U.S. v. Lazarenko

• Decision Date: 22 August 2008
• Docket Number: No. C 00-00284 CRB.,C 00-00284 CRB.
• Citation: 575 F.Supp.2d 1139
• Court: U.S. District Court — Northern District of California
• Parties: UNITED STATES, Plaintiff, v. Pavel LAZARENKO, Defendant.

575 F.Supp.2d 1139

UNITED STATES, Plaintiff, v. Pavel LAZARENKO, Defendant.

No. C 00-00284 CRB.

United States District Court, N.D. California.

August 22, 2008.

Patricia Jean Kenney, United States Attorney's Office, San Francisco, CA, for Plaintiff.

John H. Aspelin, Aspelin & Bridgman LLP, San Francisco, CA, Matthew J. Jacobs, McDermott Will & Emery LLP, Palo Alto, CA, for Defendants.

ORDER RE: SUMMARY JUDGMENT

CHARLES R. BREYER, District Judge.

This case compels the Court to delve into a complex and easily-misunderstood area of the law: the protection of third party rights in criminal forfeiture. In their motion for summary judgment, claimant Eurofed contends that a third party may use the "ancillary proceeding" established by 21 U.S.C. § 853(n) to raise any argument whatsoever, and may thereby relitigate the forfeitability of the property seized. Contrarily, the government argues in its motion for summary judgment that a third party is limited in an ancillary proceeding to establishing that he either: (1) had a legal right, title, or interest in the property seized at the time the defendant committed the acts that gave rise to the forfeiture; or (2) is a bona fide purchaser for value. See 21 U.S.C. § 853(n)(6). The Court agrees with the government that Eurofed may not relitigate the "the forfeitability of the property," Fed.R.Crim.P. 32.2 advisory committee's note (2000), and because no reasonable juror could conclude that Eurofed has a superior interest in the seized funds, summary judgment must be granted to the government. However, that is not the end of the story. Because this is a criminal forfeiture action, the government may seize only property in which Defendant Pavel Lazarenko has an interest. Although neither the criminal forfeiture statutes nor Federal Rule of Criminal Procedure 32.2 set forth a procedure by which the Court can determine whether the defendant had an interest in the seized property, the Court concludes that such a procedure is necessary. Accordingly, the government is ordered to submit by Friday, September 12, 2008 evidence sufficient to establish by a preponderance of the evidence that Defendant Pavel Lazarenko has an interest in the funds seized in this case. A hearing on Lazarenko's interest—in which only the government is permitted to participate— will be held on Friday, September 26, 2008.

BACKGROUND

The forfeiture dispute now before the Court arose out of the conviction of former Ukranian Prime Minister Pavel Lazarenko. The evidence at Lazarenko's criminal trial established that Lazarenko used his political power—first as a regional governor and later as prime minister of Ukraine—to extort millions of dollars from local businesses operated by businessman Peter Kiritchenko. Over the years, Kiritchenko paid Lazarenko approximately $30 million, or half of all Kiritchenko's profits. Lazarenko initially received the extortion payments in four Swiss accounts, but by 1994 Lazarenko began to transfer his money to various institutions in an effort to hide the source of the funds.

By January 1997, Lazarenko believed his dismissal as Prime Minister to be imminent. Around the same time, Lazarenko and Kiritchenko learned that Eurofed— an offshore bank domiciled in Antigua— was for sale, and agreed to buy it. Lazarenko opened his own personal account at Eurofed, and in August of 1997, Lazarenko and Kiritchenko purchased a 67% interest in the bank.

By mid-1997, Lazarenko had been dismissed as Prime Minister and was under investigation in the Ukraine. Concerned that his Swiss bank accounts might be frozen, Lazarenko closed the accounts— worth over $100 million—and used the funds to open an account at Banque SCS Alliance in the Bahamas. In addition, Lazarenko made two wire transfers to Eurofed correspondent accounts in San Francisco at the Pacific Bank and Commercial Bank.¹ According to the government's theory, Lazarenko laundered his funds through at least five and as many as eight different accounts before approximately $1,379,000 in proceeds from Lazarenko's criminal operations ended up in Eurofed correspondent account # W71-223433 at Bank of America in San Francisco. See Tonna Decl. Exh. 15. The government also contends that Lazarenko's proceeds were deposited into another Eurofed correspondent account, Bank of America account #W71-224464, which held $327,317.85 in funds, and 923,000 Ukranian bonds.

In the fall of 1999, Antiguan governmental authorities began an investigation of Eurofed for alleged money-laundering activities, and froze Eurofed's assets on October 29, 1999. On November 15, 1999, Eurofed was put into receivership and an Antiguan court appointed two PricewaterhouseCoopers partners as joint receivers, and later joint liquidators, and ordered them to liquidate the bank.

In May of 2000, the United States government indicted Lazarenko on thirtythree counts. See Indictment (Docket # 1). The indictment contained a forfeiture count with general language requesting forfeiture of "all property, real and personal, involved" in the alleged money laundering offenses "or any property traceable to such property," including but not limited to, real property located in Novate and all funds in a Bank Boston Robertson Stephens account valued at approximately $266,307.20. See id. at ¶¶ 30-33. In June of 2004, a jury convicted Lazarenko of one count of conspiracy to launder money, seven counts of money laundering, five counts of wire fraud, and one count of interstate transportation of stolen property. See Special Verdict Form (Docket # 810).

In March of 2005, the government filed a complaint for forfeiture under the civil forfeiture laws, directed at the two Bank of America correspondent accounts held in Eurofed's name. See United States v. $1,379,879.09 Seized from Bank of America, et. al, 05-0946 (Docket # 1). On October 25, 2005, Judge Jenkins granted summary judgment against the government after it conceded that the civil forfeiture complaint was time-barred under 19 U.S.C. § 1621. See Order re Motion for Summary Judgment (Docket # 48). On that same day, the government effectuated a re-seizure of the forfeited funds pursuant to a federal criminal forfeiture statute, 18 U.S.C. § 982, which subjects a defendant to forfeiture of any property, real or personal, involved in or traceable to conduct supporting a conviction for wire fraud. Id. § 982(a)(1). The government submitted an affidavit contending that the Eurofed accounts were "traceable to" Lazarenko's criminal conduct. Seizure Affidavit (Docket # 896).

In January of 2006, Eurofed attempted to intervene in the criminal case by filing a motion for return of property, asserting that criminal forfeiture of funds and bonds in the two Bank of America accounts was barred by the civil statute of limitations, the doctrine of res judicata, and the act of state doctrine. See Eurofed's Motion for Return of Illegally Seized Funds (Docket # 909). In April of 2006, Judge Jenkins ruled that Eurofed could not assert its interest in the funds and bonds until the court conducted the "ancillary proceeding" designated for adjudication of third party interests. See 21 U.S.C. § 853(n).² Eurofed appealed and the Ninth Circuit affirmed, concluding that "an ancillary proceeding constitutes the only avenue for a third party claiming an interest in seized property." United States v. Lazarenko, 476 F.3d 642, 648 (9th Cir.2007).

Three days after ruling that Eurofed could not intervene directly in the criminal proceeding, Judge Jenkins filed a Preliminary Order of Forfeiture, forfeiting all of Lazarenko's light, title, and interest in the two Bank of America accounts to the United States. See Preliminary Order of Forfeiture (Docket # 947). After concluding that the government had established the requisite "nexus" between Lazarenko's criminal conduct and the Bank of America accounts, Judge Jenkins entered a final forfeiture order. See Criminal Minutes re: Forfeiture issues (Docket # 1077); Transcript of Proceedings Dated September 29, 2006 at 36. Judge Jenkins' forfeiture order was incorporated into Lazarenko's sentence, thereby finalizing the order of forfeiture as to him. See Fed.R.Crim.P. 32.2(b)(3) ("At sentencing-or at any time before sentencing if the defendant consents-the order of forfeiture becomes final as to the defendant and must be made a part of the sentence and be included in the judgment."). Lazarenko did not challenge the underlying forfeiture of the two Bank of America accounts.

After remand from the Ninth Circuit, the ancillary proceeding went forward. Two parties—the Liquidators of Eurofed and Universal Trading and Investment Co.—petitioned for an ancillary hearing to determine whether their interests in the forfeited funds and bonds were superior to Lazarenko's interest. In support of their motion for return of illegally seized funds, Eurofed argued that: (1) the government's criminal forfeiture was barred by the loss of its case for civil forfeiture pursuant to principles of res judicata; (2) the criminal forfeiture was barred by the applicable statute of limitations; and (3) the act of state and comity doctrines counseled against intervention in Antiguan court proceedings. See Docket # 1188. In response, the government argued that Eurofed's arguments exceeded the scope of the ancillary proceeding, which was limited to resolving Eurofed's interest in the property seized, rather than the forfeitability of the property. See Docket # 1187.

By order dated August 15, 2007, Judge Jenkins held that due process requires that third parties have an opportunity to relitigate the forfeitability of the property, and moreover that legal defenses such as res judicata and statute of limitations can be properly considered part of a third party's attempt to claim a superior ownership interest. United States v. Lazarenko, 504 F.Supp.2d 791, 795, 795 n. 3 (N.D.Cal. 2007).

However, in addressing the merits of Eurofed's arguments, the court...