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US Government Argues It Can Keep Megaupload Assets Frozen Indefinitely

The US government has argued that, even if the case against Megaupload is dismissed on procedural technicalities, they can keep the company's assets frozen.

For those looking for a quick end to the Megaupload case, it seems like their hopes might be unfounded as the United States government is claiming that, should the indictment against the Megaupload corporation be dismissed, they can continue an indefinite freeze of all of the corporation’s assets while they await the extradition of Kim Dotcom and his associates. Judge Liam O’Grady is currently weighing the merits of a motion to dismiss the indictment against Megaupload because the federal rules of criminal procedure provide no way to serve notice on corporations like Megaupload with no US address; while not yet issuing a ruling, he grilled both attorneys in the case at a hearing in Alexandria, VA. O’Grady sarcastically speculated that Congress intended to allow foreign corporations like Megaupload to “be able to violate our laws indiscriminately from an island in the South Pacific,” but Megaupload’s attorney insisted that this may actually be close to the truth. Megaupload is a Hong Kong corporation with no presence in the United States, he said. He then argued that it was perfectly reasonable for Megaupload to be subject to the criminal laws of Hong Kong but not the United States.

For what it’s worth, the government suggested that there were ways in which they could sidestep the notice mailing requirement. For example, it could wait for Kim Dotcom to be extradited to the United States and then mail the notice to him, as Megaupload’s representative, at his address in prison. They also suggested that they could send notice of the indictment to Carpathia Hosting, a Virginia-based company that leased hundreds of servers to the file locker site. A third option is the possibility of the government using the provisions of a Mutual Legal Assistance Treaty with Hong Kong in order to send notice to Megaupload’s Hong Kong address.

Judge O’Grady, however, seemed skeptical of these arguments. He noted that the “plain language” of the law required that the federal government send notice to the company’s address in the United States. “You don’t have a location in the United States to mail it to,” he said. Megaupload has, in fact, never had an address in the United States. Megupload also pointed out that the government hadn’t produced a single example in which the government had satisfied the criminal procedure rules using one of the methods they suggested; most precedents offered by the government were for civil cases which have different rules of procedure and most involved serving a corporate parent company through its subsidiary company, a completely different relationship than the vendor-customer relationship between Megaupload and Carpathia Hosting.

The government did bring up one example during the hearing of an instance where notice was not served by mail to a United States address: a judge allowed notice to be sent via email to FARC, the Columbian guerilla group. Megaupload’s attorneys played down this example as well, arguing that FARC was not a corporation and that the propriety of that service was never tested in court. It was also argued by the government that Megaupload could be kept in legal limbo indefinitely, since “[none] of the cases impose a time limit on service,” the government’s attorney told the judge. Therefore, the government argues, the indictment can be left hanging over the company’s head indefinitely. Not only that, but the government argues that they can continue to freeze the file locker’s assets and paralyze its operations even if the motion to dismiss is granted; they argue that this is possible since, in the government’s view, the assets are the proceeds of criminal activity and the prosecution against the eccentric founder of Megaupload, Kim Dotcom, will still be pending. The fact that the assets are in the name of Megaupload rather than Kim’s is of no consequence argued the government’s attorneys.


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