The U.S. Justice Department is preparing to settle a civil forfeiture dispute over more than $4.2 million in mutilated currency that agents seized last year in an international money laundering investigation, a prosecutor told a judge this afternoon.
In court papers filed in Washington, agents said they believed the money was intentionally damaged—burned and chemically altered—and then submitted to the U.S. Treasury Department's Bureau of Engraving and Printing (BEP) with the goal of acquiring new, clean bills. A Secret Service agent described the scheme as a "money laundering machine."
Lawyers for Banco Piano S.A., represented by Steptoe & Johnson LLP, filed a claim in U.S. District Court to contest the forfeiture, saying the bank, in Argentina, lawfully submitted the currency and should receive fresh bills in redemption. The attorneys said the bank, as routine business, purchases damaged foreign currency at a discount and submits it to the issuing government for replacement.
"Banco Piano did not have any knowledge of, let alone participate in, any alleged money laundering or counterfeiting activity that could involve mutilated United States currency," Steptoe litigation partner Matthew Herrington wrote in court papers last year.
U.S. District Judge Emmet Sullivan called today's hearing to get a status update on the case. Ever since the government filed its complaint, in August 2012, the lawyers in the case have filed a series of notices indicating that talks were ongoing.
An assistant U.S. attorney, Arvind Lal, said today in court that the government and lawyers for Banco Piano have agreed to a settlement. The deal, Lal said, must first go through the chain of command at the U.S. Attorney's Office for the District of Columbia.
Lal didn't outline the details of the deal—including whether Banco Piano will get any fresh bills in return for the bank's damaged currency. Herrington didn't attend today's hearing. He wasn't reached for comment this afternoon.
Lal said the government is hopeful it will present the deal to Sullivan sometime in the next several weeks.
In an affidavit filed in the case, government agents said some of the bills revealed the presence of a chemical "as if they had been put in laundry detergent, fabric softener or fabric cleaners."
The addition of a chemical "gives the note the appearance of looking considerably more worn and older than it is," according to a Secret Service affidavit.
"[I]t is in the interest of criminals in foreign countries who generate large quantities of American cash in illegal transactions to get all or even some of it 'laundered' both so they can spend their ill-gotten gains and to conceal their unlawful transactions," a Secret Service agent, Warren Buckley, said in court papers. "If mutilated currency can be redeemed through BEP, this is perhaps the ideal money-laundering scheme."