Town Hall: Federal government probes 6,000 aircraft over export questions

The US federal government is investigating up to 6,000 aircraft to assess if they have been exported illegally, warns David M. Hernandez, shareholder and Global Transportation Finance practice group member, Vedder Price P.C.

The probe was launched after seven charges were made against the owner of Aircraft Guaranty Corporation (AGC) and Wright Brothers Aircraft Title, Inc. (WBAT), Debbie Mercer-Erwin, her daughter Kayleigh Moffett and six other individuals outside the company.

“As of March 5th, by my estimation, there are around 6,000 aircraft [that are or were held in trusts] being investigated by the federal government,” said Hernandez. He was addressing Corporate Jet Investor’s Town Hall online meeting – ‘The impact of federal investigations on aircraft transactions’ – on Friday, March 5th. “Most people don’t realise that yet,” continued Hernandez.

“I’ve been told by the federal government, by the folks who are investigating: ‘We will look at every trust. They are going to get to them in time. But right now, I estimate that approximately 6,000 aircraft are being looked at – aircraft that are currently in trust and aircraft that were in trust.”

The defendants are accused of running a complex $350m Ponzi scheme, which allegedly helped drug traffickers deregister and change aircraft ownership records, failing to register aircraft exports and participating is a series of fake aircraft transactions. (Ponzi schemes lure investors to make investments and pay profits to earlier investors with funds from more recent investors).

Nearly 400 delegates at the Town Hall heard Hernandez and fellow panellist Jack Gilchrist, founding director and shareholder of Gilchrist Aviation Law, discuss a range of topics arising from the federal prosecutions. Those involved the fate of aircraft held in trust by WBAT, the likelihood of clients who innocently placed money in escrow accounts with AGC retrieving their money and the federal probe of aircraft held in trusts that may have been exported from the US illegally.

‘There are a lot of landmines’

Hernandez, who has set up a task force to help clients affected by the indictment, said: “Do not call the government and say: ‘We demand our aircraft be transferred and here’s my name and the tail number of the aircraft.’ You have got to be smart here because there are a lot of landmines.”  In addition, making intentional false or misleading statement to federal officials may constitute a violation of federal law, specifically title 18 U.S.C. Section 1001.

If your aircraft is seized, there are likely several agencies to work with depending on the facts and circumstances. “It requires a multi-faceted approach. And the best way to handle that is through a task force.” Vedder Price has been helping clients on matters including funds recovery, aircraft transactions and trust transfers since the government seized the accounts of WBAT and AGC in December 2020.

Gilchrist, of Gilchrist Aviation Law, confirmed one of the big challenges was the involvement of many branches of the federal government including: Department for Homeland Security, US Attorney Office, Federal Bureau of Investigations, Department for Transportation and FAA. “If you have a plane whose title is locked up with Aircraft Guaranty Corporation, that is the most poignant,” said Gilchrist. “You have got to have the ability to transfer title to others, to another trust. That’s a very real problem.”

The second problem was the retrieval of innocent funds held in escrow by WBAT. “That problem is a little bit easier to solve right now, as opposed to the title of the aircraft and moving that title,” he added. “The US Attorney’s Office has been a bit quicker to at least agree they can identify funds that are innocently positioned with Wright Brothers. The bigger problem is the ramifications for the trust companies in general.”

But a quick return of money held in escrow was highly unlikely. “You are not going to get anything back anytime soon,” said Hernandez. Vedder Price has acted for clients whose funds are trapped in escrow with WBAT since December and, so far, no funds have been released.

‘Don’t think you are immune’

The challenges raised by the federal indictment potentially affected everyone in business aviation, he said. “Understand the issues involved. Don’t think you are immune because you have no connection with Guaranty Corporation or Wright Brothers Aircraft Title, Inc. Anybody that’s involved in any type of aircraft should be concerned.”

The key to avoiding potential problems is rigorous due diligence and know-your-client checks. “I do think for trusts, greater transparency is going to be required,” said Gilchrist. “That will mean greater scrutiny because the FAA is tired of getting slapped and blamed in the case of deals that go wrong.”

“It is important to understand the risks, and seizure of the asset may be one of them if you have not exported the aircraft properly. The first thing to do is to establish what are the facts and review the relevant documentation,” said Hernandez. “Then talk to the federal government to resolve that exposure and regulations provide a pretty good road map.” But speedy resolution of the challenges was unlikely.

Hernadez concluded: “We are all working diligently to find a solution. We are working on a roadmap and I hope to have one next week [Week 10] as to how to undo this logjam. I’m cautiously optimistic – there are a lot of smart people involved. We will fix this. But it won’t be any time soon.”

Town Hall moderator Alasdair Whyte, co-founder of Corporate Jet Investor highlighted: “It is important to notice that complaint, arrest or indictment is not considered as evidence of guilt and everyone involved is presumed innocent until proven guilty beyond reasonable doubt.”

Neither the Office of Inspector General, US Department of Transport nor the owner of AGC and WBAT was available to respond to Corporate Jet Investor’s questions about the allegations. Read more about the indictment here.

Meanwhile, you can watch the Town Hall meeting, and other recent meetings here.

David M. Hernandez, Vedder Price: “You have got to be smart because there are a lot of landmines.”