United States v. All Assets Held At Bank Julius, Baer & Co. (In re Rem), Civil Action No. 04-0798 (PLF).

• Citation: 251 F.Supp.3d 82
• Decision Date: 27 April 2017
• Docket Number: Civil Action No. 04-0798 (PLF).
• 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 et al., Defendants In Rem.

251 F.Supp.3d 82

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 et al., Defendants In Rem.

Civil Action No. 04-0798 (PLF).

United States District Court, District of Columbia.

Signed April 27, 2017

Daniel Hocker Claman, Della Grace Sentilles, Michael Wade Khoo, Teresa Carol Turner–Jones, U.S. Department of Justice, Mara Vanessa Jessica Senn, U.S. Department of Justice Kleptocracy Initiative, Asset Forfeiture & Money Laundering, Washington, DC, for Plaintiff.

Bryant Everett Gardner, Winston & Strawn LLP, Washington, DC, Doron Weinberg, Weinberg & Wilder, San Francisco,CA, for Defendant.

David B. Smith, Alexandria, VA, Nicholas D. Smith, David B. Smith PLLC, New York, NY, for Pavlo Lazarenko.

OPINION

PAUL L. FRIEDMAN, United States District Judge

This is a civil in rem action in which the United States seeks forfeiture of over $250 million scattered throughout bank accounts located in Guernsey, Liechtenstein, Lithuania, Switzerland, and Antigua and Barbuda. The United States alleges that this money is the proceeds of violations of certain criminal statutes and therefore is subject to forfeiture. Based on recent Supreme Court precedent regarding the extraterritorial reach of certain U.S. statutes, Claimant Pavel Lazarenko, also known as Pavlo Lazarenko, argues that this forfeiture action is an impermissible application of U.S. law to foreign conduct. He seeks a partial judgment on the pleadings or, in the alternative, partial summary judgment. Upon consideration of the parties' papers, the relevant legal authorities, and the arguments of counsel in open court on January 25, 2017, the Court will grant in part and deny in part Lazarenko's motion for partial judgment on the pleadings. The Court concludes that it would be inappropriate at this stage in the litigation to consider this motion as a motion for partial summary judgment.¹

I. FACTUAL AND PROCEDURAL BACKGROUND

The Court's prior opinions summarize the factual and procedural history of this case, starting with the criminal prosecution of Lazarenko and continuing through this long-running civil forfeiture proceeding. See, e.g., United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 307 F.R.D. 249, 250–51 (D.D.C. 2014) ; United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F.Supp.2d 81, 84–94 (D.D.C. 2013) ; United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 772 F.Supp.2d 205, 207–08 (D.D.C. 2011) ; United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 571 F.Supp.2d 1, 3–6 (D.D.C. 2008) (" All Assets I"). In brief, Lazarenko was "a prominent Ukrainian politician who, with the aid of various associates, was ‘able to acquire hundreds of millions of United States dollars through a variety of acts of fraud, extortion, bribery, misappropriation and/or embezzlement’ committed during the 1990s." United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F.Supp.2d at 85 (quoting Am. Compl. ¶¶ 1, 10).

When Lazarenko filed a motion to dismiss this case for lack of subject matter jurisdiction and for failure to state a claim under Rule 12(b) of the Federal Rules of Civil Procedure, he argued in part that the Court lacked jurisdiction over the alleged conduct abroad. See All Assets I, 571 F.Supp.2d at 10 n.8, 12–13. In 2008, the Court denied Lazarenko's motion, briefly discussing extraterritoriality. Id. at 10 n.8. Lazarenko now argues that recent Supreme Court precedent requires the Court to dismiss or narrow all of the United States' alleged claims. Mot. at 1–2. Lazarenko filed this motion in light of the Supreme Court's decisions in Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010), which announced a new framework for determining whether a federal statute applies extraterritorially, and Skilling v. United States, 561 U.S. 358, 408, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010), which held that 18 U.S.C. § 1346, the honest services fraud statute, prohibits only bribery-and-kickback schemes and not conflict-of-interest schemes. The Court permitted supplemental briefing after the Supreme Court issued its decision in RJR Nabisco, Inc. v. European Community, ––– U.S. ––––, 136 S.Ct. 2090, 2102, 195 L.Ed.2d 476 (2016), in which the Supreme Court concluded that the Racketeer Influenced and Corrupt Organizations Act ("RICO") applies extraterritorially in limited circumstances.

A. Overview of Claims

The United States brings eight claims for forfeiture under two general categories. The First, Second, Third, and Fourth Claims allege direct forfeiture of criminal proceeds pursuant to 18 U.S.C. § 981(a)(1)(C), which provides for the direct forfeiture of proceeds from the violation of certain enumerated criminal statutes or "any offense constituting ‘specified unlawful activity’ " as defined by 18 U.S.C. § 1956(c)(7). See Am. Compl. ¶¶ 120–39. The Fifth, Sixth, Seventh, and Eighth Claims allege forfeiture of property involved in money laundering violations pursuant to 18 U.S.C. § 981(a)(1)(A), which provides for, among other things, the forfeiture of any real or personal property involved in or traceable to a violation of 18 U.S.C. §§ 1956 and 1957. See Am. Compl. ¶¶ 140–55. The United States alleges that all defendants in rem are subject to forfeiture under any of the alleged claims. See id. ¶¶ 124, 129, 134, 139, 143, 147, 151, 155.

1. Section 981(a)(1)(C) Direct Forfeiture Claims

The direct forfeiture claims allege that the defendant properties constitute or are derived from proceeds traceable to violations of four offenses that are considered "specified unlawful activity" under 18 U.S.C. § 1956(c)(7). See 18 U.S.C. § 981(a)(1)(C). The three offenses for which a part of the criminal conduct allegedly occurred in the United States are: interstate transportation and receipt of property stolen or taken by fraud, in violation of 18 U.S.C. §§ 2314 and 2315 (First Claim); Hobbs Act extortion, in violation of 18 U.S.C. § 1951 (Second Claim); and wire fraud, including property and honest services fraud, in violation of 18 U.S.C. §§ 1343 and 1346 (Third Claim). The two foreign offenses for which direct forfeiture is alleged and authorized by law are: an offense against a foreign nation of extortion and an offense against a foreign nation of bribery of a public official, or the misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official; these offenses are specifically enumerated in 18 U.S.C. §§ 1956(c)(7)(B)(ii) and (iv) (Fourth Claim).

2. Section 981(a)(1)(A) Money Laundering Forfeiture Claims

The money laundering claims allege that the defendant properties were involved in or traceable to money laundering transactions or attempted money laundering transactions. The violations of money laundering law alleged in the Amended Complaint include: conduct designed to conceal the nature, location, source, ownership, or control of proceeds of a specified unlawful activity under 18 U.S.C. § 1956(a)(1)(B)(i) (Fifth Claim); international transportation, transmission, or transfer of proceeds of a specified unlawful activity under 18 U.S.C. § 1956(a)(2)(B)(i) (Sixth Claim); engaging in or attempting to engage in monetary transactions affecting interstate or foreign commerce with more than $10,000 in proceeds of a specified unlawful activity under 18 U.S.C. § 1957 (Seventh Claim); and conspiracy to engage in money laundering under 18 U.S.C. § 1956(h) (Eighth Claim). The United States alleges the same four predicate offenses occurring in part in the United States and the same foreign extortion predicate as in its direct forfeiture claims as a basis for the money laundering allegations. Foreign official bribery, misappropriation, theft, or embezzlement, as enumerated under 18 U.S.C. § 1956(c)(7)(B)(iv), is not alleged as a basis for the money laundering claims.²

B. Overview of Alleged Conduct

In the Amended Complaint, the United States alleges that the defendant properties are traceable to four criminal schemes. See Am. Compl. ¶¶ 1, 21–54. These schemes allege largely foreign conduct in which Lazarenko, through his position as a public official, and his associates diverted millions of dollars for his personal use. See, e.g., id. ¶¶ 6–14. The United States alleges that some negotiations took place in the United States, id. ¶ 14, and that some corporations incorporated in the United States made payments to Lazarenko and his associates, id. ¶¶ 41–42. But the primary bases for the alleged domestic conduct are numerous financial transactions to, from, and through the United States. See, e.g., id. ¶¶ 56, 64, 72, 74, 80, 83–84, 106, 111–13, 115. There are two types of transactions alleged: (1) transfers to or from accounts in the United States and (2) electronic funds transfers, or EFTs, which are routed through U.S. financial institutions.

II. LEGAL STANDARD

Lazarenko seeks a partial judgment on the pleadings or, in the alternative, partial summary judgment. Mot. at 1. The United States argues that the Court should construe Lazarenko's motion as a motion for reconsideration because these issues were presented in Lazarenko's original motion to dismiss, which the Court denied in All Assets I. Opp. at 1. The Court will consider Lazarenko's motion as a motion for partial judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure, not as a motion for reconsideration or for summary judgment, for two reasons. First, although the Court discussed issues regarding extraterritoriality in All Assets I, the Supreme Court has fundamentally changed the framework for considering extraterritoriality issues. To treat the pending motion as a motion for reconsideration would be inappropriate after the Supreme Court's decisions in Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S.Ct. 2869, and RJR Nabisco, Inc. v. European Community, 136 S.Ct. 2090. Se...