Case sheds light on role of correspondent bank accounts and circumvention of anti-money laundering programs

Court order describes seizure as ‘account’ of atrocities in Ukraine

On April 4, 2022, Magistrate Judge Zia M. Faruqui of the United States District Court for the District of Columbia granted the government Application for a warrant of seizure of property subject to confiscation, concluding that there were probable grounds to believe that the yacht Tango, a 255ft luxury yacht allegedly owned by sanctioned Russian oligarch Viktor Vekselberg, was subject to confiscation based on alleged violations US bank fraud, money laundering and sanctions laws. The Tango is located in a shipyard on the Spanish island of Majorca, and the warrant and subsequent seizure by the United States and its allies was part of KleptoCapture Working Groupan interagency law enforcement task force designed to help deploy prosecution and law enforcement resources across the United States to identify sanctions evasion and related criminal behavior .

Sanctions were imposed on Vekselberg and the company he founded, the Renova Group, in April 2018 by the Treasury Department. Following Russia’s invasion of Ukraine, Vekselberg was slapped with new sanctions by the U.S. government on March 11, 2022. These sanctions were in accordance with various executive orders under the Emergency Economic Powers Act (“IEEPA”) imposed on persons responsible for or complicit in certain activities relating to Ukraine.

The supporting affidavit

According to the affidavit in support of the search warrant application, Vekselberg purchased the Tango in 2011 and has owned it ever since. He further alleged that Vekselberg used shell companies to mask his interest in Tango in order to avoid bank surveillance of related US dollar transactions. The affidavit cited three confidential witnesses, including a director and an employee of a company that provided services during the design and construction of the vessel, who identified Vekselberg as the true owner.

Additionally, despite his status as a person under sanction, Vekselberg and those working on his behalf continued to make US dollar payments through US banks for the support and upkeep of Tango and its owners. These included payment for a December 2020 stay at a luxury water villa resort in the Maldives, as well as mooring fees for the yacht. According to the affidavit, Vekselberg had an interest in these payments and therefore required a license from the Treasury Department, which was not obtained.

The affidavit highlighted the role of correspondent bank accounts, which are the primary means for foreign financial institutions (or “sponsoring banks”) to gain access to the US financial system. By establishing a correspondent bank account, the US bank can receive deposits or make payments or other disbursements on behalf of the client bank, or handle other financial transactions related to the client bank. As the affidavit notes, “[n]At first, all US dollar electronic transactions by foreign financial institutions are processed through correspondent bank accounts held in the United States. According to the affidavit, Vekselberg and his agents transferred funds internationally through correspondent accounts held at US financial institutions, using shell companies to do so in order to “hide the true nature of the transactions from US financial institutions. , undermine KYC protocols and introduce US financial institutions to issue [Suspicious Activity Reports] related to operations. »

order

In finding that probable cause justified the warrant, the Court first observed that deliberately attempting to circumvent U.S. sanctions, such as attempting to circumvent anti-money laundering (“AML”) procedures implemented by US financial institutions under the Bank Secrecy Act to prevent the misuse of correspondent bank accounts, is a criminal violation of the IEEPA. Also, deceiving banks trying to enforce US sanctions law through their AML programs is bank fraud. The transfer of funds involved in such activity constitutes money laundering.

The Court turned to jurisdiction to seize and noted that the Treasury Department’s OFAC designated Vekselberg in connection with US sanctions against Russia. The Court agreed that the government had established probable grounds to believe that Vekselberg had structured transactions involving Tango to conceal his identity, including through the use of front companies, as part of a scheme to violate the IEEPA and to commit bank fraud, in the context of a related international operation. money laundering scheme. These transactions were subject to US jurisdiction because they passed through the United States via correspondent wire transfers. The Tango was therefore forfeited pursuant to 18 USC 981(a) and 982(a).

Next, the court said the location of the warrant of seizure was established because Congress empowered the District Court for the District of Columbia to seize property located in a foreign country. Although the Court rejected the government’s initial request to search objects located in the Tango because the Court lacked the power to issue a search warrant for property held in a foreign port, the Court nevertheless held that ‘No search warrant was necessary because the Fourth Amendment does not apply to the search of property belonging to a nonresident alien located in a foreign country, and Vekselberg had no reasonable expectation of compliance with privacy in Tango.

The Court concluded by discussing the excessive fines clause of the Eighth Amendment, which limits the government’s power of forfeiture. The Court noted that a challenge to excessive fines at this stage was premature because Eighth Amendment issues are not ripe until after a court issues a civil or criminal forfeiture order. Nonetheless, the Court considered the proportionality of the confiscation to the crime and said: “Far from being grossly disproportionate to Putin’s killing of civilians, the destruction of Ukrainian cities and the the sovereignty of Ukraine, the confiscation of [Tango] is completely justified. The entry of the [Tango] is only the beginning of the settling of scores that awaits those who would facilitate Putin’s atrocities. Neither the Justice Department nor history will be kind to oligarchs who chose the wrong side.

[View source.]

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