In a money laundering case that federal prosecutors link to an infamous Russian treasury theft, a Manhattan federal judge last Wednesday said he’d sharply narrow his freeze order on the assets of a well-connected Russian businessman. Attorneys fighting for the Moscow businessman Denis Katsyv in the year-old civil seizure case have won few rounds before U.S. District Judge Thomas P. Griesa, but last week’s order freed up many international assets controlled by the 37-year-old Katsyv, whose father was the longtime boss of the Moscow region transport ministry.
In September 2013, U.S. Attorney Preet Bharara alleged that Katsyv’s companies had bought a bunch of luxury Manhattan properties with some of the $230 million looted from Russia’s government in 2007—a particularly brazen instance of that country’s corruption that was uncovered by Sergei Magnitsky as he worked on behalf of the Hermitage Capital hedge funds. After Magnitsky was arrested by the very police he’d accused of assisting the scam, and then died in prison under suspicious circumstances, Hermitage founder Bill Browder campaigned successfully for Western governments to sanction Russia, ushering in an era of tit-for-tat sanctions that now shadow East-West diplomacy (see “Crime and Punishment in Putin’s Russia,” April 18, 2011).
Katsyv denies any connection to the treasury theft and says U.S. prosecutors haven’t traced the frozen assets back to that crime. “They can’t prove it,” said Katsyv lawyer John W. Moscow, of BakerHostetler LLP. “This should not be a case.”
To demonstrate the purported dirty provenance of Katsyv’s properties, the government’s 2013 complaint cited the research of Browder and the news reports of journalists—including some by this reporter. Prosecutors say the looted Russian treasury funds disappeared below the surface of a mire of shell companies with accounts at banks in Russia and Eastern Europe, including banks that Russian authorities shuttered for money laundering. Prosecutors allege that money flowed out of those dubious entities to an investment company that Denis Katsyv controls. His lawyers say he had no reason to suspect the provenance of the cash. Prosecutors will have to connect the dots to show that Katsyv’s company derived its money from the Treasury heist, and that Katsyv knew or should have known.
For months, the Katsyv defense team has sought a deposition of Browder, who is a British citizen. A process server surprised the hedge fund manager this past summer in Aspen, where Browder had given a speech and, according to Katsyv’s lawyers, has a vacation residence.
Lawyers for Browder have vigorously contested Katsyv’s attempts to subpoena the money manager’s testimony. At Wednesday’s hearing, Judge Griesa showed impatience with Browder’s elusiveness. A deposition in the seizure case would be the first hostile cross-examination of Browder’s claims since he launched his astonishingly effective crusade against Russian corruption.
”The Government has acknowledged that Browder was the source of its allegations,” said BakerHostetler lawyer Mark Cymrot, another member of Katsyv’s defense team. “However, he is fighting attempts to submit himself to cross-examination to test the truthfulness of those allegations.”
As if to blunt the argument that they’re reliant on Browder’s research, federal prosecutors presented an amended complaint last week claiming they’d traced the transfer of an additional $1 million from a Moldavian shell company, through a bank in Estonia, to the Zurich accounts of Katsyv’s company Prevezon Holdings. That brings the sum total of allegedly laundered money identified in the case to something shy of $2 million—all of which Katsyv says he thought clean. Prosecutors have told the court they expect to document more money movements, as foreign evidence arrives. The government’s gotten no evidence yet from the Katsyv defendants.
U.S. prosecutors and Browder wouldn’t respond to requests for comment last week.
With last week’s loosening of the freeze order, Katsyv and his businesses now have about $20 million of assets on ice. Subject to the New York case are about $10 million worth of prime Manhattan property and $4 million in the Netherlands that was invested in real estate developed by Russian-Israeli mogul Lev Leviev, whose Africa Israel group also owned the New York residential buildings where Katsyv bought units. Another $7 million is frozen in Geneva bank accounts as part of a Swiss inquiry separate from the U.S. case.
Katsyv and his lawyers say that his international businesses have been hobbled by the false link with the Magnitsky tragedy. The frozen $20 million is real money, even for a family like the Katsyvs—who became remarkably wealthy during the years that Denis Katsyv’s father Peter worked as a public servant. Russian government records show that in the decade when Peter Katsyv was the Moscow region’s vice-governor in charge of transportation, some limousine and leasing businesses controlled by Denis reported aggregate revenues equivalent to $225 million. The 10 customers featured on the companies’ website were all government agencies, including the senior Katsyv’s transport ministry. The Katsyvs say they got their government contracts legitimately.
Katsyv père is now a top executive at Russian Railways, the state enterprise run by Vladimir Putin’s inner circle member Vladimir Yakunin—who himself was blacklisted by the U.S. in March over Russia’s annexation of Crimea from Ukraine. Long before the Katsyv’s names appeared in the New York seizure case, the Katsyv’s business activities were questioned in Russian news stories. The family has always said its businesses were on the up and up. One prominent critic now sits in a Russian prison after his conviction for extorting and defaming the Katsyvs.
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