CHICAGO (CN) – Federal courts may confiscate the passports of debtors who are believed to be a flight risk, the 7th Circuit ruled.
After Pethinaidu and Parameswari Veluchamy defaulted on $39 million in debts owed to Bank of America, a federal judge ordered them to turn over financial records showing their assets.
The couple delayed for three months, asserting protection under the Fifth Amendment. The judge rejected their defense and ordered them to comply with the citations.
The court soon discovered that the Veluchamys had transferred about $20 million of their assets to India. The couple had also diluted or transferred ownership of their nonmovable U.S. assets.
Bank of America requested an emergency order compelling the Veluchamys to produce the funds that they had transferred overseas. The court obliged and also ordered the couple to relinquish their passports until the assets were reclaimed.
The Veluchamys appealed, claiming that a judgment-debtor’s passport can be seized only upon a finding of contempt and where the record establishes a demonstrated history of flight.
The 7th Circuit affirmed the sanction Thursday, finding it within the court’s “broadly construed” authority to ensure that assets are located, seized and applied to a judgment. The Veluchamys’ reluctance to disclose their abundance of assets abroad, coupled with their minimal U.S. holdings, was enough to establish a flight risk.
“In the lion’s share of cases, the debtor will not have moved assets to a locale beyond the court’s jurisdiction, and thus the court’s other powers – especially its power to order the holding financial institution itself to freeze the assets – will be enough to safeguard the court’s ability to enforce a production order,” Judge Diane Kanne wrote.