U.S. Alleges Further Laundering in Magnitsky-Linked Case

Wall Street Journal

A federal judge on Wednesday granted a request from U.S. prosecutors to file an amended complaint alleging further money laundering by a Russian businessman, as well as a forfeiture order narrowing the assets to be seized in the case.

U.S. District Judge Thomas P. Griesa approved the request at a contentious hearing between prosecutors and lawyers for companies owned by Denis Katsyv, who is accused of laundering some of the proceeds of an alleged $230 million tax fraud in Russia exposed by deceased lawyer Sergei Magnitsky. The amended complaint, prosecutors said, provides additional allegations of money laundering and “significantly narrows” the amount of property the U.S. seeks to forfeit.

“It is necessary to have” the amended complaint and forfeiture order for the case to continue, said Judge Griesa.

The civil forfeiture case brought by the Manhattan U.S. attorney’s office in September 2013 alleged that Mr. Katsyv used some of the laundered money to buy real estate in New York. Prosecutors say a portion of the funds traveled through several shell companies into Prevezon Holdings, a Cyprus-based real estate company that laundered the money into its real estate holdings, including those subject to the forfeiture action.

Mr. Katsyv and his company, Prevezon Holdings, deny the allegations, having tried to dismiss the case in March, and through its lawyers they denied the new accusations raised Wednesday.

The amended forfeiture order, prosecutors said, seeks about $14 million in assets, including $10 million in property in New York and about $4 million, in euros, at an account in the Netherlands. The original forfeiture action sought all assets, known and unknown, tied to Mr. Katsyv and his partners; Judge Griesa had told prosecutors to restrain the order after hearing from lawyers for the defendants that unrelated assets in Russia and elsewhere were frozen.

Lawyers for Mr. Katzyv and Prevezon said Wednesday that tens of millions of dollars in real estate properties covered by the original forfeiture order were freed, including hotels and land in Russia and Cyprus.

“The Prevezon companies can now begin to repair some of the extensive damage inflicted on their international real estate investment organization by this outrageous U.S. government attempt to take their entire business away through the civil asset forfeiture system, without presenting the required evidence of wrongdoing,” said Mark Cymrot, partner at BakerHostetler LLP, who represents Mr. Katsyv and Prevezon.

In the amended complaint, prosecutors also allege an additional $1.1 million tied to the tax fraud was laundered through intermediaries to Prevezon, and that Mr. Katsyv was aware of U.S. anti-money laundering law due to a prior proceeding in Israel, saying Israeli anti-money laundering law “has provisions that are similar” to U.S. statutes.

Mr. Cymrot rejected the allegations, saying they don’t involve any newly discovered funds, and “are merely an attempt by the government to mask the severe narrowing it was forced by the court to make in its original case.”

Separately, Judge Griesa also ruled that London-based hedge-fund manager William Browder has to provide reasons why he shouldn’t be forced to face a deposition from defense counsel, who subpoenaed him after prosecutors identified Mr. Browder as a potential witness in the case. Mr. Browder’s fund was the victim of the tax fraud; he has lobbied U.S. prosecutors to bring cases related to it, including the one against Mr. Katsyv.

Mr. Browder’s lawyers had filed a motion to quash the subpoena, arguing, among other things, that the subpoena was improperly served; Judge Griesa told Mr. Browder’s legal team, which attended the hearing as observers but joined the proceeding when their client was discussed, that its motion was incomplete.

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