251 F. Supp. 3d 684
S.D.N.Y.2017Background
- A Russian criminal organization fraudulently obtained about $230 million in tax refunds (the "Russian Treasury Fraud") by using seized corporate documents to hijack ownership of Hermitage portfolio companies and secure sham judgments and refunds.
- Proceeds were laundered through a complex web of conduit accounts; roughly $1.9 million ultimately entered Prevezon’s account and financed Manhattan real estate purchases.
- Government brought civil forfeiture/money‑laundering claims, invoking several specified unlawful activities (SUAs) as predicates: fraud against a foreign bank, transportation of stolen property, bribery of a public official, and successive money‑laundering acts.
- Prevezon moved for summary judgment arguing (inter alia) lack of evidence tying Prevezon or the identified transfers/accounts to the Russian Treasury Fraud, absence of a domestic nexus for §2314, and flaws in the Government’s tracing analysis.
- The Court denied summary judgment, finding genuine disputes of material fact on each SUA and that use of U.S. correspondent banks and circumstantial tracing evidence defeat Prevezon’s legal grounds for judgment as a matter of law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud against a foreign bank (bank‑fraud SUA) | Fraud targeted Russian Treasury, not HSBC; no deceptive conduct directed at HSBC; no reliance or harm to HSBC. | HSBC (as trustee/owner via shareholding vehicles) was deceived by misrepresentations pre‑ and post‑raid; scheme aimed to deprive HSBC of property. | Denied: factual dispute exists whether misrepresentations were directed at/affected HSBC such that a bank‑fraud SUA is shown. |
| Transportation of stolen property (§2314) / extraterritoriality | Four transfers were between foreign parties/accounts; incidental use of U.S. correspondent banks insufficient to make transfers domestic under §2314. | Transfers were processed through U.S. correspondent banks (NY/CT) that were necessary conduits; their use sufficiently "touches and concerns" U.S. territory. | Denied: use of U.S. correspondent banks displaced presumption against extraterritoriality and supports §2314 application. |
| Bribery/misappropriation of public funds (SUA) | Kickback payments traced to intermediaries were not shown to be tainted; Stepanova relationship too attenuated (divorce). | Bank records and tracing permit inference that payments benefited the tax official’s circle; relationship/fact questions remain. | Denied: genuine disputes of fact exist about origination of payments and whether benefits accrued to the official. |
| Tracing, commingling, and sufficiency of circumstantial proof | Government’s tracing is speculative: intermediaries commingled clean funds and may have exhausted tainted funds before forwarding, so tracing to Prevezon fails. | Banco Cafetero first‑in/first‑out and facilitation principles allow tracing/forfeiture despite commingling; circumstantial indicia (timing, patterns, IP use, coded descriptions, shell entities) support inference of concealment. | Denied: court holds Banco Cafetero and facilitation rules permit the Government to present its tracing to a jury; factual issues preclude summary judgment. |
Key Cases Cited
- Shaw v. United States, 137 S. Ct. 462 (2016) (bank‑fraud statute does not require proof that defendant knew of complex bank property‑law interests or intended to harm the bank)
- Banco Cafetero Panama v. United States, 797 F.2d 1154 (2d Cir. 1986) (tracing fungible funds: first‑in, first‑out rule applied in money tracing)
- Licci v. Lebanese Canadian Bank, SAL, 834 F.3d 201 (2d Cir. 2016) (use of New York correspondent accounts can displace presumption against extraterritoriality)
- Mastafa v. Chevron Corp., 770 F.3d 170 (2d Cir. 2014) (focus‑of‑the‑statute test for extraterritoriality; domestic conduct relevant to statute’s focus controls analysis)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment standard; genuine dispute for trial when reasonable jury could return verdict for nonmovant)