The Reach of the Money Laundering Laws and the Curious Settlement Involving Prevezon Holdings

August 30, 2017
Guest Post

by Winston Paes, Debevoise & Plimpton LLP; former Chief of the Business and Securities Fraud Section at the United States Attorney’s Office for the Eastern District of New YorkMoney

For better or worse, the U.S. Department of Justice (“DOJ”) is perceived, and has acted, as a global police force whose jurisdiction extends far beyond the shores of the United States. While the DOJ’s enforcement of violations of the Foreign Corrupt Practices Act (“FCPA”) garners much fanfare, the money laundering statutes, specifically, Sections 1956 and 1957 of Title 18 of the United States Code, have resulted in a greater number of prosecutions and expanded the reach of U.S. law enforcement for offenses that barely touch or affect the United States.

The reach and impact of the money laundering statutes is perhaps best illustrated in the DOJ’s ongoing and far-reaching criminal prosecution of Fédération Internationale de Football Association (“FIFA”) officials, and its almost $1.7 billion civil forfeiture actions related to 1Malaysia Development Berhad (“1MDB”), the Malaysian sovereign wealth fund. Indeed, the FIFA case, which represents one of the DOJ’s most significant prosecutions ever, was premised, in large part, on violations of the money laundering statutes, while the forfeiture actions in the 1MDB case were premised almost exclusively on violations of the money laundering statutes.

While courts have, at times, pushed back on the DOJ’s expansive jurisdictional view, the DOJ continues to aggressively pursue crimes that occur thousands of miles from its territorial borders. In fact, the DOJ has often brought prosecutions for extraterritorial conduct where the only nexus to the United States are a few electronic wire transactions that enter the United States to facilitate payments in U.S. dollars or the use of fraudulent proceeds to purchase property within the United States. The money laundering statutes specifically permit the DOJ to bring such criminal or civil charges against entities and individuals if there are wire transfers, such as emails or bank money transfers, between the United States and another country, if those wire transfers were executed in furtherance of promoting or concealing aspects of the underlying unlawful activity, often fraud. As a result, the DOJ can and will routinely bring criminal and civil prosecutions against individuals and entities who reside overseas, in situations where the fraudulent scheme was planned and executed overseas, and in situations where victims of the fraud, if any, have no ties to the United States.

In today’s technologically connected world, the obstacle that the DOJ often needs to overcome in bringing such prosecutions is sophisticated concealment by the perpetrators of fraud, typically through layers of shell companies in jurisdictions that cater to enhanced privacy and lack of transparency. To overcome such obstacles, the DOJ has built and enhanced its cooperative relationships with foreign law enforcement and resorted to aggressive techniques such as wiretaps and extraterritorial undercover operations that historically were not used in white-collar cases.

It is in the context of this bold and increasing trend by the DOJ that the recent $5.9 million settlement between the DOJ and Prevezon Holdings Ltd., in a civil prosecution that alleged and requested forfeiture and civil money laundering penalties, stands out. At first glance, the May 12, 2017 press release announcing the settlement appears to highlight an incredibly successful prosecution. Indeed, the subheading provides: “Defendant Prevezon Holdings Ltd. Agrees to Pay $5,896,333.65, Triple the Fraud Proceeds Alleged to Be Directly Traceable to the Defendants.” This point is further emphasized in the press release when it notes that the settlement amount is “more than ten times the amount of proceeds the Government alleged could be traced directly to property in New York (approximately $582,000).” But this settlement pales in comparison to the facts alleged and forfeiture requested by the DOJ in the underlying complaint. The discrepancy is particularly glaring when you consider the fact that the money laundering laws permit forfeiture of not only fraudulent proceeds but all property “involved in the offense,” including property used to conceal the fraud.

In announcing the filing in Manhattan federal court in September 2013, the DOJ highlighted the fact that it had filed a civil forfeiture complaint against the assets of nine entities -- essentially, Prevezon Holdings, Ltd., its subsidiaries and two related entities -- with real estate holdings in Manhattan. The complaints read like a captivating novel that centered on an elaborate $230 million scheme involving a Russian criminal organization, theft of corporate identities, sham lawsuits and corrupt government officials that culminated in the suspicious death in pre-trial detention of the lawyer who uncovered the fraud. As to the role of the defendant companies, the complaints alleged that a portion of the $230 million stolen from the Russian treasury passed through several shell companies into Prevezon Holdings, Ltd., which in turn laundered these fraud proceeds into its real estate holdings, including multiple units of high-end commercial space and luxury apartments in Manhattan. Notably, through this civil prosecution, the DOJ sought forfeiture of all right, title and interest in eight bank accounts, a condominium in downtown Manhattan and approximately $11 million in restrained funds.

Such a disparity between a complaint and a settlement involving the DOJ would be sufficient to raise eyebrows, but it is a close examination of the settlement order -- entered into on the eve of trial -- that makes the settlement with Prevezon Holdings Ltd. a curious outcome to this compelling case. In addition to containing the typical language, the final stipulation and order agreed to and signed by the DOJ and the defendants, and approved by the judge, had the following striking provisions: (i) the settlement amount did not constitute a forfeiture payment or a civil penalty; (ii) the DOJ returned all restrained properties while allowing the defendants to make the settlement payment only after the release of property seized in the Netherlands; and (iii) the parties agreed that the defendant entities and related individuals were not responsible, directly or indirectly, for the death of the lawyer who uncovered the fraud.

The reality is that we may never know the factors that led to this settlement, which, on its face, appears to be a favorable result for Prevezon Holdings Ltd. and its related parties. It is also true that concessions are often made, even by the DOJ, when faced with having to test the strength of its evidence at trial. But the fact remains that a high-profile civil prosecution brought by one of the DOJ’s flagship offices, with damning and riveting allegations, resulted in this rather curious $5.9 million settlement.