Case 1:13-cv-06326-WHP Document 708 Filed 05/10/17 Page 1 of 23
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`UNITED STATES OF AMERICA,
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`Plaintiff,
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`v.
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`PREVEZON HOLDINGS, LTD., et al.,
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`Defendants.
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`WILLIAM H. PAULEY III, United States District Judge:
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`Prevezon Holdings Ltd. and affiliated entities (“Prevezon”) move for summary
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`judgment.1 For the following reasons, Prevezon’s motion is denied.
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`BACKGROUND
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`This civil forfeiture action arises from the laundering of proceeds derived from a
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`$230 million fraud in Russia, a portion of which was used to purchase real estate in Manhattan.
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`Beginning in 2007, a Russian criminal organization (the “Organization”) orchestrated an
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`elaborate hoax designed to defraud the Russian Treasury into issuing tax refunds totaling $230
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`million (the “Russian Treasury Fraud”). The opening act of the Russian Treasury Fraud
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`involved a raid on the Moscow offices of Hermitage Capital Management (“Hermitage”) and its
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`law firm, Firestone Duncan. The purpose of that illegal raid was to obtain corporate documents
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`and seals belonging to Hermitage’s portfolio companies—OOO Rilend, OOO Parfenion, and
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`OOO Makhaon (the “Portfolio Companies”). In the aftermath of the raid, the Russian
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`1
`This Opinion and Order also addresses the arguments set forth in the Government’s Motion In Limine
`No. 2 (ECF No. 596), which raises substantially similar issues.
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`No. 13-cv-6326 (WHP)
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`OPINION & ORDER
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`Case 1:13-cv-06326-WHP Document 708 Filed 05/10/17 Page 2 of 23
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`Federation’s Interior Ministry rebuffed Hermitage and its trustee HSBC Guernsey’s attempt to
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`recover the corporate documents.
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`In the meantime, the Organization used the corporate documents to transfer
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`ownership of the Portfolio Companies from HSBC Guernsey’s shareholding vehicles—held in
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`trust for Hermitage—to a Russian company owned by a member of the Organization. The
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`Organization then orchestrated a series of sham lawsuits against the Portfolio Companies,
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`claiming that those companies had breached contracts that were forged and backdated. Those
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`litigations resulted in default judgments against the Portfolio Companies totaling $973 million.
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`Then, the Organization used those default judgments to apply for tax refunds
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`claiming that such judgments were equal to the profits the Portfolio Companies had realized in
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`the tax year. Members of the Organization who worked at the Russian Federation tax offices
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`approved the Organization’s applications and granted refunds totaling $230 million. In its
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`closing act, the Organization laundered the proceeds through a Byzantine web of conduit
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`accounts. Eventually, approximately $1.9 million made its way into Prevezon’s account, and
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`was used to purchase apartments in Manhattan.
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`This action has a rather convoluted history that includes a year-long trip to the
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`Second Circuit, re-assignment to another district judge, and the disqualification of Prevezon’s
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`prior counsel on the eve of trial. With the trial date looming, Prevezon re-asserts its earlier
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`claims that the Government lacks any evidence giving rise to a genuine issue of material fact.
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`I.
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`Standard
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`DISCUSSION
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`Summary judgment should be granted only “if the pleadings, depositions, answers
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`to interrogatories, and admissions on file, together with the affidavits, if any, show that there is
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`2
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`Case 1:13-cv-06326-WHP Document 708 Filed 05/10/17 Page 3 of 23
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`no genuine issue as to any material fact and that the moving party is entitled to judgment as a
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`matter of law.” Fed. R. Civ. P. 56(c). A fact is material “if it might affect the outcome of the
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`suit under the governing law.” Holtz v. Rockefeller & Co., 258 F.3d 62, 69 (2d Cir. 2001). A
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`dispute regarding a material fact is genuine “if the evidence is such that a reasonable jury could
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`return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
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`(1986).
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`The moving party bears “the initial burden of establishing the absence of any
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`genuine issue of material fact, after which the burden shifts to the nonmoving party to establish
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`the existence of a factual question that must be resolved at trial.” United States v. U.S. Currency
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`in Amount of Two Hundred Forty Eight Thousand Four Hundred Thirty Dollars, 2004 WL
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`958010, at *2 (E.D.N.Y. Apr. 14, 2004). The nonmoving party must “do more than simply show
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`that there is some metaphysical doubt as to the material facts,” Matsushita Elec. Indus. Co. v.
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`Zenith Radio Corp., 475 U.S. 574, 586 (1986), and “may not rely on conclusory allegations or
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`unsubstantiated speculation.” Scotto v. Alemenas, 143 F.3d 105, 114 (2d Cir. 1998). If there is
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`any evidence in the record “from any source from which a reasonable inference could be drawn
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`in favor of the nonmoving party, summary judgment is improper.” Chambers v. TRM Copy
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`Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994).
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`II.
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`Specified Unlawful Activities
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`To prove its money laundering claim, the Government must demonstrate “(1) that
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`the defendant conducted a financial transaction; (2) that the transaction in fact involved the
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`proceeds of specified unlawful activity as defined in § 1956(c)(7); and (3) that the defendant
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`knew that the property involved in the financial transaction represented the proceeds of some
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`form of unlawful activity.” Tymoshenko v. Firtash, 57 F. Supp. 3d 311, 322 (S.D.N.Y. 2014)
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`3
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`Case 1:13-cv-06326-WHP Document 708 Filed 05/10/17 Page 4 of 23
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`(alterations omitted). The Government offers evidence of four specified unlawful activities
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`(“SUAs”): (1) fraud against a foreign bank; (2) transportation of stolen property; (3) bribery of a
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`public official; and (4) successive money laundering transactions.2
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`A. Fraud Against a Foreign Bank3
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`Prevezon principally contends that the fraud alleged by the Government is not a
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`fraud against HSBC, but rather a fraud against the Russian Treasury. (Mot. at 7.) “The well
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`established elements of the crime of bank fraud are that the defendant (1) engaged in a course of
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`conduct designed to deceive a federally chartered or insured financial institution into releasing
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`property; and (2) possessed an intent to victimize the institution by exposing it to actual or
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`potential loss.” United States v. Barrett, 178 F.3d 643, 647–48 (2d Cir. 1999). A scheme to
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`defraud, while “not capable of precise definition” is commonly known as “wronging one in his
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`property rights by dishonest methods or schemes, and usually signif[ies] the deprivation of
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`something of value by trick, deceit, chicanery or overreaching.” United States v. Stavroulakis,
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`952 F.2d 686, 694 (2d Cir. 1992).
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`According to Prevezon, if HSBC was the victim of any crime arising from the
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`raid, it was not fraud, but theft of its Portfolio Companies. Prevezon maintains that there is no
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`evidence to prove any of the elements of bank fraud—no deceptive conduct was directed at
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`The Government acknowledges that without independently proving some other SUA, the original money
`laundering offense giving rise to subsequent money laundering transactions would not exist. (See Prevezon Memo.
`of Law in Support of Summary Judgment (“Mot.”), at ECF No. 575, at 6, n.6.)
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`Prevezon claims that HSBC is not a “foreign bank” under the SUA because “the HSBC Entities, in their
`roles as trustee, manager and investor, were not engaged in the core functions of a banking system.” (Mot. at 11 n.8
`(internal quotation marks and citations omitted).) But under the relevant provision’s definition, HSBC qualifies as a
`“foreign bank (as defined in paragraph 7 of section 1(b) of the International Banking Act of 1978),” including “any
`subsidiary or affiliate” of any foreign company “which engages in the business of banking.” 18 U.S.C. §
`1956(c)(7)(B)(iii) (citing 12 U.S.C. § 3107(7)). The HSBC entities at issue here—HSBC Private Bank (Guernsey)
`Limited (as trustee); HSBC Management (Guernsey) Ltd. (as manager); and HSBC Private Bank (Suisse) S.A. (as
`investor)—are subsidiaries or affiliates controlled by the HSBC Group, which is engaged in the business of banking.
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`HSBC; HSBC was not induced to rely on any misrepresentations; and none of the perpetrators
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`knew that HSBC would be harmed as a result of their actions.
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`The scheme “to obtain funds from a bank depositor’s account normally is also a
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`scheme fraudulently to obtain property from a financial institution, at least where . . . the
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`defendant knew that the bank held the [property], the [property] came from the [customer’s
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`account], and the defendant misled the bank in order to obtain” such property. United States v.
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`Shaw, 137 S. Ct. 462, 466 (2016). The bank itself need not be harmed as a result of the
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`fraudulent scheme. Shaw, 137 S. Ct. at 467. Nor is the Government required to prove that the
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`defendant engaged in the fraud with actual knowledge that the bank has an interest in the
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`fraudulently obtained property, Shaw, 137 S. Ct. at 467 (“[t]o require more, i.e., to require actual
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`knowledge of those bank-related property-law niceties, would free (or convict) equally culpable
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`defendants”), or that the purpose of the fraud was to harm the bank. Shaw, 137 S. Ct. at 464–65
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`(“no relevant authority supporting the view that the bank fraud statute criminalizing the
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`‘knowing execution of a scheme to defraud’ requires something more than knowledge”)
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`(alterations omitted).
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`Here, understanding HSBC’s distinct role as trustee (among others) of Hermitage
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`and its companies is critical to determining whether it was the victim of bank fraud. HSBC
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`Guernsey served as the trustee to Hermitage. (Statement of Undisputed Material Facts (“SUF”),
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`ECF No. 574, at ¶¶ 3–4, 6).) As trustee, HSBC Guernsey owned the Portfolio Companies
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`through two shareholding vehicles, whose ownership interests were fraudulently re-registered to
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`members of the Organization following the raid. (Counter Statement of Undisputed Material
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`Facts (“Counter SUF”), ECF No. 613, at ¶ 7.) Therefore, while Hermitage certainly had an
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`interest in protecting the Portfolio Companies from the Organization, HSBC Guernsey, in its
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`fiduciary capacity as trustee to Hermitage, and as the legal owner of the Portfolio Companies,
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`had a vested interest in combating the Organization’s fraudulent scheme.
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`The Government claims that misrepresentations were directed at HSBC in two
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`ways. First, members of the Organization falsely represented to Hermitage and Firestone
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`Duncan that the Russian Federation authorized them to raid Hermitage’s offices and seize
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`evidence pertaining to an entity unrelated to the Portfolio Companies. That misrepresentation,
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`according to the Government, formed the basis under which Hermitage and Firestone Duncan
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`consented to the raid. And such misrepresentations were also directed at HSBC by virtue of its
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`agency relationship with Hermitage and Firestone Duncan. (Gov’t Memo. of Law in Opposition
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`to Summary Judgment (“Opp.”), ECF No. 612, at 4.) Second, following the raid, the
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`Government contends that the Organization deceived HSBC by misrepresenting its ownership
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`interest in the Portfolio Companies, obstructing HSBC’s efforts to object to the sham lawsuits,
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`and assuring HSBC that the Portfolio Companies’ corporate documents had not been provided to
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`other parties. (Opp. at 5–6.)
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`Had the Organization’s fraud ended with the illegal raid, the Government’s
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`contention that HSBC was the victim of a fraud—based solely on HSBC’s agency relationship
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`with Hermitage and Firestone Duncan—would be substantially weakened. But the raid was
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`merely the opening act of the fraud. The concatenation of events following the raid precipitated
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`the fraudulent $230 million tax refund. “[A]cts of perpetration” and subsequent “acts of
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`concealment” in wide ranging, complex frauds are often “one and the same.” Sec. Exchange
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`Comm’n v. Wyly, 950 F. Supp. 2d 547, 556 (S.D.N.Y. 2013); see also In re Rosenfeld, 543 B.R.
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`60, 72 (Bankr. S.D.N.Y. 2015) (“concept of false pretenses has been broadly construed by the
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`courts. It typically is found to be the product of multiple events, acts, or representations
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`undertaken pursuant to a scheme of trickery, deceit, chicanery, or overreaching.”). Sham
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`lawsuits, and deflecting Hermitage and HSBC’s efforts to stop them, were critical features of the
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`Russian Treasury Fraud. Here, the post-raid deceptive conduct is more direct—the Organization
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`falsely assured HSBC that the Portfolio Companies’ documents had not been manipulated or
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`shared with other parties when, in fact, they were used to hijack HSBC’s ownership interest.
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`(Counter SUF ¶ 17–18 (citing Declaration of Cristine I. Phillips (“Phillips Decl.”), ECF No. 614,
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`Exs. 3, 5; Declaration of Todd Hyman (“Hyman Decl.”), ECF No. 615, Exs. 2, 7–8).) These
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`misrepresentations or omissions of fact were directed at HSBC and its representatives as part of a
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`continuing, fraudulent scheme culminating in the diaspora of the $230 million refund in the
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`alleged money laundering network.
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`Those facts, taken together, suffice to establish that the “scheme [was one] to
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`deceive the bank and deprive it of something of value.” Shaw, 137 S. Ct. at 469. While the
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`scheme may have deceived and injured other parties—including, e.g., Hermitage, the Portfolio
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`Companies, the Russian Treasury—HSBC also was deceived. Municipality of Bremanger v.
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`Citigroup Global Mkts. Inc., 2013 WL 1294615, at *19 (S.D.N.Y. Mar. 28, 2013), aff’d sub
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`nom. Mun. Corp. of Bremanger v. Citigroup Global Mkts. Inc., 555 Fed. Appx. 85 (2d Cir. 2014)
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`(“principal may recover for misrepresentations relied on by an agent” so long as reliance is
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`reasonable); Fed. Dep. Ins. Corp. v. Hodge, 50 F. Supp. 3d 327, 337–38 (E.D.N.Y. 2014)
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`(“Atlas, in the normal course of business, did make representations to the agents of banks, if not
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`the banks themselves.”); Jay Dees Inc v. Defense Tech. Sys., Inc., 2008 WL 4501652, at *5
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`(S.D.N.Y. Sept. 30, 2008) (“There is no reason why a misrepresentation to the plaintiff’s agent
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`does not suffice.”). While Prevezon characterizes the raid as a theft, the Government offers
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`evidence that HSBC and Firestone Duncan only consented to the raid because members of the
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`Organization misrepresented its purpose. (Counter SUF ¶¶ 17–18.) If true, such
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`misrepresentations could convert an ordinary theft into a fraud.
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`Prevezon’s other arguments fare no better. The Government offers evidence that
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`the Organization attempted to induce HSBC and its agents into relying on misrepresentations
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`about the raid. (Phillips Decl. Exs. 3 at 65:3–69:11, Ex. 4, Ex. 5 at 89:7–90:13.) Other evidence
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`also indicates that the Organization sought to induce reliance on post-raid misrepresentations
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`regarding the use of the Portfolio Companies’ documents. (Hyman Decl. Exs. 7–8.) All that
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`Shaw requires for purposes of establishing bank fraud is that the Organization “correctly
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`believe[d] that [its] false statements would lead [HSBC] to release from [its possession property]
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`that ultimately and wrongfully ended up in” the Organization’s pockets. Shaw, 137 S. Ct. at 467.
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`Here, HSBC’s agents may have been induced—under false pretenses—to allow the Organization
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`to take the Portfolio Companies’ documents. Subsequently, HSBC itself may have been induced
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`into acquiescing to the Organization’s retention of the documents, or at the very least, lulled into
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`believing that no further action was necessary. But whether HSBC or its agents were actually
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`induced is immaterial—indeed, all that was required is that the Organization made a false
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`representation, “[knew] it to be false, but intending that the other should believe and act upon it.”
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`Shaw, 137 S. Ct. at 467 (quoting Oliver Wendell Holmes, THE COMMON LAW 132 (1881)).
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`Finally, while Prevezon claims that the perpetrators did not “kn[o]w or ha[ve] any
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`reason to know that the HSBC Entities would be harmed,” the post-raid events raise a question
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`of material fact regarding their knowledge. While members of the Organization may not have
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`been aware of HSBC’s involvement at the time of the raid, they likely were alerted to HSBC’s
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`ownership interest when HSBC sought to intervene in the sham proceedings. That the
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`Organization made a series of misrepresentations to hinder HSBC’s ability to reclaim ownership,
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`or to deceive HSBC into believing that its interests were not in jeopardy, presents an issue of
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`material fact central to whether the Organization knew that HSBC would be harmed. (Counter
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`SUF ¶ 17 (citing Phillips Decl. Exs. 3–5; Hyman Decl. Exs. 2, 7–8).) This is a quintessential
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`jury question.
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`B. Transportation of Stolen Property
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`The Government alleges that 18 U.S.C. § 2314—a statute criminalizing the
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`transportation of property stolen or taken by fraud—constitutes an SUA in support of its money
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`laundering claim. Four transfers of funds allegedly processed, in part, by U.S. bank accounts
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`comprise the core of this SUA (the “Four Transfers”).
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`Prevezon disputes the domestic nature of the Four Transfers, highlighting the fact
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`that they occurred exclusively among foreign companies using foreign bank accounts. (Mot. at
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`12.) Although the transfers were processed, in part, by correspondent bank accounts in the
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`United States, Prevezon argues that the incidental use of such accounts does not create the
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`domestic nexus necessary to qualify as transfers under § 2314. (Mot. at 13.) The Government
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`counters that the Four Transfers moved through the United States (Hyman Decl. Exs. 15–18)
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`between their origination and destination accounts, and therefore are domestic conduct sufficient
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`to invoke § 2314’s application.
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`Although the text of § 2314 references transportation of property in interstate or
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`“foreign commerce,” that language alone is insufficient to rebut the presumption against
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`extraterritoriality. See Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 248 (2010). If a statute
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`does not, by its terms, apply to extraterritorial conduct, a court must determine which “territorial
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`events or relationships [are] the focus” of the statute. Mastafa v. Chevron Corp., 770 F.3d 170,
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`183 (2d Cir. 2014). Section 2314’s “focus . . . is the transportation or transfer of property.”
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`United States v. All Assets Held at Bank Julius, 2017 WL 1508608, at *12 (D.D.C. Apr. 27,
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`2017). In “enacting 18 U.S.C. § 2314, Congress was primarily concerned with the movement of
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`stolen property across state lines.” Bank Julius, 2017 WL 1508608, at *12 (citing Dowling v.
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`United States, 473 U.S. 207, 218–20 (1985)).
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`To “displace[] the presumption” against extraterritoriality, the relevant conduct
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`must have “sufficiently touch[ed] and concern[ed] the territory of the United States.” Licci by
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`Licci v. Lebanese Canadian Bank, SAL, 834 F.3d 201, 215 (2d Cir. 2016) (internal citations and
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`quotation marks omitted). Whether a “complaint passes jurisdictional muster [] depends upon
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`alleged conduct by anyone—U.S. citizen or not—that took place in the United States,” and that
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`conduct must be assessed under the lens of the charging statute. Mastafa, 770 F.3d at 189 (“full
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`‘focus’ of the [Alien Tort Statute] was on conduct.”); RJR Nabisco, Inc. v. European Cmty., 136
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`S. Ct. 2090, 2101 (2016) (“If the conduct relevant to the statute’s focus occurred in the United
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`States, then the case involves a permissible domestic application even if other conduct occurred
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`abroad.”).
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`The use of correspondent banks in foreign transactions between foreign parties
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`constitutes domestic conduct within § 2314’s reach, especially where bank accounts are the
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`principal means through which the relevant conduct arises. Other courts have construed the use
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`of correspondent banks in the United States as “touch[ing] and concern[ing] the United States so
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`as to displace the presumption” against extraterritoriality. Mastafa, 770 F.3d at 186. In Licci,
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`for example, the Second Circuit held a “correspondent banking account in New York [used] to
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`facilitate dozens of international wire transfers,” which “totaled several million dollars” and
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`“substantially increased and facilitated [a terrorist organization’s] ability to” execute attacks
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`established a “sufficient connection[] with the United States” under the Alien Tort Statute. 834
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`F.3d at 206, 215. In United States v. Zarrab, 2016 WL 6820737, at *3 (S.D.N.Y. Oct. 17, 2016),
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`the court held that the use of “an international wire transfer from the U.A.E. to a Canadian
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`company . . . processed by a United States bank” was sufficiently domestic for purposes of
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`prosecuting the defendant for a conspiracy to defraud the United States. And in Mastafa, the
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`foreign bank’s role in conducting “numerous New York-based payments and financing
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`arrangements [] exclusively through a New York bank account” was sufficiently specific and
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`domestic to establish jurisdiction. 770 F.3d at 191.
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`The relevant conduct in this action is the “provision of wire transfers between
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`[foreign entities and their foreign accounts] through [their] correspondent bank[s] in New York.”
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`Licci, 834 F.3d at 215. In other words, while each of the Four Transfers was initiated,
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`transmitted, and received by a foreign bank, each was processed by New York banks. For
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`example, on February 6, 2008, approximately $410,000 was transferred from an account at a
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`Moldovan bank to Prevezon’s account at a Swiss bank (SUF ¶¶ 65, 69, 72, 73, 78, 79), but in
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`effecting that transfer, two U.S. banks processed the wires—Citibank in New York, New York
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`and UBS in Stamford, Connecticut—before routing the transfer to Prevezon’s Swiss account.
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`(See Hyman Decl. Exs. 15–18.)
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`The Four Transfers touch and concern the United States because the U.S.
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`correspondent banks were necessary conduits to transport proceeds allegedly derived from the
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`Russian Treasury Fraud. The use of such accounts is not trivial because the Four Transfers could
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`not have been completed without the services of these U.S. correspondent banks. Indeed,
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`international wire transfers do not merely “ricochet” off of U.S. correspondent banks. (See Mot.
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`at 15.) Rather, each transfer requires “two separate transactions that cross the U.S. border”—
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`“once upon entering a U.S. account and once upon exiting a U.S. account.” Bank Julius, 2017
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`WL 1508608, at **13, 18. And because the focus of § 2314 is on the transportation of stolen
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`proceeds, the use of the correspondent banks—as indispensable conduits—suffices to invoke the
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`statute’s application.
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`Moreover, that no wrongdoer purposefully availed himself of the services of a
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`U.S. bank—or knew that such banks were being used—is irrelevant. Adopting such an
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`interpretation would frustrate the purpose of § 2314 and render the “use of U.S. financial
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`institutions as clearinghouses for criminals.” Bank Julius, 2017 WL 1508608; cf. Weiss v. Nat’l
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`Westminster Bank PLC, 176 F. Supp. 3d 264, 279 (E.D.N.Y. 2016) (“A foreign bank’s repeated
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`use of a correspondent account in New York on behalf of a client . . . shows purposeful
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`availment of New York’s dependable and transparent banking system.”) (internal citations and
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`quotation marks omitted). In fact, aside from physically carrying currency across the U.S.
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`border, it is hard to imagine what types of domestic conduct other than use of correspondent
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`banks could be alleged to displace the presumption against extraterritoriality in a statute
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`addressing the transportation of stolen property. Accordingly, Prevezon’s motion for summary
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`judgment on this SUA is denied.
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`C. Bribery of a Foreign Official
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`The Government’s third SUA—the “bribery of a public official, or the
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`misappropriation, theft, or embezzlement of public funds by or for the benefit of a public
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`official” (18 U.S.C. § 1956(c)(7)(B)(iv))—is tied largely to significant kickback payments to
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`Vladden Stepanova, the ex-husband of the Russian tax official, Olga Stepanova, who allegedly
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`approved the $230 million refund. Prevezon maintains that the funds in the accounts of Mr.
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`Stepanova’s two companies—Arivust Holdings and Aikate Properties—cannot be traced to
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`Russian Treasury Fraud because the Government’s expert “admitted that the supposedly tainted
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`funds” had “actually been previously disbursed to other entities” before the kickback payments
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`were made. (Mot. at 16.) Put another way, because none of the tainted funds can be attributed to
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`either Arivust or Aikate’s accounts, Prevezon contends that the Government cannot prove
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`misappropriation of public funds for the benefit of a public official. Further, Prevezon claims
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`that Ms. Stepanova could not have benefited from the payment because she has been divorced
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`from Mr. Stepanova for more than twenty years.
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`At bottom, a genuine dispute of material fact exists regarding the origins of the
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`supposed kickback payments and the nature of the Stepanovas’ relationship. In view of this
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`Court’s decision to admit bank records (see ECF No. 703), the jury may reasonably infer that
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`tainted funds were wired for Mr. Stepanova’s benefit. The jury may consider the Government’s
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`tracing analysis, which reveals, for example, that the intermediary account’s balance prior to the
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`Arivust transfer only dipped below zero because its funds were transferred to a linked short-term
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`fiduciary investment account. (Counter SUF ¶¶ 82–84.) With such evidence, the jury may
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`reasonably conclude that the intermediary account did not disburse the tainted funds before
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`making a transfer to Arivust and Mr. Stepanova.
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`Moreover, the Stepanovas’ relationship, even after the apparent dissolution of
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`their marriage, raises a genuine issue of material fact. Whether the Stepanovas remain
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`sufficiently close to benefit each other is a jury question. (See Counter SUF ¶ 85.)
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`D. Money laundering predicate
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`The Government alleges each successive phase of the purported money
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`laundering scheme qualifies as an SUA. The money laundering predicate cannot exist as an
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`independent SUA, but may only be added if another SUA is proven. Because this Court denies
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`summary judgment on the SUAs involving fraud against a foreign bank, transportation of stolen
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`Case 1:13-cv-06326-WHP Document 708 Filed 05/10/17 Page 14 of 23
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`property, and bribery of a foreign official, the successive money laundering acts may be
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`considered as an additional SUA. To the extent Prevezon argues that the successive money
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`laundering acts are not an SUA because earlier transfers of illegal proceeds “occurred outside the
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`United States,” (Mot. at 6 n.3) this Court holds that the use of U.S. correspondent banks to
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`launder illegal proceeds qualifies as domestic conduct.
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`“Congress enacted the money laundering statute to criminalize the use of United
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`States financial institutions as clearinghouses for criminal money laundering and conversion into
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`United States currency.” Bank Julius, 2017 WL 1508608, at *9. Transferring “millions of
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`dollars to and from accounts in the United States and between foreign bank accounts as
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`[electronic fund transfers] that pass[] through U.S. financial institutions” is precisely the type of
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`conduct that “Congress intended to prevent in enacting the money laundering statutes” and is
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`“conduct that fits well within the statute’s requirement of conduct that occurs in part in the
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`United States.” Bank Julius, 2017 WL 1508608, at *9.
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`III. Tracing Analysis
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`A. Tracing Assumptions
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`Prevezon further contends that it is entitled to summary judgment because there is
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`no evidence that the “accounts between the Russian Treasury and Prevezon in the Government’s
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`tracing map, or any of the unknown persons who controlled those accounts, were connected to
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`the Russian Treasury Fraud or intended to launder its proceeds.” (Mot. at 20–21; Reply at 9; Tr.
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`at 30:24–31:2 (“you can’t identify money laundering simply because it looks like money
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`laundering without any evidence that somebody intended to launder money.”).) And because the
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`Government’s tracing report rests on a flawed analysis identifying the intervening transactions
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`based on nothing more than its expert’s belief that they bore “indicia of money laundering,”
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`Prevezon contends that the Government is foreclosed from applying the money laundering
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`principles it needs to trace each transfer to Prevezon (Mot. at 22; Reply at 9 n.9.)
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`Under 18 U.S.C. § 1956, the Government is required to prove that transporting
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`proceeds derived from the Russian Treasury Fraud was “designed, at least in part, to conceal or
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`disguise their true nature, location, source, ownership, or control.” Cuellar v. United States, 553
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`U.S. 550, 562 (2008) (internal quotation marks omitted). While the “secretive aspects of the
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`transportation [are] employed to facilitate the transportation,” that “secrecy [must be] the
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`purpose of the transportation.” Cuellar, 553 U.S. at 567. In other words, “how one moves the
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`money is distinct from why one moves the money. Evidence of the former, standing alone, is not
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`sufficient to prove the latter.” Cuellar, 553 U.S. at 566.
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`The purpose and intent elements may be established by circumstantial proof.
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`United States v. Huezo, 546 F.3d 174, 181 (2d Cir. 2008) (“circumstantial evidence [] presented
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`was sufficient for a rational juror to infer that [defendant] had the requisite criminal knowledge
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`and intent to support his convictions for money laundering and conspiracy to commit money
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`laundering.”); Cuellar, 553 U.S. 567 n.8 (“In many cases, a criminal defendant’s knowledge or
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`purpose is not established by direct evidence but instead is shown circumstantially based on
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`inferences drawn from evidence of effect.”).
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`The Government offers circumstantial evidence that the money laundering
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`scheme was designed to conceal the illegal nature and source of the $1.9 million at issue. First,
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`the suspicious timing of transactions—that “transactions in [bank] account[s] occurred in
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`temporal proximity to the charged money laundering conspiracy”—is one form of circumstantial
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`evidence that can prove intent. United States v. Diaz, 2008 WL 4387209, at *1 (S.D.N.Y. Sept.
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`26, 2008). Here, some of the accounts of the conduit entities were opened a few months before
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`the transfers at issue, at the same bank on the same day. (Hyman Decl. Exs. 38–39).)
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`Second, both Megacom Transit and Castlefront—two intermediary accounts—had
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`“strikingly similar pattern[s] of activity in their bank accounts.” (Opp. at 22.) The majority of
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`their incoming transfers came from three senders, one of whom routed money from an account at
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`a bank designated by the U.S. Treasury as money laundering concern. (Hyman Decl. 40–43.);
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`see also Diaz, 2008 WL 4387209, at *1 (“money was deposited in the [] account from a variety
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`of sources”). Further, the funds that Megacom Transit and Castlefront received from these three
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`senders were substantially identical in date and amount (see Hyman Decl. Exs. 42–43) raising an
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`inference that they were parceled into smaller transactions and allocated between Megacom
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