Money laundering

Participation in an organized criminal group

Offences

• Agreement to commit a serious crime (conspiracy)

Other Crimes

United States v. Pavel Ivanovich Lazarenko

UNODC No.:
USAx004

Fact Summary

During the 1990s Lazarenko was first a regional official in the Ukraine, became First Vice-Minister in 1995 and from 1996 to 1997 was the country’s Prime Minister. While serving as a Government official he required business owners to pay him 50% of their profits by threatening to use his power to harm their business if not paid. One businessman who yielded to Lazarenko’s demands was Kiritchenko, who subsequently found the relationship advantageous and entered into other business transactions with Lazarenko.

Lazarenko’s influential positions allowed him to extort millions from various businesses. To transfer money out of the Ukraine, Lazarenko caused Dutch and other firms to pay funds to banks in Hungary, Poland, Switzerland and Antigua, from which the money was transferred to the United States. The principal destinations of these funds were EuroFed accounts in the Bank of America in San Francisco.

As a result of inquiries from the Ukraine in connection with an investigation of corruption, the American FBI began an inquiry into the financial activities of Kiritchenko, who had relocated to San Francisco in the mid-1990s. This led to evidence suggesting money laundering. In 1998 Swiss authorities charged former P.M. Lazarenko with money laundering in connection with funds routed through Switzerland. Evidence concerning the overlapping Ukrainian, Swiss and US investigations was exchanged informally among police and prosecution authorities. In 2000 Lazarenko was charged in the Northern District of California (San Francisco) with money laundering, fraud and stolen property offences. Kiritchenko was allowed to limit his sentencing exposure by pleading guilty to one charge of transportation of stolen property and testified against his co-defendant.

Commentary and Significant Features

The relevance of the case lies in its ground-breaking character as the first US prosecution of a former foreign head of State for money laundering. It is also an important precedent for the prosecution theory that a US crime is committed by the domestic laundering of the proceeds of foreign crimes, in this case extortion and fraud.

Lessons which can be learned from the case history are multiple. The necessity and complexity of international criminal justice cooperation was also illustrated by the case’s development. The first US mutual assistance treaty was with Switzerland. Experience in its use since the 1970s facilitated development of this prosecution, which originated with Ukrainian efforts to trace funds in Switzerland. Recognition of the necessity for US-Ukrainian cooperation contributed to the adoption of a mutual assistance treaty between those countries during the investigation.

A lesson for prosecutors is the danger of presenting a complex case in a jury system. In this case only eight of 53 counts survived the judicial process. Although the appellate court eventually upheld the convictions, it gave serious consideration to the defence argument that the jury was improperly influenced by hearing evidence relating to counts that were dismissed and that a new trial should have been granted.

Another important lesson can be learned from the failure of prosecution efforts to forfeit funds in EuroFed account, described in Section 9, Confiscation. Lack of familiarity with forfeiture law is common among federal prosecutors and may have contributed to the unsuccessful and untimely attempt to forfeit the EuroFed accounts. Since not every prosecutor can be made expert in the complexities of civil and criminal forfeiture, it is considered advisable to have a specialized forfeiture attorney actively involved in cases of this magnitude from their inception.

Cross Cutting

Liability

... for

• completed offence

... based on

• criminal intention

... as involves

• principal offender(s)

Offending

Details

• occurred across one (or more) international borders (transnationally)

Involved Countries

United States of America

Ukraine

Netherlands

Hungary

Poland

Switzerland

Antigua and Barbuda

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• American Federal Bureau of Investigation
• Internal Revenue Service

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• Special investigative techniques
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Special investigative techniques which have been publicly disclosed consisted of a “trash cover” by the FBI, which was the non-consensual, covert collection of the refuse from Peter Kiritchenko’s office. Use of this technique for many months resulted in identification of many of the financial institutions and entities involved in the chain of money transfers from the Ukraine to Kiritchenko’s and Lazarenko’s accounts and purchases elsewhere in the world. This technique is legal in the US federal system and does not require a judicial warrant so long as the property has been placed for collection on public property, such as a parking lot refuse bin.

Cooperation with law enforcement authorities by Peter Kiritchenko was essential to the prosecution. His betrayal of a long-time associate colleague was emphasized by the defence as evidence of untrustworthiness, but the negative impact was overcome by his initial status as a victim of extortion by Lazarenko, his insider knowledge of the money laundering activity and the corroboration furnished by financial records.

 

Confiscation and Seizure

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Because of the amounts of money involved, the legal proceedings involving restitution confiscation have been complex and lengthy. One set of proceedings involved two EuroFed correspondent accounts at the Bank of America in San Francisco. The government first filed a civil forfeiture action against those accounts, but the court ruled that it was time-barred. A subsequent appellate opinion held that criminal forfeiture of those accounts was barred by the principle of res judicata, resulting from the adverse decision in the civil case. As a result the liquidators of EuroFed appointed by the Antiguan Government prevailed and the approximately $2.5 million involved will be disposed of according to Antiguan law. Lazarenko’s other extensive real estate interests, personal property and accounts in other US banks were not affected by the Eurofed opinion and were available to satisfy the $9 million fine imposed at sentencing and related forfeitures.

In another unusual proceeding, Peter Kiritchenko claimed that he was due up to $30 million that had been extorted from him by Lazarenko. The $30 million claim was rejected as insufficiently supported by documentary evidence. However, the court of first instance allowed a claim totalling $19 million that was supported by bank records and other evidence. An appellate decision in 2010 rejected Kiritchenko’s claim. It interpreted the statute that allows a court to order restitution to a “victim” of an offence against property as not applying to a money laundering co-conspirator except in exceptional circumstances, which were not present in this situation.

 

International Cooperation

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Ukraine

Switzerland

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• International law enforcement cooperation (including INTERPOL)
• Mutual legal assistance
• Extradition
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International law enforcement cooperation included mutual legal assistance between the Ukraine, Switzerland, the US and other countries to secure witnesses and financial records. Count 31 of the indictment was dismissed because the appellate court found that the Government “was unable to produce any documents” from an Eastern European bank tracing the transfer of proceeds of a fraudulent transaction through that institution on its way to a Swiss account. The public record does not reflect the reason for this inability, but the result demonstrates how essential is the ability to trace stolen assets through multiple financial institutions in different countries.

Extradition
Lazarenko was arrested on money laundering charges when entering Switzerland from
France and was released on the equivalent of $ 3 million bail. He left the Ukraine shortly before his parliamentary immunity was revoked in 1999. Within days he arrived in the United States from Greece and requested political asylum, claiming that murder and embezzlement inquiries against him in the Ukraine were politically inspired. The Swiss authorities also charged Lazarenko, together with Kiritchenko, with money laundering, and requested their extradition from the United States, which has not been granted to date in view of US prosecutorial action. Lazarenko was convicted in absentia in Switzerland in June 2000 and over $6 million was confiscated from his Swiss bank accounts. Lazarenko was also charged in the Ukraine with embezzlement and abuse of his government position and the case was described by the Ukrainian prosecutor as still open in 2005 after the U.S. conviction.
The Swiss extradition request was made pursuant to an extradition treaty covering offences punishable by a prison term exceeding one year, and money laundering is an offence in both countries. The US and the Ukraine do not have an extradition treaty, and US law and policy forbid extradition except pursuant to treaty, with rare exceptions.

Mutual Legal Assistance
The published court opinions concerning the case do not detail the use of mutual legal assistance requests. However, a person familiar with the evidence received at trial and the practice of the US and other governments involved can readily conclude that mutual legal assistance was an essential and frequently used tool. Evidence from Swiss authorities and witnesses was a major part of the case. Switzerland is known for a strict interpretation of its sovereignty which excludes any foreign investigative activity within Switzerland except pursuant to Swiss legal authorization. Accordingly it is reasonable to conclude that the presentation of Swiss witnesses and records from Swiss institutions necessarily involved legal assistance requests to Swiss authorities. Evidence was also presented at trial involving, Polish, Antiguan, Dutch and Ukrainian activities, strongly suggesting use of mutual legal assistance requests, as all of those countries had MLAT agreements with the United States prior to the date of the Lazarenko trial. In all cases the US request would have been handled by the Central Authority, the Attorney General, who has designated the Office of International Affairs of the Department of Justice to act. All of the relevant US MLAT treaties require communications with counterpart Central Authorities, for example the Swiss Division of Police of the Federal Office of Justice and Police in Bern, the Polish Minister of Justice – Attorney General or a designee, the Attorney General or a designee in Antigua, the Ministry of Justice in the Netherlands and the Ministry of Justice and the Office of the Prosecutor General in the Ukraine.

 

Procedural Information

Legal System:
Common Law
Latest Court Ruling:
Appellate Court

Features of prosecution and trial. The reliance upon a foreign criminal activity as the basis for money laundering charges is unusual and its potential impact upon international relations is obvious. In recognition of this potential impact, the United States’ Attorneys Manual governing federal prosecutors contains section 9-105.300, which applied to the Lazarenko case. That section states, in pertinent part:

9-130.300 Approval requirements for Money Laundering Cases

There are four categories which require advance authorization from the Criminal or Tax Division:

1. Extraterritorial jurisdiction. Criminal Division (Asset Forfeiture and Money Laundering Section) (AFMLS) approval is required before the commencement of any investigation where jurisdiction to prosecute is based solely on the extraterritorial jurisdiction provisions of Sections 1956 and 1957. Due to the potential international sensitivities, as well as proof problems, involved in using these extraterritorial provisions, no grand jury investigation may be commenced, no indictment may be returned, and no complaint may be filed without the prior approval of AFMLS, when jurisdiction to prosecute these offences exists solely because of these extraterritorial provisions.

As mentioned previously, the testimony of Peter Kiritchenko was essential to the prosecution. His role was legally and morally ambiguous. Initially he was the victim of official extortion by Lazarenko, but subsequently found his relationship with the powerful politician to be profitable and became a coconspirator in money-laundering activity. Plea agreements (the practical result of which is a bargain providing a limited sentence) are common inducements to reach a disposition of prosecutions in the US.

In the federal criminal justice system their use is governed by the Principles of Federal Prosecution, which appear in the United States Attorneys’ Manual Section 9-27.420 deals with Plea Agreements – Considerations to be Weighed.

A. In determining whether it would be appropriate to enter into a plea agreement, the attorney for the government should weigh all relevant considerations, including:

1. The defendant’s willingness to cooperate in the investigation or prosecution of others;

2. The defendant’s history with respect to criminal activity;

3 The nature and seriousness of the offence or offences charged;

4. The defendant’s remorse or contrition and his/her willingness to assume responsibility for his/her conduct;

5. The desirability of prompt and certain disposition of the case;

6. The likelihood of obtaining a conviction at trial;

7. The probable effect on witnesses;

8. The probable sentence or other consequences if the defendant is convicted;

9. The public interest in having the case tried rather than disposed of by a guilty plea;

10. The expense of trial and appeal;

11. The need to avoid delay in the disposition of other pending cases;

12. The effect upon the victim’s right to restitution

In the current case, Kiritchenko’s cooperation was obviously the dominant incentive to grant him a favourable disposition.

 
 
Proceeding #1:
  • Stage:
    first trial
  • Court

    Court Title:

    U.S. District Court for the Northern District of California (San Francisco)

     
    Description:

    Judgment and sentence were not entered immediately after the trial lasting from March until June 2004 because of the complexity of the case. After trial the court of first instance dismissed multiple counts on which the jury had returned guilty verdicts. An initial sentence of 108 months was imposed by the trial court in 2006 as a cumulative sentence for the multiple counts upon which the defendant was convicted.

     
    Proceeding #2:
  • Stage:
    appeal
  • Official Case Reference:
    US legal reporter publications at 564 F. 3d 1026 (9th Cir. 2009), 2009 U.S. App. LEXIS 8657
  • Court

    Court Title:

    U.S. Court of Appeals for the Ninth Circuit

     
    Description:

    The sentence was reduced to 97 months in 2009 after the appellate court dismissed certain counts upon which Lazarenko had been convicted.

    In the US federal court system, convicted persons have the burden of establishing that they should not be placed in custody pending sentencing and appeal, which Lazarenko did not do. The judgments of conviction became final after some charges were vacated and some upheld by the Court of Appeals, subject to the discretionary issuance of a writ by the Supreme Court. The Supreme Court declined to intervene. The amount of time spent in custody before trial and during appeal is counted toward service of the sentence. The Federal Bureau of Prisons website, www.bop.gov, currently reports Lazarenko's estimated release date to be November 1, 2012 and his location as the Terminal Island prison in the Los Angeles area. Lazarenko was also fined $9 million and ordered to forfeit approximately
    $23 million and other specified assets.

     

    Defendants / Respondents in the first instance

    Defendant:
    Pavel Lazarenko
    Gender:
    Male
    Defendant:
    Peter Kiritchenko
    Gender:
    Male

    Charges / Claims / Decisions

    Defendant:
    Pavel Lazarenko
    Verdict:
    Guilty
    Charge / Claim:

    Conspiracy to commit money laundering

    Legislation / Statute / Code:

    [Title 18 of the United States Code, Section 1956 (h)]

    h) Any person who conspires to commit any offense defined in this section or section 1957
    be subject to the same penalties as those prescribed for the offense the commission of which was the object of the conspiracy.

    Verdict:
    Guilty
    Charge / Claim:

    Money laundering

    Legislation / Statute / Code:

    18 USC 1956 (a) 2 and (a) 1(B)

    (1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity—

    (A)

    (i) with the intent to promote the carrying on of specified unlawful activity; or

    (ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or

    (B) knowing that the transaction is designed in whole or in part—

    (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or

    (ii) to avoid a transaction reporting requirement under State or Federal law,

    shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. For purposes of this paragraph, a financial transaction shall be considered to be one involving the proceeds of specified unlawful activity if it is part of a set of parallel or dependent transactions, any one of which involves the proceeds of specified unlawful activity, and all of which are part of a single plan or arrangement.

    (2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States—

    (A) with the intent to promote the carrying on of specified unlawful activity; or

    (B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part—

    (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or

    (ii) to avoid a transaction reporting requirement under State or Federal law,

    shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both. For the purpose of the offense described in subparagraph (B), the defendant’s knowledge may be established by proof that a law enforcement officer represented the matter specified in subparagraph (B) as true, and the defendant’s subsequent statements or actions indicate that the defendant believed such representations to be true.

    Charge / Claim:

    Wire fraud

    Legislation / Statute / Code:

    18 USC 1343 and 1346

    Charge / Claim:

    Transportation of stolen property

    Legislation / Statute / Code:

    18 USC 2314

    Term of Imprisonment:
    8 years
     
    Fine / Payment to State:
    9000000  USD   
    Defendant:
    Peter Kiritchenko
    Verdict:
    Guilty
    Charge / Claim:

    Transportation of stolen property

    Term of Imprisonment:
    3 years 1 Month
     
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