiture because they are either traceable to drug proceeds or traceable to the proceeds of narcotics trafficking activity. See Am. Compl. 49, 66.17 Pursuant to this theory, the Government must trace the funds it wishes to forfeit to illegal activity. See United States v. Banco Cafetero Panama, 797 F.2d 1154, 1158-59 (2d Cir. 1986) (Section 881(a)(6)); United States v. Contents in Account No. 059-644190-69, 253 F. Supp. 2d 789, 795 (D. Vt. 2003) (Section 981(a)(1)(A)). It has failed to do so. Here, the Governments attempt to invoke these provisions fails as it has not identified funds in the seized accounts that are alleged to be tainted, i.e., laundered drug money or narcotics proceeds.18 As far as is discernable, the gist of the Governments new 981(a)(1)(A) claim is based on mere opinion and conjecture, rather than any allegation of fact. As noted above, Point II.B, the allegation states that I believe that San Simon may be receiving
16

Similarly, merely alleging that other officers of Pacific are believed to launder drug money, without any particular facts as to how, when, or why, does not satisfy the enhanced pleading requirement. See id. 35, 43.
17

To the extent that the Government premises forfeiture of funds in Pacific, Horizonte, and Carlos Alayo's accounts as traceable to drug proceeds, which is unclear from the allegations in the Amended Complaint, such theory is insufficiently pled for the same reasons set forth in this section.
18

Indeed, as to one of the Advancer accounts, Advancer Account-2, the Government has not alleged even a single sentence about the accounts activity, much less any connection to drug trafficking activity. Clearly, there is no basis whatsoever for the seizure of this account.

23

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 28 of 30

proceeds from the sale of narcotics and then commingling them into legitimate business operations. Am. Compl. 23. This rank speculation, even if believed, does not connect the dots because the Government does not allege which gold was produced or procured with narcotics proceeds. It therefore does not provide facts from which one could infer that any of the funds deposited in the seized San Simon and Advancer accounts are anything other than the legitimate proceeds from gold produced or purchased and sold to Refining Company A, which then paid San Simon and Horizonte through Pacific, Exim, and Advancer. See id. 23, 33, 34, 37, 42, 47-48, 56-57. In other words, the Government simply fails to allege that any funds deposited into the accounts were drug proceeds ab initio it does not identify what money, if any, was dirty to start with.19 The Amended Complaint suffers from the same pleading deficiency with respect to its 881(a)(6) claims. Although it alleges that a number of wire transfers were made from Refining Company A to the Advancer accounts, there are no allegations or facts to support the leap that funds transferred from Refining Company A, which has been dropped from the case, are the proceeds of drug trafficking. See Am. Compl. 47-48. Similarly, the Government fails to identify which sales to Refining Company A allegedly involved gold purchased on the secondary market with drug money, under the Governments current hypothesis. See id. 23.20 Since the allegedly tainted gold transactions are not identified, it is therefore impossible to trace any proceeds from the sale of gold to narcotics trafficking. Id. 44-49; 60 (citing wire transfers

19

Allegations concerning long-deceased family members and closed investigations do not make this connection. See Point V.B.1,2.
20

As noted above, Point II.B, the Amended Complaint does not allege that San Simon actually bought gold with drug money.

24

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 29 of 30

from Exim to San Simon, but failing to allege facts to support the inference that any of the funds transferred were the proceeds of drug trafficking). In sum, the Governments reliance on decades-old criminal allegations, references to Peruvian investigations that have since been discontinued without conviction, allegations of unsubstantiated sources of income, profile based arguments and naked allegations of the existence of shell companies are patently insufficient to trace seized funds to illicit activity in an in rem forfeiture action. This utter failure warrants a dismissal with prejudice. 21 VI. Conclusion For all of the foregoing reasons, the San Simon Claimants respectfully request that the Court grant its motion to dismiss the Amended Complaint in its entirety with prejudice and award such other and further relief as the Court deems just and proper. Respectfully submitted, PROSKAUER ROSE LLP By: /s Robert J. Cleary Robert J. Cleary Eleven Times Square New York, NY 10036 Telephone: (212) 969-3000 Facsimile: (212) 969-2900 rjcleary@proskauer.com -andLS LAW FIRM By: /s Lilly Ann Sanchez Lilly Ann Sanchez 1441 Brickell Avenue
21

The Government provides no indication that it can plead any set of facts that would substantially connect the seized funds to narcotics trafficking and should not be permitted a third bite at the apple. See Wilson v. Merrill Lynch & Co., 671 F.3d 120, 140 (2d Cir. 2011) (complaint properly dismissed with prejudice where amendment would be futile); Williams v. Calderoni, No. 11 Civ. 3020 CM, 2012 WL 691832, at *8 (S.D.N.Y. Mar. 1, 2012).

25

Case 1:12-cv-07530-GBD-JCF Document 52

Filed 02/28/13 Page 30 of 30

Miami, FL 33131 Telephone: (305) 503-5503 Facsimile: (305) 503-6801 lsanchez@thelsfirm.com Attorneys for Claimants Cia Minera San Simon S.A., Advancer Logistics LLC, Horizonte Dorado S.R.L., Pacific Gateway Corporation, and Carlos Alberto Sanchez Alayo cc: Paul Monteleoni Assistant U.S. Attorney One St. Andrews Plaza New York, NY 10007 Attorney for Plaintiff Abbe D. Lowell Chadbourne & Parke LLP 1200 New Hampshire Ave. NW Washington, DC 20036 Attorney for Claimant CIA Minera Aurifera Santa Rosa SA

26