On October 9 2013, New York District Attorney Preet Bharara filed a criminal forfeiture court case against the Prevezon Group – an intricate web of offshore companies, which – the US Government claimed – had been the vehicle behind a $230 m international fraud and money laundering scheme. The group was owned by Denis Katsyv, son of the Vice President of Russian Railroads, a state monopoly and one of the largest companies in Russia.
Bharara’s claim summarized the case as follows:
“in 2007 the Organization, engaged in an elaborate tax refund fraud scheme resulting in a fraudulently-obtained tax refund of approximately $230 million (the “$230 Million Fraud Scheme”). As part of the $230 Million Fraud Scheme, members of the Organization stole the corporate identities of the Hermitage portfolio companies Rilend, Parfenion, and Makhaon (the “Hermitage Companies”), and then used these stolen identities to make fraudulent claims for tax refunds. In order to procure the refunds, the Organization fraudulently re-registered the Hermitage Companies in the names of members of the Organization, and then orchestrated sham lawsuits against these companies. These sham lawsuits involved members of the Organization as both the plaintiffs (representing sham commercial counterparties suing the Hermitage Companies) and the defendants (purporting to represent the Hermitage Companies). In each case, the members of the Organization purporting to represent the Hermitage Companies confessed full liability in court, leading the courts to award large money judgments to the plaintiffs.”
The rest of the case is familiar to anyone who has followed Bill Browder’s “Magnitsky” case.
The New York Attorney General invoked US jurisdiction on the case due to the activity of certain of the Pervezon companies in the US, and the ownership of assets – including real estate in Manhattan – that had been acquired with the millions in cash stolen from Russian taxpayers, in ostensible collusion with the Russian tax authorities. The prosecutor’s claim aimed to forfeit nearly 200 million in dollars held in US accounts and securities, in accounts and assets around the world, as well as all defendants’ real estate on US soil.
Through the following 3 years, the case was proceeding at full speed, its docket exploding to over 10,000 pages of documents (the initial claim can be read here).
On March 9, Donald Trump fired Preet Bharara.
The case against the Prevezon criminal organization was set to begin two months later, on Monday, May 15th. The Government appeared confident of its victory, and appeared to have its act in order: dozens of witnesses, including undercover special FBI agents and European law enforcement officers, were lined up and ready to go – in person, via videolink, or via deposition.
However, shortly after Bharara was fired, the US Government – on its own initiative – entered into settlement negotiations with Prevezon’s lawyers. In early April, the acting District Attorney sent the Russians a draft settlement. Over the following month, the Russian lawyers said, they negotiated the settlement’s language. Says the Russian lawyer:
“For the USG, the amount was important, while for us the wording was more important. By the way, initially, the amount was much higher. But we were able to get both a lower payment and acceptable wording”.
On the Friday before the court date, May 15th, acting NY District Attorney Joon H. Kim disclosed that he had signed a settlement with the Russian criminal group. Prevezon agreed to pay $5.9m to the US Government, and could retain its assets in the US without recognizing guilt – effectively cutting off the chances of the convoluted web of fraud being judicially disclosed, given Russia’s denial to prosecute the case.
Pervezon was triumphant. In the words of Faith Gay, one of the lawyers for the defendants,
“We are settling for less than 3 percent of the amount initially sought by the U.S. government. This settlement is nothing short of a victory for Prevezon. It’s almost an apology by the government.”
Faith Gay, of Quinn Emanuel & Sullivan, was the US based trial lawyer representing the Organization in US courts. However, the substantive lawyer for Prevezon was not American. It was Natalia Veselnitskaya – Donald Trump Jr’s June 9 2016 hopeful informant.
(As K Johnson (@ASpinOfTheWheel) noted, Veselnitskaya’s daughter, Natalia Mitusova, was also on the defendant’s legal team).
Several months earlier, just 10 days after Donald Trump’s inauguration, Nataliya Veselnitskaya had posted on Facebook:
Hello, Moscow! My trip exceeded expectations. The start of our court case, new lawyers, new judges, a New President, inauguration balls and pussy-riots on the same day, on 5th Avenue at that [….] And the country is without an Attorney General. What an interesting time! Confucius once warned: Let God keep you from living in interesting times!”. Or was he wrong? Maybe this is namely the time meant to permit mankind to continue living?
On May 1th, the day of the settlement, Veselnitskaya posted this:
Today is the day of Peace. For the first time, the US recognized the Russians’ were in the right! A four year battle of the US government with a Russian citizen has just finished. On the Russians’ terms. The settlement in the litigation initiated 4 years ago by the fugitive tax fraudster, has today been confirmed by Judge Polly. The US have surrendered Browder, and they have done right. A thief must sit in jail, and not walk the corridors of Congress.
Will today be the end of the Cold War – this depends from the politicians and law enforcement of the US.
We are grateful to all who helped us in these years, and we appreciate the initiative of the Government of the US to end this crazy case with a settlement.
But it all just begins..
The day after, the US Government lifted its freeze on $28 m worth of cash and assets owned by the Prevezon Group.