A major money-laundering case set to go to trial last week in New York was suddenly settled three days earlier, with both the US government and the defendant, the Russian firm Prevezon Holdings, claiming victory.
The asset-forfeiture and money-laundering case was scheduled to begin last Monday, but it was unexpectedly settled for close to $US6 million, a little under half of the amount initially sought by the government. The US attorney’s office characterised the settlement as a win for anti-corruption efforts in a statement issued late Friday.
“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,” said acting Manhattan US Attorney Joon H. Kim.
But Prevezon interpreted the settlement as proof that the company had done nothing wrong. It said it considered the “surprise” offer from prosecutors “too good to refuse.”
“It was a surprise,” said John Dillard, a spokesman for Prevezon’s attorneys. “We were getting ready for opening statements and fully expected to try the case. In fact, we were looking forward to it.”
“We reluctantly agreed to accept the government’s offer when it became clear that the fine proposed was no more than we would have spent fully litigating the case, and that no admission of guilt, forfeiture or continued seizure of any assets was required,” Dillard added. “Essentially, the offer was too good to refuse.”
The investigation into whether Prevezon, a real-estate company incorporated in Cyprus, laundered millions of dollars into New York City real estate garnered high-profile attention given its ties to a $US230 million Russian tax fraud scheme and Russian lawyer Sergei Magnitsky, whose suspicious death aroused international media attention.
Magnitsky uncovered the scheme in 2008 on behalf of one of his clients at the time, the investment advisory firm Hermitage Capital. He was later thrown in jail and died in custody, and an independent human-rights commission found he had been illegally arrested and beaten. The Kremlin maintains that Magnitsky died of a heart attack.
(The founder of Hermitage, William Browder, sought justice for Magnitsky in the US and Europe after he died. In 2012, Congress passed the Magnitsky Act, which authorizes the president to deny visas to, and freeze the assets of, Russians believed to have been complicit in Magnitsky’s death.)
The US government had been investigating the $US230 million scheme that Magnitsky uncovered — and what happened to the proceeds — for nearly four years. Prosecutors said the funds from the elaborate scheme had been laundered via shell companies and real-estate purchases.
The trail ultimately led to Manhattan, where then-US Attorney Preet Bharara accused Prevezon in September 2013 of receiving “at least $US1,965,444 in proceeds from the $US230 million fraud scheme” in early 2008 via wire transfers from at least two suspected shell companies through the Southern District of New York. The company then invested those funds “in various New York properties,” according to the complaint.
The Russian government declined to provide the US government with evidence of Russian money flows that would strengthen the case against Prevezon. Nikolai Gorokhov, a lawyer representing Magnitsky’s family, was able to photograph documents contained in a Russian case file targeting two individuals involved in the $US230 million scheme that traced the money to Russia.
Gorokhov mysteriously fell from a window in Moscow just over a month before he was due to testify in the Prevezon case. But the documents he photographed were admitted into evidence just days before Prevezon agreed to settle.
The settlement came as a surprise to some. Louise Shelley, an illicit finance expert who was set to testify in support of the US government, told CNN the day after the case was settled that she was concerned about the possibility that “political pressure” had been applied to the US attorney’s office. She added that she thinks Prevezon “won something” because there was “no recognition of wrongdoing.”
Reached by Business Insider last week, however, Shelley said only: “I cannot talk about it.” She did not respond to further questions.
Jamison Firestone, Magnitsky’s law firm partner, flew into New York last week from London to serve as a government witness against Prevezon. But the case was settled shortly after he arrived.
“It was definitely my shortest trip across the pond,” Firestone told Business Insider.
“There’s a part of me that very much wanted to testify and get all this dirty stuff out there and cause maximum damage to these people and everyone who’s related to them,” Firestone said. He relayed how he had been present when the Russian government raided his law office “and beat up one of my lawyers” looking for documents related to Magnitsky’s work nearly a decade ago.
“I’ve filed complaints against some of the people involved in this whole story, I’ve seen the money flows,” Firestone said. “I have mixed feelings from a personal standpoint, but I respect the government’s decision … and it sent a strong message that if you’re going to launder money, don’t do it here.”
An official at the US attorney’s office, who requested anonymity to discuss the case freely, said that the settlement saved taxpayers “the expense of a trial,” and reiterated that the settlement was “for many multiples more than the amount of proceeds of the Russian tax fraud alleged to have been laundered through real estate purchases in New York.”
“In other words, it’s a very good outcome for the government,” the official said.
Browder, who founded Hermitage and spearheaded the Magnitsky Act, told Business Insider that “the government’s conduct was absolutely correct and successful.”
“The amount of money the US government could trace to this crime was roughly $US1.9 million,” Browder said. “It would have been a stretch, even in a good trial, for them to get the full $US14 million they were aiming for. So for the government to get triple the amount of money that they found [had been laundered] without having to go through a jury trial … it was a no brainer.”
“Any Russian with illicit money will now be terrified to bring it to America,” Browder added.
Still, not everyone was convinced that the government’s decision to settle was a good one.
“I would have liked to see the case come to a public trial so that sun could shine on the evidence and details of the alleged wrongdoing,” said John Cassara, a former intelligence officer who served in the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Office of Terrorism and Financial Intelligence.
“Periodically, we need the publicity that big ‘impact’ cases generate to heighten awareness of money laundering methodologies, corruption, and suspect modus operandi,” said Cassara, who now sits on the board of the Foundation for Defence of Democracies’ Center for Sanctions and Illicit Finance.
Cassara said he didn’t know the strength of the Justice Department’s case against Prevezon (Firestone said he thought it would have been an “easy kill” for the government) and that he is “sure they weighed the pros and cons” before opting to settle.
But, Cassara said, “three times the amount that was allegedly laundered cannot be considered a win.”
“According to estimates approximately $US5 trillion dollars is laundered globally every year. In comparison, what is $US5.9 million?” Cassara said. “We probably recover about 1% of the money laundered globally. We have to keep things in perspective. Our efforts to combat international money laundering are failing and this case did nothing to turn the tide.”
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