United States v. All Assets Held At Bank Julius Baer & Co. (In re Rem)

• Citation: 959 F.Supp.2d 81
• Decision Date: 12 August 2013
• 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 last valued at approximately $2 million in United States dollars, et al., Defendants in rem.

959 F.Supp.2d 81

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 (PLF).

United States District Court,

District of Columbia.

Aug. 12, 2013.

Daniel Hocker Claman, Katharine Ann Wagner, Teresa Carol Turner–Jones, U.S. Department of Justice, Washington, DC, for Plaintiff.

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

Gordon A. Greenberg, McDermott Will & Emery LLP, Los Angeles, CA, Peter Drobac, McDermott Will & Emery LLP, Palo Alto, CA, Jason A. Levine, Vinson Elkins, LLP, Washington, DC, for Eurofed Bank Limited.

OPINION

PAUL L. FRIEDMAN, District Judge.

This is a civil action, brought in rem, in which the United States seeks forfeiture of over $250 million scattered throughout bank accounts located in Antigua and Barbuda, Guernsey, Liechtenstein, Lithuania, and Switzerland. A number of people, preferring that the United States government not get this money, have intervened to prevent its forfeiture. So far, plaintiff United States has managed to dismiss from this action seven of these intervening parties and has successfully defeated a motion to dismiss the complaint.

The plaintiff now moves to dismiss from the action, for lack of standing, one more claimant: European Federal Credit Bank Limited (“Eurofed”), an Antiguan bank in liquidation. And here the plaintiff's winning streak comes to an end, because the Court concludes that Eurofed, acting by and through its appointed liquidators, has standing to contest the forfeiture of the defendant assets that are located in Antigua and Barbuda. As for the remaining assets to which Eurofed lays claim, however—those located in Lithuania and Switzerland—the Court agrees with the plaintiff that Eurofed has not demonstrated its standing to contest their forfeiture. The Court therefore will grant the plaintiff's motion in part and deny it in part.¹

I. BACKGROUND

A. Nature of the Forfeiture Action

The United States initiated this litigation in 2004, seeking the forfeiture of moneythat is allegedly traceable to a series of acts of “criminal fraud, extortion, bribery, misappropriation, and money laundering” carried out by, among others, Pavel Ivanovich Lazarenko, a.k.a. Pavlo Lazarenko, 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. Am. Compl. ¶¶ 1, 10. According to the United States, those illegal acts, and subsequent attempts to launder the resulting criminal proceeds, involved the transfer of large sums of U.S. dollars into and out of United States financial institutions. Id. ¶¶ 11–13. The plaintiff seeks to claim ownership of those sums of money pursuant to federal statutes that provide for the forfeiture to the United States government of funds traceable or otherwise related to criminal activity that occurred at least in part in the United States. See id. ¶ 1.

B. Eurofed and its Liquidation

As permitted by the civil forfeiture statutes, several parties filed claims in this action asserting an interest in specific property sought by the plaintiff and contesting its forfeiture. At issue here is the claim submitted by an Antiguan bank, Eurofed, which is now in the process of being liquidated under the laws of Antigua. The plaintiff alleges that, before its liquidation, Eurofed was used by Lazarenko to launder proceeds of his criminal activities. Over $100 million of the funds named as in rem defendants in the plaintiff's complaint are alleged to have been formerly held on deposit for Lazarenko's benefit at Eurofed. See Am. Compl. ¶ 5(d)-(h).

Eurofed, acting by and through its appointed liquidators (the “Liquidators”), has intervened in this action, asserting an interest in five of the specific properties being sought by the plaintiff and named in paragraphs 5(d) through 5(h) of the amended complaint:

Approximately $85.5 million in United States dollars held at Bank of Nova Scotia (Antigua) in the name of the Registrar of the High Court of Antigua & Barbuda;

Approximately $1.6 million in United States dollars held at Bank of Nova Scotia (Antigua) in the name of the Registrar of the High Court of Antigua & Barbuda;

All assets held at Credit Suisse (Geneva), in account number 0251–562927–6, in the name of European Federal Credit Bank Limited, last valued at approximately $4.8 million in United States dollars;

All assets held at Banque SCS Alliance S.A. (Geneva) in account number 5491, in the name of European Federal Credit Bank Limited, last valued at approximately $483,629.69 in United States dollars;

All assets held at Vilniaus Bankas [Lithuania] held for the benefit of European Federal Credit Bank Limited, formerly held at accounts 073721 and 073420 at Bankas Hermis in the name of European Federal Credit Bank Limited, last valued at approximately $29,344,05.35 in United States dollars.

Euro. Cl. at 3–4; see Am. Compl. ¶ 5(d)-(h). Eurofed has also asserted an interest in the plaintiff's catch-all in rem defendant: “All assets traceable to the above-mentioned proceeds and property.” Am. Compl. ¶ 5(j); see Euro. Cl. at 4.²

Because many of the arguments raised in connection with Eurofed's standing to contest the forfeiture of these assets hinge on the precise details of Eurofed's history and liquidation, a detailed account of both is necessary.

The plaintiff alleges that Lazarenko and an associate, Peter Kiritchenko, obtained a controlling interest in Eurofed in 1997, becoming majority shareholders of the bank and placing Lazarenko in control of its investment decisions. See Plaintiff's Statement of Facts (“Pl.'s Stmnt.”) ¶¶ 1, 4. Lazarenko and his criminal associates were both the bank's primary owners, the plaintiff alleges, and also its primary depositors. Id. ¶¶ 2–4. According to the plaintiff, the funds held by Eurofed on Lazarenko's behalf were spread across a number of bank accounts—one in Lazarenko's own name and six in the names of corporate entities that he allegedly controlled: Lady Lake Investments; Fairmont Group, Ltd.; Firststar Securities, Ltd.; Guardian Investment Group, Ltd.; Nemuro Industrial Group; and Orby International, Ltd. Id. ¶ 5(d). Eurofed is alleged to have held security deposits for two of these companies as well. Id.

According to the plaintiff, by the end of 1997 over $100 million of Lazarenko's money was held by Eurofed in these accounts. Pl.'s Stmnt. ¶ 4. In addition, the plaintiff alleges, approximately $1.6 million was formerly held on deposit at Eurofed in the account of Lazarenko's associate Alexander Milchenko. Id. ¶ 5(e).

Eurofed's Liquidators acknowledge that in 1997 Lazarenko obtained an ownership interest in the bank, but they profess to lack enough information to confirm that he and his associates were the majority depositors. See Eurofed's Statement of Facts (“Euro. Stmnt.”) ¶ 3. The reason for this uncertainty, they say, is that in the course of their duties they have not yet been able to determine whether the six companies allegedly affiliated with Lazarenko truly were owned or controlled by him. Id. And the funds of those six companies make up the bulk of the money at issue here: Lazarenko's personal bank account appears to have held only approximately $150,000 by 1999, while the combined value of the six companies' accounts exceeded $93 million. Moreover, the Liquidators, while seemingly acknowledging that Lazarenko exerted some influence over Eurofed's actions and was more than a mere depositor, do not concede that he exerted total control over the bank or its investment decisions. Id. ¶ 4. The Liquidators also emphasize that Eurofed held millions of dollars in deposits from third parties who had no connection with Lazarenko. Id.; see Declaration of Charles William Augustine Walwyn ¶ 6 (estimating that innocent third parties had in excess of $25 million on deposit at Eurofed when it went into liquidation).

Eurofed apparently maintained few of its deposits in Antigua itself. Instead, it established “correspondent” bank accounts in its own name at various other financial institutions around the world, in which it stored the bulk of the money deposited by its customers. See Declaration of Andrew Lewczyk, Ex. P, at 5. “These correspondent bank accounts were not held for the benefit of any particular depositor,” according to the Liquidators. “As a result, a customer's deposits were not located in any particular location or correspondent account.” Id. at 8. In other words, if hypothetical Eurofed customers Sally, Sam, and Sue each deposited $40 with Eurofed in Antigua, the bank may well have divided that $120 among four of its own correspondent bank accounts in Switzerland, Lithuania, Liechtenstein, and the United States (placing, say, $30 into each account), making it impossible to trace Sally's $40 deposit to any of Eurofed's four correspondent accounts.

In 1999, Antiguan government authorities with responsibility over financial crimes began to investigate Eurofed. Walwyn Decl. ¶ 2. That fall, the nation's Office of Drug and Money Laundering Control Policy (“ONDCP”) applied to the High Court of Justice of Antigua and Barbuda for an order freezing all Eurofed assets linked to Lazarenko. Id. The High Court granted this request in an order dated October 29, 1999, prohibiting Lazarenko and several of his associates and affiliated companies from removing any of their funds from Antigua or in any way disposing of or diminishing those funds. Id., Ex. B, at 2. The apparent basis for this restraining order was Lazarenko's criminal prosecution in Switzerland on money laundering charges, for which h...