U.S. v. All Assets Held at Bank Julius Baer & Co.

• Citation: 571 F.Supp.2d 1
• Decision Date: 09 July 2008
• Docket Number: Civil Action No. 04-0798.
• Court: U.S. District Court — District of Columbia
• Parties: UNITED STATES of America, Plaintiff, v. ALL ASSETS HELD AT BANK JULIUS BAER & COMPANY, LTD., Guernsey Branch, Account Number 121128, in the name of Pavlo Lazarenko last valued at approximately $2 million in United States dollars, et al., Defendants in rem.

Page 1

571 F.Supp.2d 1

UNITED STATES of America, Plaintiff, v. ALL ASSETS HELD AT BANK JULIUS BAER & COMPANY, LTD., Guernsey Branch, Account Number 121128, in the name of Pavlo Lazarenko last valued at approximately $2 million in United States dollars, et al., Defendants in rem.

Civil Action No. 04-0798.

United States District Court, District of Columbia.

July 9, 2008.

Daniel Hoeker Claman, Linda Otani McKinney, U.S. Department of Justice, Eileen Callahan Mayer, Judith A. Kidwell, William Rakestraw Cowden, United States Attorney's Office, Washington, DC, for Plaintiff.

Doron Weinberg, Weinberg & Wilder, San Francisco, CA, for Defendant.

OPINION

PAUL L. FRIEDMAN, District Judge.

This matter came before the Court on the motion to dismiss of claimants Pavel Lazarenko and Alexander Lazarenko on their own behalf and on behalf of Ekaterina Lazarenko and Lecia Lazarenko ("Claimants" or "Lazarenko Claimants").¹ Plaintiff, the United States of America, has filed an action in rem against various bank accounts located in foreign nations around the world containing assets totaling over $250 million. The United States brings this action pursuant to two separate provisions of the civil forfeiture statute—18 U.S.C. § 981(a)(1)(C) and 18 U.S.C. § 981(a)(1)(A)—seeking both direct forfeiture of alleged criminal proceeds and forfeiture of property allegedly involved in or traceable to money laundering.

Claimants moved to dismiss the First Amended Verified Complaint for Forfeiture In Rem ("Amended Complaint") pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction, and pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The Court heard oral argument on this motion on January 23, 2007.² Upon consideration of the motion, the opposition, the reply and the arguments made at the motions hearing, the Court denied Claimant's Motion to Dismiss by Order of March 29, 2007.³ The reasons underlying that Order are set forth in this Opinion.

I. BACKGROUND

A Factual Background

The following facts are alleged by the government in its First Amended Verified Complaint for Forfeiture In Rem:

Claimant Pavel Ivanovich Lazarenko, a.k.a. Pavlo Lazarenko, was a dominant figure in the Ukrainian government and economy from approximately 1992 to 1998, first in the heavily industrial Dnepropetrovsk District, and later throughout the Ukraine. First Amended Verified Complaint for Forfeiture In Rem ("Am. Compl.") ¶¶ 6, 21-24, 35. During this period, Lazarenko received more than $326 million in payments from various individuals and businesses through wire transfers occurring in the United States, while reporting an income of less than $6,000 per year in 1996 and 1997, having no other substantial employment, and declaring that he had no money in banks or other financial institutions. Id. ¶¶ 7, 8, 26, 28, 34, 38, 41-44, 49, 50-54.

Those directing payment to Lazarenko during this period allegedly also obtained millions of dollars through their association with Lazarenko. Am. Compl. ¶ 9. One such associate was Peter Nikolayevich Kiritchenko, who was formally named as and served as an advisor to Lazarenko when he was First Vice Prime Minister and Prime Minister of Ukraine. Id. Associates such as Kiritchenko allegedly would accept payments on behalf of Lazarenko in order to conceal them from Ukrainian and other law enforcement authorities, and then pass the payments through to accounts outside of Ukraine in the name of shell corporations under Lazarenko's control. Id. ¶¶ 25, 27, 29, 34, 38-40, 42-43, 49, 53, 55, 59.

Through such criminal acts, the United States alleges, Lazarenko and his associates were able to acquire hundreds of millions of United States dollars. Am. Compl. ¶ 10. Their schemes included, but were not limited to: skimming funds in United States dollars from multimillion dollar contracts for the distribution of natural gas imports in Ukraine and providing kickbacks to Lazarenko; obtaining property by wrongful use of fear or under color of official right; making payments to Lazarenko to influence or induce him to act or refrain from an official act; manipulating state businesses to provide millions of dollars in goods to private businesses and individuals that would share their profits with Lazarenko; diverting millions of United States dollars to their personal use by using fraudulent contracts to purchase goods for state enterprises at inflated prices or to falsify the purchase of goods that were not purchased; and concealing Lazarenko's association with corporations doing business with the local and national governments to deprive Ukraine of the honest services of its employees. Id.

These criminal acts allegedly occurred, in part, in the United States and were conducted in United States dollars through transactions with or through United States financial institutions. Am. Compl. ¶¶ 11, 12. For example, on January 14, 1994, Kiritchenko allegedly transferred approximately $216,000 from his Account Number 61310 in the name of Orphin at American Bank of Poland in Warsaw, Poland, through Chase Manhattan Bank in New York, to Lazarenko's Kato-82 account at Credit Lyonnais in Switzerland. Id. ¶ 31. Similar transfers allegedly were made by Claimant Ditiakovsky, Energy Systems of Ukraine ("UESU") and its affiliates, IERA International Energy Corporation and its affiliates, Pacific Modern Homes, and Mykhola Agafonov, among others. Id. ¶¶ 34, 36, 40, 43. In addition, persons and businesses alleged to have transferred the proceeds of their fraudulent activities to Lazarenko, such as Agafonov, UESU, United Energy International, Ltd. ("UEIL"), ITERA, and Somolli Enterprises, Ltd., allegedly did so through financial institutions in the United States. Id. ¶¶ 39, 40.

Between 1992 and 1999, Lazarenko and his associates also opened bank accounts in the United States, Switzerland, Antigua, Guernsey, Poland, Liechtenstein and Cyprus, among other countries, and allegedly transferred the proceeds of their criminal acts into and out of these accounts in an effort to conceal or disguise the nature, origin, location, source, ownership or control of these proceeds and property. Am. Compl. ¶ 13. For example, criminal proceeds deposited into accounts in the name of Kato-82 and Lip Handel in Switzerland allegedly were transferred to the United States and back to other Swiss accounts, such as Carpo-53 and Nihpro. Id. ¶ 61. Payments received in Kiritchenko's accounts in Switzerland and Poland were also allegedly transferred across the United States boundaries and in and out of United States financial institutions into accounts in Switzerland. Id. ¶¶ 31, 36, 50, 88. Lazarenko and his associates conducted these transactions in United States dollars. Id.

In 1997, in part through negotiations that allegedly occurred in part in the United States, Lazarenko and Kiritchenko allegedly purchased a controlling interest in an Antiguan bank, the European Federal Credit Bank ("Eurofed"), in order to further conceal or disguise the nature, origin, location, source, ownership or control of the proceeds of their criminal acts. Am. Compl. ¶¶ 14, 66. Their ownership and control of Eurofed, which maintained depositors' funds not in Antigua, but primarily at investment accounts and correspondent accounts in the United States, allowed the defendant properties to be maintained at financial institutions in the United States while appearing to be on deposit in Antigua. Id. ¶¶ 66-67, 70-75.

On June 3, 2004, a jury in the United States District Court for the Northern District of California found Lazarenko guilty on 29 criminal counts. Am. Compl. ¶¶ 17, 18. The jury's verdict included specific findings that Lazarenko engaged in a conspiracy to launder the proceeds of foreign extortion, wire fraud, and illegal transportation through the United States of property stolen or taken by fraud. Am. Compl. ¶ 18. After the trial judge granted in part and denied in part Lazarenko's motion for a judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure, Lazarenko stands convicted of eight counts of money laundering and money laundering conspiracy, five counts of wire fraud, and one count of interstate transportation of property stolen, converted or taken by fraud. See Opp. at 9-10 and 10 n. 2; Docket, Criminal No. 00-00284, N.D.Cal.⁴ Kiritchenko pled guilty in the United States to the receipt or transportation of property stolen, converted or taken by fraud. Am. Compl. ¶ 19; Opp. at 10.

In June 2000, "a Swiss court convicted Lazarenko of money laundering after Lazarenko accepted charges of money laundering related to abuse of power committed to the detriment of Ukraine." Am. Compl. ¶ 16. In addition, Lazarenko has been charged in Ukraine with abuse of public office. Id. ¶ 15. The defendants in rem in this case were obtained based on some of the conduct that led to Lazarenko's indictments and convictions and are currently located in foreign bank accounts in Guernsey, Antigua & Barbuda, Switzerland, Lithuania, and Liechtenstein. Id. ¶¶ 1, 17-19.

B. Overview of Claims

The United States brings eight claims for forfeiture falling into two general categories. The First, Second, Third and Fourth Claims for Relief allege the direct forfeiture of criminal proceeds pursuant to 18 U.S.C. § 981(a)(1)(C), which provides for the direct forfeiture of proceeds from violation of certain enumerated criminal statutes or any offense constituting "specified unlawful activity" as defined in 18 U.S.C. § 1956(c)(7). See Am. Compl. ¶¶ 120-139. The Fifth, Sixth, Seventh and Eighth Claims for Relief allege forfeiture of property involved in money laundering violations pursuant to 18 U.S.C. § 981(a)(1)(A), which provides for the forfeiture of any property involved in or traceable to a violation of the money laundering provisions of 18 U.S.C. §§ 1956 and 1957. Am. Compl. ¶¶ 140-155. The United States argues that all of...