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U.S. Settles Magnitsky-Linked Money Laundering Case On Eve Of Trial


Whistle-blowing Russian lawyer Sergei Magnitsky died in a Moscow prison in 2009. (file photo)

A Russian-owned group of companies will pay the U.S. government $6 million to settle a wide-reaching money-laundering case that had quietly rippled through U.S.-Russian relations for years.

Federal prosecutors in New York announced the settlement with Russian businessman Denis Katsyv, the owner of Prevezon Holdings, on May 12, just three days before jury selection was set to begin in the case.

Under the settlement, none of Prevezon Holdings' companies admitted wrongdoing.

The settlement brings to a close more than three years of court battles by U.S. prosecutors seeking to seize more than $20 million in real estate and bank accounts from Prevezon.

The assets, prosecutors alleged, were obtained through a series of Byzantine bank transfers that ultimately trace back to the largest tax-fraud case in Russian history. That tax-fraud case, totaling about $230 million, targeted the Hermitage Capital investment firm and was uncovered by a whistle-blowing Russian auditor hired by Hermitage, Sergei Magnitsky.

Magnitsky was himself arrested on charges of collusion to commit tax fraud, and he died in a Moscow pretrial detention center in November 2009, just eight days before he would have either had to be put on trial or released.

His supporters say he was tortured, and a Russian government commission was critical of his treatment while in custody. Russian prosecutors later charged him posthumously with the very crime he helped uncover.

Magnitsky Act

Three years later, the United States passed a law bearing Magnitsky's name that targeted Russian government officials allegedly involved in the original tax crime, as well as those complicit in Magnitsky's death and other alleged human rights abuses.

As of May, there were 44 Russian officials on the Magnitsky sanctions list, including the former head of Russia's Investigative Committee, Aleksandr Bastrykin, and several Interior Ministry officers and tax officials are also on the list. State Duma Deputy Andrei Lugovoi is on the list for his alleged involvement in the 2006 radiation-poisoning death in London of former Federal Security Service officer Aleksandr Litvinenko.

Prosecutors with the U.S. Attorney's Office for the Southern District of New York launched the Prevezon case nearly four years ago, but instead of filing criminal charges they opted for a "civil asset forfeiture" proceeding, where the rules of evidence aren't as strict.

U.S. authorities "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," Joon H. Kim, the acting Manhattan U.S. attorney, said in a statement late on May 12.

The May 13 settlement helps U.S. prosecutors avoid having to establish the underlying circumstances of the original $230 million tax fraud. As it had for years of pretrial wrangling, Prevezon's defense team intended to challenge the facts of the fraud, asserting that the government's case was entirely built on flimsy evidence gathered by Hermitage founder William Browder.

'Modest' Settlement

Prevezon portrayed the settlement as a defeat for the U.S. government and said the arrangement did not constitute a seizure or forfeiture on the part of Prevezon.

"The modest size of this settlement simply underscores the fact that this action should never have been bought in the first place," a company spokesman told RFE/RL in an email.

Hermitage founder Browder, however, described the settlement as "a huge victory."

"This sends a clear message to the people who received that money that it's not safe in the West and will be seized," Browder's statement said. "I believe that this case will give the green light to other countries to follow suit."

U.S. officials had repeatedly sought assistance from Russian prosecutors in gathering material for their case. But in Moscow, the Prosecutor-General's Office not only refused to help, but instead asked their U.S. counterparts for help in building a criminal case against Browder.

Russian prosecutors ultimately charged Browder with tax evasion. He was convicted in 2013 after a trial that was largely seen as politically motivated.

British-American financier William Browder (file photo)
British-American financier William Browder (file photo)


​The Washington law firm initially hired to represent Prevezon, Baker Hostetler, sought repeatedly to undermine the prosecution's case, arguing that it was built largely on Browder's material.

Just days before trial's original start date in January 2016, the judge ordered a delay, after Hermitage argued one of the Baker Hostetler lawyers had provided counsel to Hermitage years prior in the tax fraud case, and therefore had a conflict of interest.

An appeals court later agreed and kicked Baker Hostetler off the case.

Last-Minute Motion

Last week, federal prosecutors won a small pretrial victory when U.S. District Judge William Pauley allowed the introduction of crucial banking files compiled by Nikolai Gorokhov, another Russian lawyer who has represented Magnitsky's widow, as part of the docket record.

A day later, Pauley rejected a last-minute motion by Prevezon's new lawyers, Quinn Emanuel Urquhart and Sullivan, to have the entire case thrown out.

Russia has made no secret of its contempt for the Magnitsky Act and the entire narrative that paints a picture of institutionalized high-level Russian corruption.

Several months after then-President Barack Obama signed the legislation into law, the Kremlin retaliated by banning all adoptions of Russian children by U.S. parents. That ban remains in place.

Russian lawyer Nikolai Gorokhov fell from a window of his Moscow apartment building, one day before he was scheduled to appear in court in a case related to Sergei Magnitsky's death. (file photo)
Russian lawyer Nikolai Gorokhov fell from a window of his Moscow apartment building, one day before he was scheduled to appear in court in a case related to Sergei Magnitsky's death. (file photo)


The case rippled quietly through Washington, D.C., more recently.Last year, a Russian-American man named Rinat Akhmetshin, who had worked alongside Baker Hostetler, helped spearhead a quiet lobbying effort to undermine Magnitsky's findings and influence Congress as it sought to pass a broader human rights law modeled on the original Magnitsky law.

Akhmetshin's name then resurfaced last month when a leading Republican senator called for the Justice Department to investigate him and a Washington lobbying firm named Fusion GPS, with which he worked.

Fusion GPS has been linked to the explosive dossier compiled by a former British intelligence officer on President Donald Trump that leaked out during last year's election campaign. Senator Chuck Grassley suggested that some of the anti-Magnitsky lobbying may have been done in violation of the Foreign Agents Registration Act.

Adding further to the intrigue, in March, Gorokhov, the Russian lawyer who had also represented Magnitsky's widow, fell from a window of his Moscow apartment building, one day before he was scheduled to appear in a Russian court in a case related to Magnitsky's death.

He remains hospitalized.

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