WASHINGTON -- At first glance, it’s a case that could easily be misconstrued as a humdrum allegation of ill-gotten foreign money being laundered through dealings in American real estate.
Peel away a couple layers of The United States Of America vs. Prevezon Holdings Ltd., however, and you'll find all the makings of a modern international spy thriller.
The mind-boggling case currently making its way through U.S. District Court in Manhattan centers on money, power, and strange plot twists. The most eye-opening particulars of the case, however, aren't even officially on the docket: an audacious $230 million tax-fraud scheme, allegedly carried out with the complicity of Russian government officials, followed by the posthumous conviction of а whistle-blowing tax auditor and the trial in absentia of a crusading British-American financier.
But when U.S. vs. Prevezon opens as a "civil-asset forfeiture trial" on January 27, it will be the first case stemming from the original tax-fraud scheme -- which unfolded eight years ago in Russia -- to make it to trial in U.S. courts.
That means there may be more plot twists to come.
Shell Game
The skirmishing between lawyers and prosecutors -- documented in a case file totaling more than 14,000 pages -- provides a rare glimpse into the universe of international money laundering. Perhaps more revealing, however, is the window it offers into corruption in Russian society -- possibly at the highest levels.
"The total scale, the full scale, of these crimes that were happening in Russia for a number of years is incomprehensible because we don't have any idea," said Andrei Illarionov, who served as President Vladimir Putin's top economic adviser between 2000 and 2005.
How long the graft went on, how many companies were involved, and the amount that was stolen is simply unknown, Illarionov told RFE/RL.
The Prevezon case concerns about $14 million in Manhattan real estate, along with cash deposited in a Dutch bank, that was ordered seized by U.S. prosecutors after the case was initiated in 2013.
Lawyers with the U.S. Attorney for the Southern District of New York allege in court filings that Prevezon, a Cypriot-registered company, and its primary beneficiary, a Russian named Denis Katsyv, received some of that tax-fraud money and used to it buy the properties.
According to filings, U.S. investigators have traced those funds through banks and shell companies in Moldova and elsewhere back to the 2007 scheme that involved shell companies filing sham lawsuits in Russian courts, then using court judgments to claim tax refunds in Russia.
Law And Orders
Enter a man who legally isn’t a defendant in the complaint, but is for all practical purposes central to the case's entire odyssey: William Browder and his company, Hermitage Capital Management, which was once the largest portfolio investor in Russia.
Authorities in Moscow allege the British-American financier was, in fact, the mastermind behind the original fraud. A Russian court convicted him in absentia of tax evasion in 2013, years after he had been denied reentry after leaving Russia, and have repeatedly sought an international arrest warrant for him.
Browder and his allies not only dispute the Russian charges, they say their investigation shows Russian law-enforcement and tax officials were complicit in the tax fraud. Moreover, an accountant who advised Browder and blew the whistle on the scheme, Sergei Magnitsky, ended up being arrested and died in 2009 in a notorious Moscow prison after being denied medical care.
Browder, who has been deposed once already as a witness in the Prevezon case, declined to comment to RFE/RL for this story. But court filings show Katsyv's defense lawyers, from the U.S. law firm BakerHostetler, trying to make Browder central to the case.
"Prevezon and its owner Denis Katsyv are nothing but collateral damage to Browder's flight from justice and the [U.S.] Government's irresponsible failure to investigate," defense lawyers said in a motion filed October 17.
As a BakerHostetler lawyer, Mark Cymriot, put it in a November 9 pretrial hearing: "Hermitage is central to everything."
Conflicted Defense?
The trial had been scheduled to start January 6 but was thrown into turmoil when Hermitage's lawyers, with backing from U.S. prosecutors, persuaded U.S. District Judge Thomas Griesa to take BakerHostetler off the case. They argued that since BakerHostetler worked for Hermitage during the initial stages of the tax-fraud investigation eight years ago, there was a conflict of interest.
"BakerHostetler is directly attacking Hermitage, making the same accusations of fraud against Hermitage and Browder that Hermitage previously hired them to refute," Hermitage lawyer Jacob Buchdahl said in a December 15 motion.
Denis Katsyv
On January 8, however, Griesa reversed his decision and restored BakerHostetler as defense counsel. Trial proceedings are now set to begin January 27, although Hermitage lawyers are still trying to get BakerHostetler thrown off the case.
Katsyv, whose father is the former top transportation official for the Moscow region, has denied accusations that he received laundered funds. He does not face criminal charges in the United States, or for that matter in Russia, as he pointed out in a February 2014 affidavit.
For its part, the Russian government has convicted two people of involvement in the original fraud; one is identified by the U.S. filings as a known swindler.
No government officials have been charged, however, and Russian officials have rebuffed further attempts by U.S. prosecutors to follow up Prevezon allegations. In a letter filed with the court on December 8, Russia's Prosecutor-General's Office said it "does not possess documents requested by the U.S. Department of Justice that could confirm the information contained in the complaint on the existence of machinations and the participation of Prevezon Holdings in the laundering of criminal proceeds."
To many observers, Russian inability to corroborate some of the details of the U.S. allegations, a good portion of which are derived from Browder's investigations, suggests a cover-up.
Russian authorities "could have done the right thing, which is they could have gotten to the bottom of the [fraud] allegation,” said David Kramer, a former State Department official who oversaw Europe and Eurasia. "They could have pursued a real investigation. They obviously chose not to do that because they were afraid of where it might lead to."
Sergei Magnitsky
Magnitsky's death led Browder and allies to lobby the U.S. Congress to pass a 2012 law in his name, slapping sanctions on 18 Russian citizens allegedly involved in the fraud and Magnitsky's death. At least four on the list are officials with the Interior Ministry or the Tax Inspectorate.
The list was later amended to include other officials the United States deemed complicit in human rights abuses, bringing the total to 34.
Browder looms large elsewhere for Russian officials. In December, Prosecutor-General Yury Chaika accused him of being behind a damning documentary produced by anticorruption crusader Aleksei Navalny that accused Chaika's sons of involvement in various criminal projects.
The prosecutor also indicated that the Prevezon proceedings were being followed closely in Moscow.
Russian Prosecutor-General Yury Chaika
"We are watching this process from the side with interest," Chaika told the Russian newspaper Kommersant.
A breathless investigation broadcast in December on the state-controlled channel NTV painted a portrait of Browder as a nefarious public-relations genius funding not only the Chaika film but other opposition politicians.
Follow The Money
The fact that U.S. prosecutors are pursuing the case as a "civil-asset forfeiture" rather than a criminal case has itself raised some questions from legal observers.
Civil cases carry a lower burden of proof for evidence, said Steven Kessler, a New York lawyer and expert on civil-asset forfeitures. That may indicate the government is seeking to turn up leads to build a fuller criminal case, or it could indicate the case against Prevezon is weak.
The U.S. Attorney's Office did not respond to voice mails seeking comment.
Andrei Illarionov
Illarionov, who is now a vocal critic of the Kremlin, said the Russian government's actions, both regarding the original 2007 fraud and the Prevezon money-laundering case, indicates that the fraud was more extensive and involved senior officials.
For example, the speed with which the tax refunds were processed in 2008 (in one case, in just one day) and the multimillion-dollar size of the refunds, Illarionov said, showed complicity of senior officials in the Russian Finance Ministry.
"I can tell you as a person working with the Russian government, it could not happen without direct order from the very highest level of the Russian Ministry of Finance," he said. "It's just impossible. They don't have this sort of money."
The Finance Ministry did not respond to questions submitted by RFE/RL in time for publication.