We won. That was the claim from all parties after a civil case involving allegations of Russian money laundering ended this month. Joon H. Kim, Acting United States Attorney for the Southern District of New York, announced that the case had settled just before the trial was set to begin. The case was initially brought in 2013.
The case, United States of America v. Prevezon Holdings Ltd. et al (1:13-cv-06326-WHP), was initiated by then acting U.S. Attorney Preet Bharara, who was fired by President Donald Trump in March. Bharara acknowledged the settlement, tweeting:
Congrats to Joon & team in Russian money laundering case (underlying fraud uncovered by Sergei Magnitsky, died suspiciously in Moscow jail).
The original complaint alleged that the defendants laundered some of the proceeds of a multi-million dollar Russian tax fraud scheme through a series of transfers and ultimately, the purchase of real estate in Manhattan.
The underlying tax fraud scheme was discovered following a 2007 raid on the Moscow office of Hermitage Capital Management. Hermitage and its principals were accused of tax evasion despite their belief that the company had actually paid more than they needed. Sergei Magnitsky, the Russian lawyer referenced in Bharara’s tweet, was hired by Hermitage to find out what happened. Magnitsky eventually came to believe that the fraud wasn’t happening at Hermitage but was directed from Russia’s own government. He accused police, judges, corporate owners, and the Russian mafia of contributing to, and in some instances, directing the fraud.
Magnitsky’s accusations were not well-received and eventually he was thrown into a Moscow prison on tax fraud charges. He died in custody just before his trial at the age of 37. According to Russian officials, Magnitsky’s cause of death was acute heart failure and toxic shock, caused by untreated pancreatitis. Magnitsky’s family, however, says that he was denied medical treatment while in prison; those allegations were confirmed by Russia’s Presidential Human Rights Council, which also found that Magnitsky had been tortured.
(You can read my previous story about Magnitsky here.)
Another attorney, Nikolai Gorokhov, was retained in 2011 to represent Hermitage’s founder William Browder, as well as Magnitsky’s family. Browder, who founded Hermitage in 1996, was, at one point, considered the largest private foreign investor in Russia.
But things didn’t go well for Gorokhov either. Last month, Gorokhov was seriously injured after falling out of a window in his Moscow apartment building. Gorokhov had fallen just one day before he was scheduled to appear in a Moscow court to testify about what he knew about Hermitage and Magnitsky. It appears that someone didn’t want that information made public. Russian news organizations have reported that Gorokhov fell while helping movers carry a hot tub into his apartment while Browder says that it was “not an innocent act.”
Gorokhov was also a key witness for the U.S. government in the suit against Prevezon Holdings. The suit never made it to trial, settling one business day before opening arguments.
(You can read my previous story about Gorokhov here.)
As part of the settlement, Prevezon Holdings Ltd. has agreed to pay $5,896,333.65 to resolve claims against the defendants. According to the U.S. Department of Justice, that amount is three times the value of the proceeds that the government alleges could be traced directly from the tax fraud to the defendants ($1,965,444.55) and more than ten times the amount that the government alleges could be traced directly to property in Manhattan (approximately $582,000).
Prevezon did not admit any wrongdoing as part of the settlement. In a statement from Moscow, the company said: “From the outset, Prevezon and its owner Denis Katsyv have maintained their innocence and have repeatedly stated that they had no involvement in or knowledge of any fraudulent activities and never received any funds from any criminal activity.”
Prevezon also claimed in the statement that the U.S. Government “brought this case without conducting any independent investigation, relying exclusively on the claims of William Browder.” Nonetheless, Prevezon said that it agreed to settle “to avoid the exorbitant costs of additional litigation.” Additionally, Prevezon says that “the U.S. Government has agreed that Prevezon’s payment does not constitute a forfeiture or penalty long sought by the Government.”
The company added that “[t]hroughout this case, Prevezon and Mr. Katsyv have been appalled by the steady stream of false narratives in the U.S. media about this case, and look forward to resuming their legitimate business activities around the world.”
The case against Prevezon was a civil matter and not a criminal matter. U.S. Attorney Kim said, about the settlement:
We will not allow the U.S. financial system to be used to launder the proceeds of crimes committed anywhere – here in the U.S., in Russia, or anywhere else. Under the terms of this settlement, the defendants have agreed to pay not just what we alleged flowed to them from the Russian treasury fraud, but three times that amount, and roughly 10 times the money we alleged could be traced directly into U.S. accounts and real estate.
Without a trial, of course, the exact trail of funds was not made public and the actors involved did not have their day in court. That may not be the case forever. According to Browder, the settlement has no impact on other pending matters around the world, including a current criminal case in Switzerland. He called the settlement an “excellent result” and says that it could serve as a green light to others who are aggressively pursuing the case around the world.Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.