United States v. All Funds on Deposit At , 251 F. Supp. 3d 82 ( 2017 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 04-0798 (PLF)
)
ALL ASSETS HELD AT BANK JULIUS, )
Baer & Company, Ltd., Guernsey )
Branch, account number 121128, in the )
Name of Pavlo Lazarenko et al., )
)
Defendants In Rem. )
____________________________________)
OPINION
This is a civil in rem action in which the United States seeks forfeiture of over
$250 million scattered throughout bank accounts located in Guernsey, Liechtenstein, Lithuania,
Switzerland, and Antigua and Barbuda. The United States alleges that this money is the
proceeds of violations of certain criminal statutes and therefore is subject to forfeiture. Based on
recent Supreme Court precedent regarding the extraterritorial reach of certain U.S. statutes,
Claimant Pavel Lazarenko, also known as Pavlo Lazarenko, argues that this forfeiture action is
an impermissible application of U.S. law to foreign conduct. He seeks a partial judgment on the
pleadings or, in the alternative, partial summary judgment. Upon consideration of the parties’
papers, the relevant legal authorities, and the arguments of counsel in open court on January 25,
2017, the Court will grant in part and deny in part Lazarenko’s motion for partial judgment on
the pleadings. The Court concludes that it would be inappropriate at this stage in the litigation to
consider this motion as a motion for partial summary judgment. 1
I. FACTUAL AND PROCEDURAL BACKGROUND
The Court’s prior opinions summarize the factual and procedural history of this
case, starting with the criminal prosecution of Lazarenko and continuing through this
long-running civil forfeiture proceeding. See, e.g., United States v. All Assets Held at Bank
Julius Baer & Co., Ltd., 307 F.R.D. 249, 250-51 (D.D.C. 2014); United States v. All Assets Held
at Bank Julius Baer & Co., Ltd., 959 F. Supp. 2d 81, 84-94 (D.D.C. 2013); United States v. All
Assets Held at Bank Julius Baer & Co., Ltd., 772 F. Supp. 2d 205, 207-08 (D.D.C. 2011); United
States v. All Assets Held at Bank Julius Baer & Co., Ltd., 571 F. Supp. 2d 1, 3-6 (D.D.C. 2008)
(“All Assets I”). In brief, Lazarenko was “a prominent Ukrainian politician who, with the aid of
various associates, was ‘able to acquire hundreds of millions of United States dollars through a
1
The documents reviewed in connection with the pending motion include: the
Amended Complaint (“Am. Compl.”) [Dkt. 20]; Claimant Pavel Lazarenko’s Verified Answer to
First Amended Verified Complaint For Forfeiture In Rem (“Answer”) [Dkt. 268]; Claimant
Pavel Lazarenko’s Motion for Partial Judgment on the Pleadings and Partial Summary Judgment
(“Mot.”) [Dkt. 539]; Claimant Pavel Lazarenko’s Memorandum of Law in Support of Motion for
Partial Judgment on the Pleadings or, in the Alternative, for Partial Summary Judgment
(“Mem.”) [Dkt. 539-2]; United States’ Opposition to Claimant Pavel Lazarenko’s Motion for
Partial Judgment on the Pleadings and Partial Summary Judgment (“Opp.”) [Dkt. 599]; Claimant
Lazarenko’s Reply in Support of his Motion for Partial Judgment on the Pleadings or, in the
Alternative, for Partial Summary Judgment (“Reply”) [Dkt. 668]; Claimant Lazarenko’s
Supplemental Brief in Support of Motion for Partial Judgment on the Pleadings or, in the
Alternative, for Partial Summary Judgment (“Claimant’s Suppl. Br.”) [Dkt. 741]; United States’
Response to Claimant Pavel Lazarenko’s Supplement Brief in Support of Motion for Partial
Judgment on the Pleadings and Partial Summary Judgment (“Pl.’s Suppl. Br.”) [Dkt. 823];
Claimant Pavel Lazarenko’s Reply in Further Support of his Supplemental Authorities (“Suppl.
Reply”) [Dkt. 841]; Status Report Regarding Extraterritorial Reach Motion (“Claimant’s Status
Report”) [Dkt. 875]; United States’ Status Report in Response to Claimant’s Status Report on
Assets at Issue in his Extraterritoriality Motion (“Pl.’s Status Report”) [Dkt. 885]; and Reply to
Plaintiff’s Status Report (“Reply Report”) [Dkt. 890].
2
variety of acts of fraud, extortion, bribery, misappropriation and/or embezzlement’ committed
during the 1990s.” United States v. All Assets Held at Bank Julius Baer & Co., Ltd., 959 F.
Supp. 2d at 85 (quoting Am. Compl. ¶¶ 1, 10).
When Lazarenko filed a motion to dismiss this case for lack of subject matter
jurisdiction and for failure to state a claim under Rule 12(b) of the Federal Rules of Civil
Procedure, he argued in part that the Court lacked jurisdiction over the alleged conduct abroad.
See All Assets I, 571 F. Supp. 2d at 10 n.8, 12-13. In 2008, the Court denied Lazarenko’s
motion, briefly discussing extraterritoriality. Id. at 10 n.8. Lazarenko now argues that recent
Supreme Court precedent requires the Court to dismiss or narrow all of the United States’
alleged claims. Mot. at 1-2. Lazarenko filed this motion in light of the Supreme Court’s
decisions in Morrison v. National Australian Bank Ltd., 561 U.S. 247 (2010), which announced a
new framework for determining whether a federal statute applies extraterritorially, and Skilling
v. United States, 561 U.S. 358, 408 (2010), which held that 18 U.S.C. § 1346, the honest services
fraud statute, prohibits only bribery-and-kickback schemes and not conflict-of-interest schemes.
The Court permitted supplemental briefing after the Supreme Court issued its decision in RJR
Nabisco, Inc. v. European Community, 136 S. Ct. 2090, 2102 (2016), in which the Supreme
Court concluded that the Racketeer Influenced and Corrupt Organizations Act (“RICO”) applies
extraterritorially in limited circumstances.
A. Overview of Claims
The United States brings eight claims for forfeiture under two general categories.
The First, Second, Third, and Fourth Claims allege direct forfeiture of criminal proceeds
pursuant to 18 U.S.C. § 981(a)(1)(C), which provides for the direct forfeiture of proceeds from
the violation of certain enumerated criminal statutes or “any offense constituting ‘specified
3
unlawful activity’” as defined by 18 U.S.C. § 1956(c)(7). See Am. Compl. ¶¶ 120-39. The
Fifth, Sixth, Seventh, and Eighth Claims allege forfeiture of property involved in money
laundering violations pursuant to 18 U.S.C. § 981(a)(1)(A), which provides for, among other
things, the forfeiture of any real or personal property involved in or traceable to a violation of 18
U.S.C. §§ 1956 and 1957. See Am. Compl. ¶¶ 140-55. The United States alleges that all
defendants in rem are subject to forfeiture under any of the alleged claims. See id. ¶¶ 124, 129,
134, 139, 143, 147, 151, 155.
1. Section 981(a)(1)(C) Direct Forfeiture Claims
The direct forfeiture claims allege that the defendant properties constitute or are
derived from proceeds traceable to violations of four offenses that are considered “specified
unlawful activity” under 18 U.S.C. § 1956(c)(7). See 18 U.S.C. § 981(a)(1)(C). The three
offenses for which a part of the criminal conduct allegedly occurred in the United States are:
interstate transportation and receipt of property stolen or taken by fraud, in violation of 18 U.S.C.
§§ 2314 and 2315 (First Claim); Hobbs Act extortion, in violation of 18 U.S.C. § 1951 (Second
Claim); and wire fraud, including property and honest services fraud, in violation of 18 U.S.C.
§§ 1343 and 1346 (Third Claim). The two foreign offenses for which direct forfeiture is alleged
and authorized by law are: an offense against a foreign nation of extortion and an offense
against a foreign nation of bribery of a public official, or the misappropriation, theft, or
embezzlement of public funds by or for the benefit of a public official; these offenses are
specifically enumerated in 18 U.S.C. §§ 1956(c)(7)(B)(ii) and (iv) (Fourth Claim).
4
2. Section 981(a)(1)(A) Money Laundering Forfeiture Claims
The money laundering claims allege that the defendant properties were involved
in or traceable to money laundering transactions or attempted money laundering transactions.
The violations of money laundering law alleged in the Amended Complaint include: conduct
designed to conceal the nature, location, source, ownership, or control of proceeds of a specified
unlawful activity under 18 U.S.C. § 1956(a)(1)(B)(i) (Fifth Claim); international transportation,
transmission, or transfer of proceeds of a specified unlawful activity under 18 U.S.C.
§ 1956(a)(2)(B)(i) (Sixth Claim); engaging in or attempting to engage in monetary transactions
affecting interstate or foreign commerce with more than $10,000 in proceeds of a specified
unlawful activity under 18 U.S.C. § 1957 (Seventh Claim); and conspiracy to engage in money
laundering under 18 U.S.C. § 1956(h) (Eighth Claim). The United States alleges the same four
predicate offenses occurring in part in the United States and the same foreign extortion predicate
as in its direct forfeiture claims as a basis for the money laundering allegations. Foreign official
bribery, misappropriation, theft, or embezzlement, as enumerated under 18 U.S.C.
§ 1956(c)(7)(B)(iv), is not alleged as a basis for the money laundering claims. 2
B. Overview of Alleged Conduct
In the Amended Complaint, the United States alleges that the defendant properties
are traceable to four criminal schemes. See Am. Compl. ¶¶ 1, 21-54. These schemes allege
largely foreign conduct in which Lazarenko, through his position as a public official, and his
2
As the government notes, “the money laundering counts do not rely on foreign
theft, bribery, embezzlement, or misappropriation as predicates, as those offenses were not
added” as specified unlawful activity to 18 U.S.C. § 1956(c)(7)(B) “until the passage of the
Patriot Act of 2001, after the conduct charged in the [c]omplaint was complete.” Opp. at 32
n.17.
5
associates diverted millions of dollars for his personal use. See, e.g., id. ¶¶ 6-14. The United
States alleges that some negotiations took place in the United States, id. ¶ 14, and that some
corporations incorporated in the United States made payments to Lazarenko and his associates,
id. ¶¶ 41-42. But the primary bases for the alleged domestic conduct are numerous financial
transactions to, from, and through the United States. See, e.g., id. ¶¶ 56, 64, 72, 74, 80, 83-84,
106, 111-13, 115. There are two types of transactions alleged: (1) transfers to or from accounts
in the United States and (2) electronic funds transfers, or EFTs, which are routed through U.S.
financial institutions.
II. LEGAL STANDARD
Lazarenko seeks a partial judgment on the pleadings or, in the alternative, partial
summary judgment. Mot. at 1. The United States argues that the Court should construe
Lazarenko’s motion as a motion for reconsideration because these issues were presented in
Lazarenko’s original motion to dismiss, which the Court denied in All Assets I. Opp. at 1. The
Court will consider Lazarenko’s motion as a motion for partial judgment on the pleadings under
Rule 12(c) of the Federal Rules of Civil Procedure, not as a motion for reconsideration or for
summary judgment, for two reasons. First, although the Court discussed issues regarding
extraterritoriality in All Assets I, the Supreme Court has fundamentally changed the framework
for considering extraterritoriality issues. To treat the pending motion as a motion for
reconsideration would be inappropriate after the Supreme Court’s decisions in Morrison v.
National Australian Bank Ltd., 561 U.S. 247, and RJR Nabisco, Inc. v. European Community,
136 S. Ct. 2090. Second, “summary judgment is premature unless all the parties have ‘had a full
opportunity to conduct discovery.’” Convertino v. U.S. Dep’t of Justice, 684 F.3d 93, 99 (D.C.
Cir. 2012) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986)). The parties
6
submitted all of their substantive briefing on this motion before fact discovery had closed, and
summary judgment therefore is inappropriate at this time. The Court will consider Lazarenko’s
motion as a motion for partial judgment on the pleadings.
Rule 12(c) states that “[a]fter the pleadings are closed — but early enough not to
delay trial — a party may move for judgment on the pleadings.” FED. R. CIV. P. 12(c); see also
Hill v. U.S. Dep’t of Defense, 70 F. Supp. 3d 17, 19 (D.D.C. 2014). Although a motion for
judgment on the pleadings “is functionally identical to a Rule 12(b)(6) motion to dismiss for
failure to state a claim,” Hill v. U.S. Dep’t of Defense, 70 F. Supp. 3d at 19 (citation omitted),
the standard under Rule 12(c) is slightly different in terms of its focus. “The granting of a Rule
12(b) motion typically merely means that the plaintiff has failed to satisfy one of the procedural
prerequisites for asserting his claim for relief. A motion for judgment on the pleadings, however,
theoretically is directed towards a determination of the substantive merits of the
controversy . . . .” 5C CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE,
FEDERAL PRACTICE AND PROCEDURE § 1369 (3d ed. 2017). A court therefore grants partial
judgment if “it is clear that the merits of the controversy can be fairly and fully decided in this
summary manner.” Id.
“To survive a motion for judgment on the pleadings, a complaint need only
provide ‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in
order to ‘give the defendant fair notice of what . . . the claim is and the grounds upon which it
rests.’” Hill v. U.S. Dep’t of Defense, 70 F. Supp. 3d at 19 (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007)). 3 “‘Detailed factual allegations’ are unnecessary so long as the
3
Because this is an in rem forfeiture action, Rule G of the Supplemental Rules for
Admiralty or Maritime Claims and Asset Forfeiture Actions also governs the United States’
7
allegations contain sufficient facts, ‘accepted as true, to state a claim for relief that is plausible on
its face.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
On a motion for judgment on the pleadings, the Court construes the complaint
liberally in the plaintiff’s favor and grants the plaintiff “the benefit of all inferences that can be
derived from the facts alleged.” United States v. All Assets Held at Bank Julius Baer & Co.,
Ltd., 772 F. Supp. 2d at 197 (quoting Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C.
Cir. 1994)). “Nevertheless, the Court need not accept inferences drawn by the [plaintiff] if those
inferences are unsupported by facts alleged in the claim and answer, nor must the Court accept
the [plaintiff’s] legal conclusions.” Id. (citing Kowal v. MCI Commc’ns Corp., 16 F.3d at 1276).
As with a motion to dismiss for a failure to state a claim under Rule 12(b)(6), the Court may
grant judgment on the pleadings only if the facts alleged in the claim and answer do not “raise a
right to relief above the speculative level,” Bell Atl. Corp. v. Twombly, 550 U.S. at 555, or fail
to “state a claim to relief that is plausible on its face.” Id. at 570.
In deciding the motion for judgment on the pleadings, “a court may consider the
facts alleged in the complaint, documents attached to the complaint as exhibits or incorporated
by reference, and matters about which the court may take judicial notice.” Allen v. U.S. Dep’t of
Educ., 755 F. Supp. 2d 122, 125 (D.D.C. 2010) (citing Abhe & Svoboda, Inc. v. Chao, 508 F.3d
1052, 1059 (D.C. Cir. 2007)); see also 5C CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY
pleading requirements. See generally SUPPLEMENTAL RULES FOR ADMIRALTY OR MARITIME
CLAIMS AND ASSET FORFEITURE ACTIONS [hereinafter SUPP. R.], Rule G. The complaint must
“state sufficiently detailed facts to support a reasonable belief that the government will be able to
meet its burden of proof at trial,” SUPP. R. G(2)(f), but “the complaint may not be dismissed on
the ground that the government did not have adequate evidence at the time the complaint was
filed to establish the forfeitability of the property.” SUPP. R. G(8)(b)(ii). Lazarenko does not
dispute the Court’s determination that the United States has met its burden under Rule G. See
All Assets I, 571 F. Supp. 2d at 16-17.
8
KAY KANE, FEDERAL PRACTICE AND PROCEDURE § 1367 (3d ed. 2017). The Court will rely on
the Amended Complaint and Lazarenko’s First Amended Answer. 4
III. DISCUSSION
A. Determining the Extraterritorial Reach of Section 981(a)(1)(A) and (C)
1. Extraterritoriality Analysis Post-Morrison
“Absent clearly expressed congressional intent to the contrary, federal laws will
be construed to have only domestic application.” RJR Nabisco, Inc. v. European Cmty., 136 S.
Ct. at 2100 (citing Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at 255). This principle is known
as the presumption against extraterritoriality. Id. (citing Morrison v. Nat’l Austl. Bank Ltd., 561
U.S. at 255). When a complaint alleges conduct that occurred in whole or in part abroad, the
Court must determine whether “Congress has affirmatively and unmistakably” instructed that the
statute at issue applies to foreign conduct. Id. (citing Morrison v. Nat’l Austl. Bank Ltd., 561
U.S. at 261). “When a statute gives no clear indication of an extraterritorial application, it has
none.” Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at 255; see also EEOC v. Arabian Am. Oil
Co., 499 U.S. 244, 248 (1991).
The Supreme Court has developed a two-step framework for analyzing
extraterritoriality issues. First, the Court must ask “whether the presumption against
extraterritoriality has been rebutted — that is, whether the statute gives a clear, affirmative
4
At oral argument, Lazarenko suggested that his motion was limited to “assets one,
two, and nine.” Mot. Hr’g Tr. (Jan. 25, 2017) at 40 [Dkt. 886]. The Court ordered the parties to
file status reports to clarify Lazarenko’s statement at oral argument and confirm “which assets
and their corresponding accounts are ‘assets one, two and nine’ and which paragraphs in the
Amended Complaint . . . relate to those assets.” Order (Jan. 26, 2017) at 1 [Dkt. 870]. The
Court will consider those status reports only to the extent that the reports reference paragraphs in
the Amended Complaint. The Court will not consider facts submitted in the reports that are not
included in the pleadings.
9
indication that it applies extraterritorially.” RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. at
2101. Courts must address this first step of the extraterritoriality inquiry “regardless of whether
the statute in question regulates conduct, affords relief, or merely confers jurisdiction.” Id. “If
the statute is not extraterritorial, then at the second step [the court] determine[s] whether the case
involves a domestic application of the statute, and [does] this by looking to the statute’s ‘focus.’”
Id. “If the conduct relevant to the statute’s focus occurred in the United States, then the case
involves a permissible domestic application even if other conduct occurred abroad; but if the
conduct relevant to the focus occurred in a foreign country, then the case involves an
impermissible extraterritorial application regardless of any other conduct that occurred in U.S.
territory.” Id. Although the Supreme Court has noted that courts typically should start with the
first step because it may “obviate step two’s ‘focus’ inquiry,” courts are not precluded from
“starting at step two in appropriate cases.” Id. at 2101 n.5.
Few courts have considered the extraterritorial application of the civil forfeiture
statute, 18 U.S.C. § 981, after Morrison. See, e.g., United States v. Prevezon Holdings Ltd., 122
F. Supp. 3d 57 (S.D.N.Y. 2015). Furthermore, the structure of the civil forfeiture statute presents
a threshold question of where the Court should begin its extraterritoriality analysis. Like the
RICO statute at issue in RJR Nabisco, the civil forfeiture statute references and incorporates
other statutes. Section 981(a)(1)(C) incorporates other criminal statutes — the criminal
violations that permit direct forfeiture. Section 981(a)(1)(A) incorporates three money
laundering statutes, which prohibit the money laundering of proceeds of other specified unlawful
activity, enumerated in other criminal statutes.
For this reason, the parties offer two potential analytical frameworks for
determining the extraterritoriality issues in this case — (1) by starting with the civil forfeiture
10
provision itself, 18 U.S.C. § 981, or (2) instead by focusing on the underlying criminal statutes
— or predicates — that subject the property to civil forfeiture. In RJR Nabisco, the Supreme
Court first considered the statute at issue, 18 U.S.C. § 1962, before turning to any incorporated
statutes. 136 S. Ct. at 2101. The same analysis is necessary here because if 18 U.S.C. § 981
rebuts the presumption against extraterritoriality by its own terms, there is no need to look at the
underlying criminal statutes. In addition, the two civil forfeiture provisions at issue here — 18
U.S.C. § 981(a)(1)(A) and (C) — operate differently, so the Court must address each provision
separately.
2. Whether 18 U.S.C. § 981(a)(1)(A) and (C)
Rebut the Presumption Against Extraterritoriality
There is no question that Congress has authorized the United States to seize
property located abroad. See 28 U.S.C. § 1355. At issue here, however, is whether the civil
forfeiture statute permits the United States to seize property — in this case, money — that is
derived from or traceable to crimes that allegedly were committed in whole or in part abroad. As
previously noted, the Court must first determine whether the presumption against
extraterritoriality has been rebutted — that is, whether 18 U.S.C. § 981 “gives a clear,
affirmative indication that it applies extraterritorially.” RJR Nabisco, Inc. v. European Cmty.,
136 S. Ct. at 2101. 5 The Supreme Court has instructed that to determine whether a particular
5
The United States argues that Congress intended some of the criminal statutes at
issue in this case — wire fraud, interstate transportation and receipt of property stolen or taken
by fraud, Hobbs Act extortion, and money laundering — to apply extraterritorially because these
are criminal statutes “‘which are, as a class, not logically dependent on their locality for the
government’s jurisdiction’ because ‘to limit their locus to the strictly territorial jurisdiction
would be greatly to curtail the scope and usefulness of the statute and leave open a large
immunity for frauds.’” Opp. at 11 n.5 (quoting United States v. Bowman, 260 U.S. 94, 98
(1922)). The United States reads United States v. Bowman too broadly. In Bowman, the
11
statute rebuts the presumption against extraterritoriality, courts may look to the text, context, and
structure of the statute. Id. at 2102-03; see also Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at
265 (“[C]ontext can be consulted as well.”)
The text of 18 U.S.C. § 981(a)(1)(A) and (C) provides little indication that the
two provisions apply extraterritorially. Section 981(a)(1)(A) states that any real or personal
property is subject to forfeiture to the United States if it is “involved in a transaction or attempted
transaction in violation of section 1956, 1957, or 1960 of [Title 18], or any property traceable to
such property.” Section 981(a)(1)(C) states that any real or personal property is subject to
forfeiture if it “constitutes or is derived from proceeds traceable” to a violation of one of certain
enumerated statutes or “any offense constituting ‘specified unlawful activity’ (as defined by
section 1956(c)(7)).” Nothing in this language shows a clear intent from Congress that the civil
forfeiture statute applies to conduct abroad.
The structure of Section 981, however, is similar to the RICO statute at issue in
RJR Nabisco, Inc. v. European Community, which leads the Court to conclude that the civil
forfeiture statute applies extraterritorially in certain circumstances. In RJR Nabisco, the
Supreme Court considered whether 18 U.S.C. § 1962 (the substantive RICO statute) applies to
conduct abroad and whether Section 1964(c) (RICO’s civil private right of action) applies to
injuries abroad. 136 S. Ct. at 2099-2100. Section 1962 prohibits certain activities that are
Supreme Court concluded that the presumption against extraterritoriality does not apply to
criminal statutes that “are enacted because of the right of the government to defend itself against
obstruction, or fraud wherever perpetrated, especially if committed by its own citizens, officers,
or agents.” 260 U.S. at 98. Although Bowman “has not been overruled or explicitly limited” by
Morrison or any other subsequent Supreme Court decisions, courts have adhered to this
limitation, stating that Bowman applies only to a narrow class of statutes that “criminaliz[e]
fraud or corruption against the United States.” United States v. Campbell, 798 F. Supp. 2d 293,
303-04 (D.D.C. 2011); see also United States v. Ayesh, 762 F. Supp. 2d 832, 838 (E.D. Va.
2011).
12
conducted through a pattern of racketeering activity. See 18 U.S.C. § 1962(a)-(c). Section 1961
includes all of the possible crimes, or “predicate acts,” that can constitute racketeering activity
for the purposes of RICO. See 18 U.S.C. § 1961(1). The Court determined that because some
RICO predicates “plainly apply to at least some foreign conduct,” Section 1962 was intended to
apply and does apply to racketeering conduct abroad “to the extent that the predicates alleged in
the particular case themselves apply extraterritorially.” RJR Nabisco, Inc. v. European Cmty.,
136 S. Ct. at 2102. The Supreme Court concluded that “[t]his unique structure makes RICO the
rare statute that clearly evidences extraterritorial effect despite lacking an express statement of
extraterritoriality.” Id. at 2103.
Despite its conclusion that the substantive RICO provision applies
extraterritorially, the Supreme Court determined that the civil RICO private right of action
provision, 18 U.S.C. § 1964(c), must be analyzed separately. RJR Nabisco, Inc. v. European
Cmty., 136 S. Ct. at 2106. Noting that “a private civil remedy for foreign conduct creates a
potential for international friction beyond that presented by merely applying U.S. substantive law
to conduct abroad,” the Supreme Court concluded that nothing in the text or context of Section
1964(c) indicated that Congress clearly intended to provide for a private right of action to
individuals who suffered RICO injuries abroad. Id. at 2107-08.
Lazarenko argues that Section 981 is essentially the same as Section 1964(c) —
the civil RICO private right of action provision — and like Section 1964(c), the text of the
Section 981 provides no indication that the civil forfeiture provision applies and was intended to
apply to conduct abroad. Claimant’s Suppl. Br. at 4-6; Claimant’s Suppl. Reply at 5-6. The
Court disagrees. Although the text of Section 981 provides no indication that the statute applies
abroad, the structure of the statute is similar to the structure of Section 1962, the substantive
13
provision of the RICO statute. Both statutes incorporate other criminal statutes as a means to
determine what conduct is proscribed, and in the case of Section 981, what specific property is
subject to forfeiture.
Section 981(a)(1)(C) lists as predicate acts the violation of specific criminal
statutes and other “specified unlawful activity” as defined by 18 U.S.C. § 1956(c)(7). Section
1956(c)(7) defines specified unlawful activity to include “any act or activity constituting an
offense listed in section 1961(1)” — in other words, the same list of predicate crimes that the
Supreme Court determined allowed for the extraterritorial application of the substantive RICO
provision in 18 U.S.C. § 1962. Section 1956(c)(7) also includes certain offenses “against a
foreign nation” that necessarily apply to foreign conduct. See 18 U.S.C. § 1956(c)(7)(B). The
structure of Section 981(a)(1)(C) and the statutes that it incorporates clearly indicate that
Congress intended Section 981(a)(1)(C) to apply to some conduct abroad. See RJR Nabisco,
Inc. v. European Cmty., 136 S. Ct. at 2101. The Court therefore concludes that Section
981(a)(1)(C) applies extraterritorially to the extent that the underlying criminal statute or the
specified unlawful activity applies to conduct abroad.
Section 981(a)(1)(A) directly incorporates three money laundering statutes: 18
U.S.C. §§ 1956, 1957, and 1960. Sections 1956 and 1957, violations of which are alleged here,
explicitly provide for extraterritorial application, with certain limitations as to their reach. See
18 U.S.C. §§ 1956(f), 1957(d); see also infra at 15-24. The Court therefore concludes that the
structure of Section 981(a)(1)(A) also indicates that the provision applies and was intended to
apply to conduct abroad to the extent that the conduct comes within the terms of the
extraterritorial provisions of Sections 1956 and 1957. See RJR Nabisco, Inc. v. European Cmty.,
136 S. Ct. at 2101. As the Supreme Court noted in RJR Nabisco, “when a statute provides for
14
some extraterritorial application, the presumption against extraterritoriality operates to limit that
provision by its terms.” Id. at 2102 (quoting Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at
265).
The Court’s next inquiry can be summarized in the following way: For the
money laundering claims, brought under Section 981(a)(1)(A), the Court has already noted that
these statutes have express extraterritorial provisions, and the Court therefore must determine
whether the alleged conduct falls within the extraterritorial terms of the money laundering
statutes. There is no need for the Court to look at the “focus” of the money laundering statutes.
See RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. at 2101. For the other claims, brought
under Section 981(a)(1)(C), the Court must determine whether the underlying criminal statute or
the specified unlawful activity applies extraterritorially and, if it does not, determine whether the
alleged conduct would constitute a permissible domestic application of the statute by looking at
the statute’s “focus.” Id.
B. Extraterritorial Reach of the United States’ Claims
1. Fifth, Sixth, and Eighth Claims — Money Laundering Under 18 U.S.C. § 1956
The United States brings three claims for relief under 18 U.S.C. § 1956. It asserts
that under 18 U.S.C. § 981(a)(1)(A) the defendants in rem are property involved in a transaction
or attempted transaction or traceable to violations of three money laundering provisions: money
laundering, in violation of Section 1956(a)(1)(B)(i) (Fifth Claim); international money
laundering, in violation of Section 1956(a)(2)(B)(i) (Sixth Claim); and conspiracy to commit
money laundering, in violation of Section 1956(h) (Eighth Claim). See Am. Compl. ¶¶ 140-47,
152-55.
15
The language of 18 U.S.C. § 1956 expressly indicates that Congress intended for
the statute to apply to conduct abroad. Section 1956(f) states that “[t]here is extraterritorial
jurisdiction over the conduct prohibited by this section if — (1) the conduct is by a United States
citizen or, in the case of a non-United States citizen, the conduct occurs in part in the United
States; and (2) the transaction or series of related transactions involves funds or monetary
instruments of a value exceeding $10,000.” There is no dispute that (1) Mr. Lazarenko and his
alleged coconspirators are not U.S. citizens and (2) the transactions or the series of related
transactions alleged in the Amended Complaint exceed $10,000 dollars. The Court therefore
must determine whether the transactions alleged in the Amended Complaint occurred “in part in
the United States.”
Lazarenko concedes that a transfer from a foreign account to an account in a U.S.
financial institution and a transfer from a U.S. account to a foreign financial institution occur in
part in the United States under 18 U.S.C. § 1956(f). Reply at 29; see, e.g., United States v.
Hawit, No. 15-cr-0252, 2017 WL 663542, at *9 (E.D.N.Y. Feb. 17, 2017); United States v.
Galvis-Pena, No. 09-cr-0025, 2012 WL 425240, at *3-4 (N.D. Ga. Feb. 9, 2012); United States
v. Stein, No. 93-cr-0375, 1994 WL 285020, at *5 (E.D. La. June 23, 1994). Further, the
legislative history of the statute indicates that Congress intended the provision to apply to
situations where “a person transfers by wire the proceeds of a [crime] from a bank in the United
States to a bank in a foreign country.” S. Rep. 99-443, at 14 (1986).
Lazarenko argues, however, that for several of the in rem defendants the United
States has alleged only transactions that “passed through a correspondent bank account” in the
United States as electronic funds transfers (“EFTs”) and that such transfers do not occur in part
in the United States under Section 1956(f). Mem. at 28-30. In other words, Lazarenko maintains
16
that an EFT is a single foreign transaction from one foreign country to another that does not
occur in the United States and only “momentarily pass[es] through the U.S. banking system,”
rather than two separate transactions — one transaction that enters the United States and one
transaction that exits the United States. Id. at 13.
The Court addressed this argument in All Assets I. See 571 F. Supp. 2d at 12-13.
In his original motion to dismiss, Lazarenko argued that EFTs are not transfers under 18 U.S.C.
§ 1956(a)(1) or (2) because each EFT is a single transaction from a foreign bank account to
another foreign bank account that only incidentally passes through a U.S. financial institution.
Id. at 13. The Court rejected this argument. Based on Second Circuit precedent, the Court
concluded that for each EFT “at least two transactions occurred: first, funds moved from the
originating back to the intermediary bank; then the intermediary bank was to transfer the funds to
the destination bank. . . . While the two transactions can occur almost instantaneously,
sometimes they are separated by several days.” Id. (quoting United States v. Daccarett, 6 F.3d
37, 54 (2d Cir. 1993)).
Lazarenko argues that the case on which the Court relied, United States v.
Daccarett, is no longer good law and that “the Second Circuit has since limited Daccarett in the
forfeiture context.” Mem. at 41; see also Mot. Hr’g Tr. (Jan. 25, 2017) at 55 [Dkt. 886]. All of
the decisions Lazarenko cites, however, deal with largely unrelated issues. See Mem. at 39-41. 6
6
In United States v. Cosme, the Second Circuit discussed a wholly unrelated part
of the Daccarett opinion dealing with Fourth Amendment seizures and concluded that when the
government seizes a res without a warrant from an intermediary bank under the exigent
circumstances exception, it must still get a warrant to justify an extended seizure of the res. 796
F.3d 226, 235 (2d Cir. 2015). In Export-Import Bank of the United States v. Asia Pulp & Paper,
the Second Circuit held that “an EFT temporarily in the possession of an intermediary bank may
not be garnished under the [Federal Debt Collection Procedures Act] to satisfy a judgment owed
by the beneficiary or originator of that EFT.” 609 F.3d 111, 122 (2d Cir. 2010). In Shipping
17
The Court finds no support in any of these three decisions for the proposition that Daccarett is no
longer persuasive authority on the issue presented here. The Court therefore again concludes
that EFTs are two transactions: one transaction into the United States and one transaction out of
the United States. 7 This conclusion, however, does not end the inquiry of whether EFTs are
conduct occurring in part in the United States sufficient to satisfy the extraterritorial provision of
18 U.S.C. § 1956(f).
As the Court noted in All Assets I, Congress enacted the money laundering statute
“to criminalize the use of United States financial institutions as clearinghouses for criminal
money laundering and conversion into United States currency.” 571 F. Supp. 2d at 12; see also
Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., the Second Circuit held that EFTs in the
temporary possession of an intermediary bank are not subject to attachment under Rule B of
Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions because
they are not the property of either the originator or the beneficiary under New York law. 585
F.3d 58, 70-71 (2d Cir. 2009). In Daccarett, by contrast, the only question was whether the
assets were attachable while in transit as EFTs, without regard to who had a property interest in
the assets, an irrelevant consideration for forfeiture purposes. Id. at 69.
7
To further support his position that EFTs do not occur “in part” in the United
States, as required by Section 1956(f), Lazarenko cites post-Morrison decisions in which EFTs
have been considered, but in other contexts. See, e.g., United States v. Prevezon Holdings Ltd.,
122 F. Supp. 3d at 71 (concluding that a single EFT is not “sufficient to overcome the
presumption against the wire fraud statute’s extraterritorial application”); Sec. Inv’r Prot. Corp.
v. Bernard L. Madoff Inv. Sec. LLC, 513 B.R. 222, 228 n.1 (S.D.N.Y. 2014) (concluding that
EFTs are not sufficient for a domestic application of section 550(a) of the Bankruptcy Code);
Univ. Trading & Inv. Co. v. Tymoshenko, No. 11-7877, 2012 WL 6186471, at *3 (S.D.N.Y.
Dec. 12, 2012) (declining to exercise personal jurisdiction over a defendant based on EFTs given
a “lack of clear precedent” on the issue for personal jurisdiction analysis). None of these cases is
on point. Indeed, Lazarenko has cited only one case that potentially supports his conclusion that
EFTs do not occur “in part” in the United States for purposes of 18 U.S.C. § 1956(f). In United
States v. Lloyds TSB Bank PLC, the Court mentioned in a footnote the government’s “faint
reliance” on EFTs to support venue under Section 1956; but — addressing the issues before it —
the Court ultimately determined that the fact that EFTs “may or did pass electronically through
the New York banking system” was not relevant for forum non conveniens or subject matter
jurisdiction analysis. 639 F. Supp. 2d 314, 324 n.4 (S.D.N.Y. 2009). The Court is unpersuaded
by any of these decisions because these cases present different concerns than the question at
issue here.
18
S. Rep. 99-433, at 2 (1986). Lazarenko argues, however, that EFTs are not an “abuse of the U.S.
financial system,” because the individual does not deliberately choose to have the transfer pass
through a U.S. financial institution; the foreign bank decides which intermediary bank to use.
Reply at 27. The fact that Lazarenko himself or one of his associates did not direct the transfer
to go through the United States does not mean that EFTs passing through the U.S. banking
system do not significantly affect interstate and foreign commerce in the United States. As
Lazarenko acknowledges, U.S. dollars are “the dominant reserve currency for the international
financial system,” Reply at 1, and 95 percent of “all international transfers in U.S. dollars pass
through the United States as EFTs.” Mem. at 1. These EFTs are transferred through one of a
handful of wire payments systems in the United States and represent billions of dollars in
transfers every day at and through U.S. financial institutions. See Banque Worms v.
BankAmerica, Int’l, 570 N.E.2d 189, 194 (N.Y. 1991). To conclude that the money laundering
statute does not reach EFTs simply because Lazarenko himself did not choose a U.S. bank as the
correspondent or intermediate bank for his wire transfers would frustrate Congress’s intent to
prevent the use of U.S. financial institutions “as clearinghouses for criminals.” All Assets I, 571
F. Supp. 2d at 12.
Lazarenko also argues that to conclude that an electronic funds transfer through
the United States constitutes conduct occurring in part in the United States sufficient to satisfy 18
U.S.C. § 1956(f) would allow the United States to forfeit “proceeds of all crimes, anywhere in
the world” simply because the actors used U.S. dollars that were then transferred through the
U.S. financial system. Reply at 1. Such a conclusion, he maintains, would “extend[] jurisdiction
to at least 330,000 daily payment orders, with an aggregate daily value of $1.450 trillion, none of
which have anything whatsoever to do with the United States.” Reply at 28. This is not an
19
accurate statement. Congress limited the extraterritorial reach of the money laundering statutes
to crimes that involve monetary transactions derived from the proceeds of specified unlawful
activity conducted in part in the United States and involving a transaction or series of
transactions over $10,000. See 18 U.S.C. § 1956(f). Furthermore, although the use of U.S.
currency alone would not be sufficient under 18 U.S.C. § 1956(f), Congress is justified in
protecting U.S. financial institutions from those “seeking out the safety and stability of the U.S.
dollar,” who then transfer money derived from unlawful activity through the U.S. financial
system. Opp. at 14; see also All Assets I, 571 F. Supp. 2d at 12. These limitations “ensur[e] that
Federal extraterritorial jurisdiction is confined to significant cases” where “the interests of the
United States are involved.” S. Rep. 99-433, at 14.
The definition of the term “transaction” in 18 U.S.C. § 1956(c) is further
indication that Congress intended Section 1956 to cover EFTs. The statute defines a transaction
as, among other things, “a deposit, withdrawal, transfer between accounts, . . . or any other
payment, transfer, or delivery by, through, or to a financial institution, by whatever means
effected.” 18 U.S.C. § 1956(c)(3) (emphasis added). This definition strongly suggests that
Congress intended to target EFTs that merely pass through a U.S. financial institution in Section
1956. This Court therefore concludes that EFTs that pass through a U.S. financial institution
constitute conduct that occurs in part in the United States under 18 U.S.C. § 1956.
The Court recognizes that whether an EFT is sufficient conduct for extraterritorial
application under 18 U.S.C. § 1956(f) is a question of first impression in this Court and has not
been considered widely. Opening an account in the United States or transferring money to and
from accounts in the United States is certainly more substantial conduct than transferring money
through an intermediary bank’s U.S. account. In this case, the United States alleges that
20
Lazarenko and his associates transferred millions of dollars to and from accounts in the United
States and between foreign bank accounts as EFTs that passed through U.S. financial institutions.
See, e.g., Am. Compl. ¶¶ 31, 34, 42-43, 50-51. In the Court’s view, this conduct is precisely
what Congress intended to prevent in enacting the money laundering statutes — the use of U.S.
financial institutions as clearinghouses for criminal money laundering. It is conduct that fits well
within the statute’s requirement of conduct that “occurs in part in the United States” under
Section 1956(f). Extraterritorial jurisdiction therefore is proper under the express terms of the
statute. 8
The United States has alleged sufficient facts that the defendants in rem are
property derived from violations of 18 U.S.C. § 1956(a)(1), (a)(2), and (h). See All Assets I, 571
F. Supp. 2d at 11-14; see, e.g., Am. Compl. ¶¶ 31, 34, 39, 55-56, 61-64, 88, 94. The Court
therefore will deny Lazarenko’s motion for judgment on the pleadings with respect to the Fifth,
Sixth, and Eighth Claims. 9
8
Lazarenko also requests that the Court require the United States to identify any
accounts that exclusively hold funds that were transferred as EFTs and that it lift the restraint on
those accounts. See Mem. at 41. He asks the Court to reconsider its decision — based in part on
Daccarett — that funds that passed through U.S. financial institutions as EFTs could be subject
to seizure. Mem. at 39-41; see All Assets I, 571 F. Supp. 2d at 13. He argues that “Daccarett . . .
only permits the seizure of funds from the intermediary bank while in transit through the New
York bank, which is not what happened in Mr. Lazarenko’s case.” Mem. at 41. The Court finds
no support for this proposition in the cases on which Lazarenko relies or in any other authority.
As the Court noted, supra at 17-18, these cases arise from patently different contexts, and they
say nothing regarding whether funds that passed through U.S. financial institutions as EFTs
could later be subject to forfeiture. The Court therefore will deny Lazarenko’s request to lift the
restraint on any account containing only funds that were transferred as EFTs.
9
Each money laundering claim requires that the government allege that the money
is the proceeds of “specified unlawful activity,” which is conduct prohibited by certain
enumerated criminal statutes. See 18 U.S.C. § 1956(c)(7). The United States argues that EFTs
are conduct that occurs in part in the United States under Section 1956(f), see Opp. at 32-37, but
it also assumes that the money laundering claims can only survive a motion for partial judgment
21
2. Seventh Claim — Engaging in Transactions with the Proceeds of Money Laundering
Under 18 U.S.C. § 1957
Section 1957, which prohibits engaging in, or attempting to engage in, a monetary
transaction in criminally derived property of a value greater than $10,000 and that is derived
from specified unlawful activity, also contains an extraterritorial provision. See 18 U.S.C.
§ 1957(a). An individual violates Section 1957 if the offense “takes place in the United States.”
Id. § 1957(d)(1). But an individual also violates Section 1957(a) if the offense “takes place
outside of the United States” so long as the defendant is a United States person. Id. § 1957(d)(2).
By statute, a “United States person” includes any person within the United States and any
corporation organized under the laws of any state. 18 U.S.C. § 3077(2).
on the pleadings if the statute prohibiting the specified unlawful activity alleged for each money
laundering claim also applies extraterritorially. See Opp. at 32; see also United States v.
Prevezon Holdings Ltd., 122 F. Supp. 3d at 70 (concluding that the allegations of wire fraud
could not constitute specified unlawful activity for a money laundering claim because the wire
fraud statute does not apply extraterritorially and the complaint did not allege “sufficiently
domestic conduct” for wire fraud). The Court is not convinced that this is correct.
As the Supreme Court has made clear, courts may consider the structure of a
statute, including references to other statutes, when determining whether a statute applies
extraterritorially. See RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. at 2101-02. Section
1956, however, includes an express extraterritorial provision. See 18 U.S.C. § 1956(f). Once a
court determines that there is clear congressional intent for the statute to apply abroad, it limits
the extraterritorial application to the terms of the statute. See RJR Nabisco, Inc. v. European
Cmty., 136 S. Ct. at 2102 (citing Morrison v. Nat’l Austl. Bank. Ltd., 561 U.S. at 265). “Section
1956(f), which explicitly sets forth the requirements for Section 1956’s extraterritorial
application, does not indicate in any way that the underlying specified unlawful activity must
also be extraterritorial in nature.” United States v. Hawit, 2017 WL 663542, at *9 n.13.
Even if the Court were to adopt the approach assumed by the government and
applied in Prevezon Holdings, the Court would still conclude that the United States has alleged
sufficient claims for money laundering under Sections 1956 and 1957 because the Amended
Complaint alleges proper claims for interstate transportation and receipt of property stolen or
taken by fraud and foreign extortion as the specified unlawful activity of the money laundering
claims. See infra at 25-27, 34-35.
22
Lazarenko argues that the Court must dismiss this claim because none of the
defendants in rem is a “United States person” under Section 1957(d)(2). Reply at 26. 10 The
Court need not consider this argument, however, because Section 1957(d)(1) covers both wire
transfers and EFTs. First, although few courts have considered where a monetary transaction
“takes place” under Section 1957, the Court is satisfied that transfers to accounts in U.S.
financial institutions and from accounts in U.S. financial institutions are monetary transactions
that “take place” in the United States. See United States v. Black, 469 F. Supp. 2d 513, 538
(N.D. Ill. 2006) (concluding that a transfer from Canada to a financial institution in Chicago is a
transaction that “took place” in the United States); United States v. Approximately
$25,829,681.80 in Funds, No. 98-2682, 1999 WL 1080370, at *3 (S.D.N.Y. Nov. 30, 1999)
(same).
Second, the Court concludes that the statute’s definition of monetary transaction
also covers EFTs. Under 18 U.S.C. § 1957, a monetary transaction includes any “deposit,
withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a
monetary instrument . . . by, through, or to a financial institution.” 18 U.S.C. § 1957(f)(1)
(emphasis added). This definition suggests that Section 1957 prohibits even EFTs that merely
pass through a U.S. financial institution. See also supra at 16-21. This Court therefore
concludes that EFTs that pass through a U.S. financial institution take place in the United States
under 18 U.S.C. § 1957(d)(1).
10
In a recent status report, Lazarenko states that there is a legal dispute between the
parties regarding whether one of Lazarenko’s associates was a United States person for purposes
of 18 U.S.C. §§ 1956(h) and 1957. Reply Report at 2. Lazarenko asks the Court for guidance on
this legal issue. Id. The Court declines to offer such guidance because Lazarenko failed to
present this issue in his opening brief or at oral argument, and the United States has had no
opportunity to respond.
23
The United States alleges numerous transactions into and out of U.S. accounts,
numerous EFT transactions that passed through U.S. financial institutions, and checks drawn on
U.S. accounts. See, e.g., Am. Compl. ¶¶ 56, 64, 72, 74, 80, 83-84, 106, 111-13, 115. These facts
are sufficient to support the Seventh Claim that the defendants in rem are property derived from
or traceable to a violation of 18 U.S.C. § 1957. The Court therefore denies Lazarenko’s motion
for judgment on the pleadings with respect to the Seventh Claim.
3. First Claim — Interstate Transportation and Receipt of Property Stolen
or Taken by Fraud Under 18 U.S.C. §§ 2314 and 2315
Before turning to the extraterritoriality analysis with respect to the First Claim,
the Court addresses Lazarenko’s argument that 18 U.S.C. §§ 2314 and 2315 do not apply to the
“intangible harms” asserted in the Amended Complaint. Mem. at 15 n.9. Citing Dowling v.
United States, 473 U.S. 207 (1985), Lazarenko argues that Sections 2314 and 2315 do not apply
because the United States has alleged that Lazarenko deprived the people of Ukraine of the
intangible right of honest services. Mem. at 15 n.9; Reply at 10-11. Under Lazarenko’s theory,
Sections 2314 and 2315, which prohibit the transfer and receipt of money unlawfully taken by
fraud, would not apply in any instance of honest services fraud.
In Dowling v. United States, the Supreme Court considered whether a defendant,
who had transported phonorecords of musical performances for which he had not paid royalties,
had transported goods that were “stolen, converted or taken by fraud for purposes of [18 U.S.C.]
§ 2314.” 473 U.S. at 215-16 (internal quotation marks omitted). The Court concluded that he
had not, relying in part on the intangible nature of copyright and other intellectual property. Id.
at 216-18. It stated that Section 2314 “seems clearly to contemplate a physical identity between
the items unlawfully obtained and those eventually transported.” Id. at 216.
24
Lazarenko seeks to extend this conclusion to honest services fraud because the
right of honest services is an intangible right. See Mem. at 15 n.9. 11 He cites no case that stands
for the proposition that Sections 2314 and 2315 cannot apply to the proceeds of honest services
fraud, and it would seem to frustrate the purpose of the statute to exclude an entire type of fraud
for which Congress has provided an explicit remedy. As the United States correctly notes, the
physical item unlawfully obtained and transported in this case is money, which falls under both
statutes. See 18 U.S.C. §§ 2314, 2315; see also United States v. Gilboe, 684 F.2d 235, 238
(2d Cir. 1982).
a. 18 U.S.C. § 2314
The Court next turns to the question of whether Section 2314 by its terms applies
extraterritorially and, if it does not, whether the conduct relevant to the statute’s focus occurred
in the United States. A person violates Section 2314 if he or she “transports, transmits, or
transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money,
of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by
fraud.” 18 U.S.C. § 2314. As Lazarenko notes, Section 2314 includes only a general reference
to “foreign commerce,” which the Supreme Court has found insufficient to rebut the presumption
against extraterritoriality. See Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at 248 (citing EEOC
v. Arabian Am. Oil Co., 499 U.S. at 251). “[E]ven statutes that contain broad language in their
11
Lazarenko does not rely on Skilling v. United States, 561 U.S. 358, for his
argument with respect to 18 U.S.C. §§ 2314 and 2315. In Skilling, the Supreme Court concluded
that schemes to defraud a victim of the intangible right of honest services under the mail and
wire fraud statutes must allege bribes or kickbacks. 561 U.S. at 408-09. Schemes alleging only
a conflict of interest are insufficient. Id. These conclusions say nothing about the intangible
harm argument Lazarenko makes here.
25
definitions of ‘commerce’ that expressly refer to ‘foreign commerce’ do not apply abroad.”
EEOC v. Arabian Am. Oil Co., 499 U.S. at 251.
Having concluded that Section 2314 does not rebut the presumption against
extraterritoriality, the Court turns to whether the Amended Complaint alleges a domestic
application of Section 2314 by looking to the statute’s focus. The text of the statute indicates
that the focus of Section 2314 is the transportation or transfer of property. The legislative history
also supports this conclusion. In enacting 18 U.S.C. § 2314, Congress was primarily concerned
with the movement of stolen property across state lines. See Dowling v. United States, 473 U.S.
at 218-20 (discussing legislative history). 12 The legislative history also suggests that Congress
intended Section 2314 to apply to both interstate transportation and transportation into and out of
the United States. See H. Rep. 152, at A374 (1945) (noting that Section 2314 applies to
“transportation from one State, Territory, or the District of Columbia to another State, Territory,
or the District of Columbia, or to a foreign country, or from a foreign country to any State,
Territory, or the District of Columbia”). The Court therefore concludes that the focus of Section
2314 is the transportation or transfer of property. Applying Section 2314 to wire transfers into
and out of the United States of money allegedly unlawfully taken constitutes a “domestic
application” of Section 2314.
The Amended Complaint alleges numerous wire transfers into and out of the
United States, which is sufficient for Section 2314. See, e.g., Am. Compl. ¶¶ 123-24. It also
12
Lazarenko argues that the focus of Sections 2314 and 2315 is more limited: the
transportation of stolen property “in order to escape the reach of law enforcement encumbered by
jurisdictional boundaries.” Reply at 8 (citing Dowling v. United States, 473 U.S. at 220). The
Court is not persuaded. The Supreme Court’s extraterritoriality decisions do not indicate that
courts must narrow a statute’s focus to the precise example provided in the legislative history.
To do so, would ignore the broader language in the text of the statute.
26
alleges numerous transfers in the form of EFTs that pass through the United States. See, e.g., id.
¶¶ 56, 79-80, 97, 115. In light of the Court’s determination that each EFT is two separate
transactions — a transaction into an account in the United States and a transaction out of an
account in the United States — Section 2314 also applies to EFTs. See United States v.
Daccarett, 6 F.3d at 54. Lazarenko’s argument that EFTs are not the “focus” of Section 2314 is
beside the point. See Reply at 7. The Court therefore will deny Lazarenko’s motion for
judgment on the pleadings with respect to the First Claim and 18 U.S.C. § 2314.
b. 18 U.S.C. § 2315
The text of 18 U.S.C. § 2315 illustrates even clearer congressional intent for the
statute to apply to the conduct alleged in the Amended Complaint. A person violates Section
2315 if he or she “receives, possesses, [or] conceals” more than $5,000 that has “crossed a State
or United States boundary after being stolen, unlawfully converted, or taken, knowing the same
to have been stolen, unlawfully converted, or taken.” 18 U.S.C. § 2315. As noted above, the
Amended Complaint alleges numerous wire transfers into and out of the United States of money
allegedly unlawfully taken. See, e.g., Am. Compl. ¶¶ 123-24. Section 2315 explicitly proscribes
the conduct alleged here: concealing property that has “crossed a . . . United States boundary.”
Because the Court has concluded that each EFT crosses a U.S. border once upon entering a U.S.
account and once upon exiting a U.S. account, Section 2315 clearly applies to EFTs. See United
States v. Daccarett, 6 F.3d at 54. The Court therefore will deny Lazarenko’s motion for
judgment on the pleadings with respect to the First Claim and 18 U.S.C. § 2315. 13
13
Within the Supreme Court’s extraterritoriality framework, the Court’s conclusion
can be seen in one of two ways. Section 2315 rebuts the presumption against extraterritoriality
because the statutory language clearly encompasses conduct that must start or end outside of the
27
4. Second Claim — Hobbs Act Extortion Under 18 U.S.C. § 1951
The Hobbs Act provides, as relevant here: “Whoever in any way or degree
obstructs, delays, or affects commerce . . . by robbery or extortion” violates Section 1951. 18
U.S.C. § 1951(a). The statute defines commerce as “all commerce between any point in a State,
Territory, Possession, or the District of Columbia, and any point outside thereof; all commerce
between points within the same State through any place outside such State; and all commerce
over which the United States has jurisdiction.” Id. § 1951(b)(3).
The United States argues that the broad language of the statute and the references
to foreign commerce indicate Congress’s intent for Section 1951 to apply extraterritorially. Pl.’s
Suppl. Br. at 6. As discussed supra at 25-26, prior Supreme Court precedent dooms this
argument. See Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at 248; EEOC v. Arabian Am. Oil
Co., 499 U.S. at 251. The United States also argues that the statute’s prohibition of conduct that
“in any way or degree” affects commerce indicates that the statute applies extraterritorially. Pl.’s
Suppl. Br. at 6. But the word “any,” which “ordinarily connotes breadth, . . . is insufficient to
displace the presumption against extraterritoriality.” RJR Nabisco, Inc. v. European Cmty., 136
S. Ct. at 2108. The Court therefore concludes that the language of the Hobbs Act does not rebut
the presumption against extraterritoriality. It must determine whether the United States alleges a
domestic application of the Hobbs Act by looking to the statute’s focus.
The United States argues that the Amended Complaint alleges a wholly domestic
application of Section 1951 because the focus of the statute is the effect on commerce, and the
United States border. Or, as the Second Circuit has noted, “[r]egulation of conduct in crossing
the United States borders is not regulation of extraterritorial conduct,” and “[t]he presumption
against extraterritorial application of United States statutes does not apply to statutes that
regulate entering and exiting the United States.” European Cmty. v. RJR Nabisco, Inc., 764 F.3d
129, 140 n.7 (2d Cir. 2014), rev’d on other grounds, 136 S. Ct. 2090.
28
Amended Complaint adequately alleges an effect on commerce through the various financial
transactions into, out of, and through the United States. Opp. at 20-22. To support this
proposition, the United States notes that the Supreme Court has stated that the Hobbs Act
“speaks in broad language, manifesting a purpose to use all the constitutional power Congress
has to punish interference with interstate commerce by extortion, robbery or physical violence.”
Stirone v. United States, 361 U.S. 212, 215 (1960). Lazarenko argues that the focus of the
Hobbs Act is the extortion, which in this case, occurred abroad. Reply at 11-12.
Lazarenko has the better of the argument. It is certainly true that the Hobbs Act
speaks in broad language to punish those who affect commerce, and the jurisdictional element is
a critical part of any federal statute. The Court is not convinced, however, that the effect on
commerce is the focus of the Hobbs Act. A review of the legislative history indicates that the
extortion, robbery, or physical violence that affected commerce was the focus of congressional
concern. In enacting the Hobbs Act:
Congress was most concerned about active coercion by labor union
members. The legislative history is replete with accounts of union
members stopping farm produce trucks to coerce farmers into making
payments to the union. Acts of robbery and extortion involving violence
were the primary concern of the legislators. Thus, Congress was
concerned exclusively with extortion of an active nature.
James P. Fleissner, Prosecuting Public Officials Under the Hobbs Act: Inducement as an
Element of Extortion Under Color of Official Right, 52 U. CHI. L. REV. 1066, 1084 (1985)
(collecting statements from congressional reports and the Congressional Record). The debate in
Congress over the passage of the Hobbs Act — and its predecessor, the Anti-Racketeering Act
— centered on creating a law that prohibited extortion and coercion but did not include
legitimate activities such as collective bargaining, which arguably also affects commerce. See
Evans v. United States, 504 U.S. 255, 262-63 (1992); United States v. Culbert, 435 U.S. 371, 377
29
(1978); see also S. Rep. No. 532, at 2 (1934); H. Rep. No. 1833, at 2 (1934). Considering the
text and legislative history of the Hobbs Act, the Court concludes that the focus of congressional
concern was the extortion, robbery, or physical violence that the statute prohibits.
The United States has not pointed to any allegations in the Amended Complaint
indicating that any of the alleged extortion occurred in the United States; nor has the Court found
such allegations. See Opp. at 18-22. Because 18 U.S.C. § 1951 does not apply extraterritorially
and the United States has not alleged sufficient facts that the defendants in rem are the proceeds
of extortion or robbery that occurred in the United States, the Court will grant judgment on the
pleadings to Lazarenko with respect to the Second Claim.
5. Third Claim — Wire Fraud Under 18 U.S.C. §§ 1343 and 1346
The wire fraud statute applies to the transmission of communications by “wire,
radio, or television . . . in interstate or foreign commerce” in the execution of a scheme to
defraud. 18 U.S.C. § 1343. Relying on the Supreme Court’s admonition in Morrison that “a
‘general reference to foreign commerce . . . does not defeat the presumption against
extraterritoriality,’” the Second Circuit has concluded that the wire fraud statute, 18 U.S.C.
§ 1343, does not apply extraterritorially. European Cmty. v. RJR Nabisco, Inc., 764 F.3d 129,
141 (2d Cir. 2014), rev’d on other grounds, 136 S. Ct. 2090 (quoting Morrison v. Nat’l Austl.
Bank Ltd., 561 U.S. at 263); see also United States v. Sidorenko, 102 F. Supp. 3d 1124, 1129
(N.D. Cal. 2015). But see United States v. Georgiou, 777 F.3d 125, 137 (3d Cir. 2015) (“Section
1343 applies extraterritorially.”). 14 The Court agrees that nothing in the text, legislative history,
14
The Court declines to adopt the Third Circuit’s conclusion that the wire fraud
statute applies extraterritorially. In concluding that the wire fraud statute applies
extraterritorially, the Third Circuit stated that “the explicit statutory language indicates that it
30
or context of the wire fraud statute expressly rebuts the presumption against extraterritoriality.
The Second Circuit went on to say, however, that “[i]f domestic conduct satisfies every essential
element to prove a violation of a United States statute that does not apply extraterritorially, that
statute is violated even if some further conduct contributing to the violation occurred outside of
the United States.” European Cmty. v. RJR Nabisco, Inc., 764 F.3d at 142; see also RJR
Nabisco, Inc. v. European Cmty., 136 S. Ct. at 2105.
The United States does not argue that the domestic conduct alleged in this case
satisfies every essential element of the wire fraud statute. See Opp. at 22-29. Rather, it argues
that the “focus” of the wire fraud statute is the use of U.S. wires and that the wire fraud statute
therefore may be used to prosecute fraud that largely occurs abroad. Id. at 23-24. Under the
United States’ theory, a domestic application of the wire fraud statute requires only the use of
U.S. wires no matter where that scheme is conceived, developed, or executed. Id. at 25-26. 15
Lazarenko counters that the scheme to defraud is the focus of the wire fraud statute, and the
scheme therefore must occur in the United States to constitute a domestic application of the
statute. Reply at 14-15; see, e.g., Laydon v. Mizuho Bank, Ltd., No. 12-3149, 2015 WL
1515487, at *8 (S.D.N.Y. Mar. 31, 2015).
The Court agrees with Lazarenko that the focus of the wire fraud statute is the
scheme to defraud — or more precisely, a scheme to defraud that involves the use of U.S. wires.
punishes frauds executed in interstate or foreign commerce.” United States v. Georgiou, 777
F.3d at 137-38. The Third Circuit’s reasoning is in tension the Supreme Court’s conclusion that
a “general reference to foreign commerce . . . does not defeat the presumption against
extraterritoriality.” Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at 263; see also EEOC v.
Arabian Am. Oil Co., 499 U.S. at 251.
15
The United States relies on a number of pre-Morrison cases in support of its
argument. See, e.g., United States v. Kim, 246 F.3d 186, 188-89 (2d Cir. 2001); United States v.
Trapilo, 130 F.3d 547, 553 (2d Cir. 1997); United States v. Gilboe, 684 F.2d at 237-38.
31
As the Supreme Court has noted, “Section 1343 prohibits ‘any scheme or artifice to defraud,’ —
fraud simpliciter, without any requirement that it be ‘in connection with’ any particular
transaction or event.” Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. at 272-73. The text of the
statute indicates that Congress intended to prevent schemes to defraud facilitated by the use of
U.S. wires. This is the conduct that the statute seeks to prohibit or “regulate.” See id. at 267.
The Court does not agree with Lazarenko, however, that the scheme to defraud must be entirely
executed in the United States to constitute a domestic application of the statute. See Mem. at
22-23. The Supreme Court’s extraterritoriality framework does not require that the entire
scheme to defraud occur in the United States. The Court therefore must determine whether in
this case “conduct relevant to the statute’s focus occurred in the United States.” RJR Nabisco,
Inc. v. European Cmty., 136 S. Ct. at 2101.
The Court has found little precedent regarding how much of the scheme must
occur in the United States to constitute a domestic application of the wire fraud statute. One
court, however, has articulated a workable test for what relevant conduct must occur in the
United States for there to be a domestic application of the similarly worded mail fraud statute, 18
U.S.C. § 1341. In Elsevier, Inc. v. Grossman, Judge Katherine Polk Failla of the U.S. District
Court for the Southern District of New York explained the nature of the “domestic conduct” that
she considered “relevant” to the statutory focus of the mail fraud statute, when fewer than all of
the essential elements of the crime occur in the United States:
[A] defendant commits conduct “relevant” to the focus of the mail fraud
statute only when: (i) the defendant commits a substantial amount of
conduct in the United States; and (ii) the conduct is integral to the
commission of a fraud, and (iii) at least some of the conduct involves the
use of the U.S. mails.
32
199 F. Supp. 3d 768, 784 (S.D.N.Y. 2016). This test accurately reflects the focus of
congressional concern: (1) preventing schemes to defraud through the use of U.S. wires and
(2) allowing the wire fraud statute to apply to the use of U.S. wires to send a communication
between the United States and a foreign country. See S. Rep. No. 1873, at 2; H. Rep. No. 2385,
at 1. The Court therefore concludes that a complaint alleges a domestic application of wire fraud
when (1) a defendant or coconspirator commits a substantial amount of conduct in the United
States, (2) the conduct is integral to the commission of the scheme to defraud, and (3) at least
some of the conduct involves the use of U.S. wires in furtherance of the scheme to defraud.
The United States alleges that its wire fraud claim (the Third Claim) applies to all
of the schemes alleged in its Amended Complaint. See Opp. at 46-48, 50, 54-56. But applying
the Elsevier analysis to each of the alleged schemes, see infra at 36-44, the Court concludes that
the United States has failed to allege sufficient domestic conduct to support a domestic claim for
wire fraud. The Court will grant judgment on the pleadings to Lazarenko with respect to the
Third Claim for relief. 16
16
Lazarenko also argues that the Court must dismiss the Third Claim because
(1) the Amended Complaint fails to allege bribes or kickbacks, as required by Skilling v. United
States, 561 U.S. at 399-414, and (2) the honest services fraud statute, 18 U.S.C. § 1346, does not
apply extraterritorially. Mem. at 24-28. Contrary to Lazarenko’s assertion, the Court concludes
— when taking all reasonable inferences in favor of the United States — that the United States in
its Amended Complaint has sufficiently alleged that Lazarenko received bribes or kickbacks.
See Am. Compl. ¶¶ 24, 30, 35-44.
With respect to Lazarenko’s second argument, Section 1346 is a definitional
statute related to 18 U.S.C. § 1343, the wire fraud statute; it is not a separate substantive statute.
Section 1346 states that “the term ‘scheme or artifice to defraud’ [for the purposes of 18 U.S.C.
§ 1343] includes a scheme or artifice to deprive another of the intangible right of honest
services.” 18 U.S.C. § 1346. Because a claim for honest services fraud must be brought under
18 U.S.C. §§ 1343 as well, any claim for honest services fraud would also need to allege a proper
domestic application of the wire fraud statute. The Court therefore need not analyze the
extraterritorial reach of Section 1346 separately.
33
6. Fourth Claim — Foreign Offenses Under 18 U.S.C. § 1956(c)(7)(B)(ii) and (iv)
Claim Four alleges offenses against a foreign nation, specifically extortion and
“bribery of a public official, or the misappropriation, theft, or embezzlement of public funds by
or for the benefit of a public official.” 18 U.S.C. § 1956(c)(7)(B)(ii), (iv). Section 1956(c)(7)(B)
requires that the financial transactions relating to the foreign offenses occur “in whole or in part
in the United States,” which is consistent with the general extraterritorial provision in Section
1956(f). See 18 U.S.C. § 1956(f). Lazarenko argues that the Court must limit this claim to only
financial transactions into and out of accounts in the United States because, in his view, EFTs do
not “occur” in part in the United States. See Mot. at 1-3; Mem. at 28-31. The Court has already
addressed and rejected this argument. See supra at 16-22.
In his reply brief, Lazarenko makes two new arguments with respect to the Fourth
Claim. First, he argues that the Court must dismiss the Fourth Claim because the United States
has failed to “establish all the elements of a complete [specified unlawful activity].” Reply at 19.
Specifically, he argues that the United States “cannot meet [its] burden because it can neither
show that venue would lie anywhere in the United States for a criminal prosecution concerning
EFT transfers, nor that personal jurisdiction would have existed over Mr. Lazarenko.” Id.
Second, Lazarenko argues that the United States improperly brought the Fourth Claim under 18
U.S.C. § 981(a)(1)(C) and must bring this claim under a different civil forfeiture provision, 18
U.S.C. § 981(a)(1)(B), which is limited to a res located in the United States. Id. at 20-21.
The Court generally refuses to entertain arguments raised for the first time in a
reply brief because it is “manifestly unfair” to the nonmoving party. Herbert v. Nat’l Acad. of
Scis., 974 F.2d 192, 196 (D.C. Cir. 1992). Nevertheless, the Court may easily dismiss both of
Lazarenko’s new arguments. As for his first argument, Lazarenko has provided no support —
34
and this Court has found none — for the proposition that the United States’ complaint in a civil
forfeiture action must also allege proper personal jurisdiction and proper venue for the
underlying specified unlawful activity. 17 The United States established subject matter
jurisdiction and in rem jurisdiction in this action pursuant to 28 U.S.C. § 1355(a), (b)(2). See
United States v. All Funds in Account Nos. 747.034/278, 747.009/278, & 747.714/278 in Banco
Espanol de Credito, Spain, 295 F.3d 23, 26-27 (D.C. Cir. 2002). The United States also properly
established venue pursuant to 28 U.S.C. § 1355(b)(2). See United States v. All Funds in
Account Nos. 747.034/278, 747.009/278, & 747.714/278 in Banco Espanol de Credito, Spain,
141 F. Supp. 2d 548, 550 (D.D.C. 2001), aff’d, 295 F.3d 23.
As for Lazarenko’s second argument, he maintains that the United States must
bring this claim under a different provision of the civil forfeiture statute — 18 U.S.C.
§ 981(a)(1)(B) — which is limited to a res located in the United States. Reply at 20. In support
of this proposition, Lazarenko notes that Section 981(a)(1)(B) explicitly mentions offenses
“against a foreign nation,” and Section 981(a)(1)(C) does not. Id. A plain reading of the text of
the civil forfeiture statute shows that this argument lacks merit. Both Section 981(a)(1)(B) and
Section 981(a)(1)(C) permit forfeiture of property constituting specified unlawful activity under
18 U.S.C. § 1956(c)(7)(B), the provision which details offenses against foreign nations. See 18
U.S.C. § 1956(c)(7)(B). The United States has discretion to bring a civil forfeiture action under
either provision. The Court therefore will deny Lazarenko’s motion for judgment on the
pleadings with respect to the Fourth Claim.
17
The cases cited by Lazarenko in this portion of his reply brief discuss personal
jurisdiction with regard to a civil in personam case, see Univ. Trading & Inv. Co. v.
Tymoshenko, 2012 WL 6186471, at *1, and venue in a civil case by the United States against a
bank. See United States v. Lloyds TSB Bank PLC, 639 F. Supp. 2d 314.
35
C. Application of the Court’s Extraterritoriality Analysis to the Alleged Schemes
In its Amended Complaint, the United States alleges four factual schemes through
which it claims Lazarenko and his associates amassed the money subject to forfeiture: (1) the
Transfer and Concealment of Business Interests Scheme, see Am. Compl. ¶¶ 21-31; (2) the
Naukovy Agriculture Scheme, see id. ¶¶ 32-34; (3) the UESU and ITERA Energy Schemes, see
id. ¶¶ 35-44; and (4) the PMH/GHP Scheme. See id. ¶¶ 45-49. Lazarenko argues that the Court
must dismiss or limit the claims with respect to each of these four schemes. Mem. at 31-39. The
Court will conduct its extraterritoriality analysis with respect to these alleged schemes.
For the statutes that by their terms apply extraterritorially, 18 U.S.C. §§ 1956 and
1957, the Court already has determined that the conduct alleged falls within the language of the
extraterritorial provisions of those statutes. See supra at 15-24, 34-35; see also RJR Nabisco,
Inc. v. European Cmty., 136 S. Ct. at 2102. Having concluded that some of the statutes at issue
here do not apply extraterritorially, however, the Court must also determine whether the conduct
alleged in this case involves domestic applications of those statutes. See RJR Nabisco, Inc. v.
European Cmty., 136 S. Ct. at 2101. The Court may conduct this analysis at this stage of the
litigation because the Supreme Court has stated that it is appropriate to consider
extraterritoriality under a Rule 12(b)(6) standard. See Morrison v. Nat’l Austl. Bank Ltd., 561
U.S. at 253-54. The same analysis necessarily applies to a motion for judgment on the pleadings
brought under Rule 12(c). See supra at 7-9. Consistent with the law governing Rule 12(b)(6)
and Rule 12(c), the Court will grant the United States “the benefit of all inferences that can be
derived from the facts alleged” in its Amended Complaint, United States v. All Assets Held at
Bank Julius Baer & Co., Ltd., 772 F. Supp. 2d at 197 (quoting Kowal v. MCI Commc’ns Corp.,
16 F.3d at 1276), but it need not accept the parties’ legal conclusions. Id. The Court will limit
36
its analysis to the facts alleged in the Amended Complaint and Lazarenko’s First Amended
Answer. See supra at 7-9.
1. The Transfer and Concealment of Business Interests Scheme
The United States alleges that “Lazarenko, by virtue of his government positions
[including when he served as First Vice Prime Minister and Prime Minister], exerted influence
over the economic and governmental structures within the Dnepropetrovsk region of Ukraine.”
Am. Compl. ¶ 21. It further alleges that Lazarenko was able to arrange for the appointment of
certain individuals to regional and state government positions and steer state-owned enterprises
“to conduct business with certain private corporations and individuals.” Id. ¶ 22. For example,
the Amended Complaint alleges that Lazarenko informed Peter Nikolayevich Kiritchenko “that
he worked with everyone on a 50/50 percentage basis.” Id. ¶ 26. Mr. Kiritchenko then
transferred 50 percent of the ownership in his company, Agrosnabsbyt/ASS, to Lazarenko, and
ultimately paid Lazarenko at least $30 million, some of which was transferred through bank
accounts in the United States. Id. ¶¶ 26, 31. Lazarenko also allegedly received a 50 percent
ownership in Dneproneft, a corporation formed by Alexei Alexandrovich Ditiatkovsky, also a
resident of Ukraine. Id. ¶ 28. The United States alleges that Ditiatkovsky paid at least $5
million dollars to Lazarenko that was transferred through accounts in the United States. Id. ¶ 29.
Lazarenko concedes that with respect to this scheme the Amended Complaint
sufficiently alleges foreign extortion and bribery, in violation of 18 U.S.C. 1956(c)(7)(B)(ii) and
(iv) (Fourth Claim). Mem. at 32; Reply at 30. He argues, however, that this scheme must be
limited to defendants in rem “where the funds were deposited into a U.S. bank account rather
than merely transited through a U.S. correspondent account.” Mem. at 32. Because this Court
37
has already concluded that EFTs occur “in part in the United States” for the purpose of the
money laundering claims, the Court rejects Lazarenko’s argument.
Each EFT is two separate transactions that cross the U.S. border. See supra at
16-18, 25-27. The EFTs and other alleged wire transfers are sufficient to allege interstate
transportation and receipt of property stolen or taken by fraud, in violation of 18 U.S.C. §§ 2314
and 2315 (First Claim). See Am. Compl. ¶ 31. The scheme also sufficiently alleges foreign
extortion and bribery, in violation of 18 U.S.C. 1956(c)(7)(B)(ii) and (iv) (Fourth Claim). See
id. ¶¶ 24, 26, 28, 30. Finally, the scheme sufficiently alleges violations of the money laundering
claims for transfers into and out of U.S. accounts and EFTs, in violation of 18 U.S.C §§ 1956
and 1957 (Fifth, Sixth, Seventh, and Eighth Claims) because these transfers occurred in part in
the United States. See id. ¶¶ 25, 31.
The United States does not allege that any of the extortion related to this scheme
occurred in the United States, and thus does not allege a valid claim for Hobbs Act extortion, in
violation of 18 U.S.C. § 1951 (Second Claim). Similarly, because the United States has not
alleged that a substantial amount of the scheme to defraud occurred in the United States, the
Amended Complaint does not allege a valid claim for wire fraud, in violation of 18 U.S.C.
§§ 1343 and 1346 (Third Claim). The Court therefore limits this scheme to the following claims
for relief: interstate transportation and receipt of property stolen or taken by fraud (First Claim),
foreign extortion and bribery (Fourth Claim), and the money laundering claims (Fifth, Sixth,
Seventh, and Eighth Claims).
2. The Naukovy Agriculture Scheme
As to the Naukovy Agriculture Scheme, the United States alleges that Lazarenko
conspired to divert Ukrainian government funds for his personal use by orchestrating fraudulent
38
sales through two state-owned enterprises that he oversaw by virtue of his government position.
Am. Compl. ¶ 32. The United States alleges that Lazarenko defrauded the Ukrainian
government of at least $23.4 million through this scheme. Id. Lazarenko acquired the funds
through transactions that passed through financial institutions in the United States. Id. ¶¶ 33-34.
Lazarenko concedes that with respect to this scheme the Amended Complaint
alleges a violation of interstate transportation and receipt of property stolen or taken by fraud, in
violation of 18 U.S.C. §§ 2314 and 2315 (First Claim) and foreign theft and embezzlement, in
violation of 18 U.S.C. § 1956(c)(7)(B)(iv) (Fourth Claim). Mem. at 33. He argues, however,
that the Amended Complaint only alleges EFTs with respect to this scheme, and therefore it must
be dismissed. Id. at 32-33. As the Court previously has stated, EFTs are sufficient for interstate
transportation and receipt of property stolen or taken by fraud, see supra at 25-27, and for the
money laundering claims under 18 U.S.C. §§ 1956(f) and Section 1957(d)(1). See supra at
15-24. The Amended Complaint therefore sufficiently alleges a claim for interstate
transportation and receipt of property stolen or taken by fraud, in violation of 18 U.S.C. §§ 2314
and 2315 (First Claim) and the money laundering claims, in violation of 18 U.S.C. §§ 1956 and
1957 (Fifth, Sixth, Seventh, and Eighth Claims). See Am. Compl. ¶ 34. The Amended
Complaint also sufficiently alleges the foreign offenses, in violation of 18 U.S.C.
§ 1956(c)(7)(B)(ii) and (iv) (Fourth Claim). See id. ¶¶ 32-34.
The United States argues that the Amended Complaint alleges a valid claim of
wire fraud, in violation of 18 U.S.C. § 1343 (Third Claim), with respect to this scheme. See
Opp. at 47. Relying on the test set forth supra at 32-33, the Court concludes that the Amended
Complaint does not sufficiently allege that substantial conduct of the Naukovy Agriculture
Scheme occurred in the United States. Although wire transfers to reap the proceeds of a scheme
39
to defraud are integral to any such scheme, wire transfers through the United States, without
more, are not sufficient to state a claim for a domestic application of the wire fraud statute.
In its opposition, the United States does not state that the Naukovy Agriculture
Scheme alleges a claim for Hobbs Act extortion, in violation of 18 U.S.C. § 1951
(Second Claim). Nor does the Amended Complaint allege that any extortion related to this
scheme occurred in the United States. The Court therefore limits this scheme to the following
claims for relief: interstate transportation and receipt of property stolen or taken by fraud
(First Claim), foreign extortion and bribery (Fourth Claim), and the money laundering claims
(Fifth, Sixth, Seventh, and Eighth Claims).
3. The UESU and ITERA Energy Scheme
The UESU and ITERA schemes stem from Lazarenko’s position as Vice Prime
Minister, when he was in charge of the energy sector in Ukraine. See Am. Compl. ¶ 35.
Lazarenko allegedly granted various privileges to United Energy Systems of Ukraine (“UESU”),
which was controlled by one of his associates, Yulia Tymoshenko, and others. Id. ¶ 36. The
United States alleges that UESU received a contract to deliver natural gas from RAO Gazprom,
and UESU would then distribute the natural gas in Ukraine. Id. Rather than UESU paying its
debts to RAO Gazprom, the United States alleges that Lazarenko “authorized execution of a
$200,000,000 guaranty in favor of RAO Gazprom for the delivery of natural gas by UESU,
thereby causing the Ukrainian government to pledge to use state funds to repay the debts of
UESU to RAO Gazprom.” Id. UESU and other corporate entities subsequently paid Lazarenko
at least $162 million through financial transactions that passed through U.S. financial
institutions. Id. ¶¶ 38-40.
40
With respect to the ITERA scheme, the United States alleges that the ITERA
corporations — which had affiliated corporations, such as ITERA International Energy,
Corporation and ITERA International LLC, that were incorporated in the United States — were
awarded exclusive gas distribution rights during Lazarenko’s tenure as Vice Prime Minister.
Am. Compl. ¶ 41. Various ITERA corporations and Lazarenko’s associates subsequently made
payments through U.S. financial institutions to accounts under Lazarenko’s personal control. Id.
¶¶ 43-44. The payments totaled more than $53 million. Id. ¶¶ 42-44.
Lazarenko concedes that with respect to the UESU scheme the Amended
Complaint alleges sufficient facts to support a claim for foreign bribery, in violation of 18 U.S.C.
§ 1956(c)(7)(B)(iv) (Fourth Claim). See Mem. at 36-37; Am. Compl. ¶¶ 36, 38-40. Based on
the analysis with respect to EFTs, supra at 16-18, the Court concludes that the Amended
Complaint also alleges sufficient facts to state a claim for interstate transportation and receipt of
property stolen or taken by fraud, in violation of 18 U.S.C. §§ 2314 and 2315 (First Claim), and
for the money laundering claims, in violation of 18 U.S.C. §§ 1956 and 1957 (Fifth, Sixth,
Seventh, and Eighth Claims). See Am. Compl. ¶¶ 39-40.
The Hobbs Act extortion and wire fraud claims are a different matter. The
Amended Complaint does not allege a valid claim for Hobbs Act extortion, in violation of 18
U.S.C. § 1951 (Second Claim), because the Amended Complaint does not allege that the
extortion or bribery occurred in the United States. See Opp. at 50. With respect to the wire
fraud claim (Third Claim), the facts that there were financial transactions through the United
States and that two U.S. corporations allegedly made payments to Lazarenko, in regard to the
UESU scheme, do not constitute substantial conduct in the United States sufficient to support a
41
domestic application of wire fraud. 18 The Court therefore limits the UESU Scheme to the
following claims for relief: interstate transportation and receipt of property stolen or taken by
fraud (First Claim), foreign bribery (Fourth Claim), and the money laundering claims
(Fifth, Sixth, Seventh, and Eighth Claims).
As for the ITERA scheme, Lazarenko argues that it must be dismissed in full or,
in the alternative, that the Court should grant summary judgment in his favor. Mem. at 37-38.
He asks the Court to look outside of the pleadings so that he may illustrate that there is no
genuine dispute of material fact that U.S.-based ITERA International Energy did not make
payments to Lazarenko from the United States, see Reply at 33, and that ITERA International
Energy made payments only for merchandise, not bribes. See Mem. at 37; Reply at 33. The
Court declines to consider this motion as a summary judgment motion because the parties
submitted briefing before discovery was closed. See supra at 6-7. 19
18
The parties also dispute whether the Amended Complaint adequately alleges a
valid claim for honest services fraud for this scheme. See Mem. at 34-37; Opp. at 50-51.
Lazarenko argues that there are three separate allegations regarding the UESU scheme:
(1) non-disclosure of a conflict of interest, (2) quid pro quo foreign bribery in regard to the
guaranty in favor of RAO Gazprom, and (3) fraudulent titling of natural gas that UESU received
from RAO Gazprom. Mem. at 34-36; see also Am. Compl. ¶¶ 35-37. Lazarenko argues that
only the guaranty allegation is sufficient for Skilling’s requirement that honest services fraud
must allege bribes or kickbacks. Mem. at 34-35. In addition, Lazarenko asks the Court to limit
the UESU scheme based on arguments made by the government in Lazarenko’s criminal
proceeding and the district court’s findings about the UESU scheme in a 2003 order regarding
Rule 29 of the Federal Rules of Criminal Procedure. Id. at 35. Because the Court has already
determined that the wire fraud statute does not apply extraterritorially and that the Amended
Complaint does not state a claim for a domestic application of the wire fraud statute, the Court
need not address these arguments.
19
Lazarenko also asks the Court to make 13 findings of fact with respect to the
ITERA Scheme. See Claimant Pavel Lazarenko’s Proposed Findings of Fact at 1-2 [Dkt. 539-2].
The United States opposes this request because Lazarenko made the request before the end of
fact discovery, and the factual record before this Court is incomplete. See United States’
Response to Claimant Pavel Lazarenko’s “Proposed Findings of Fact” (ECF No. 539-3) at 1
42
Considering only the pleadings, the Court concludes with respect to the ITERA
Scheme that the Amended Complaint alleges sufficient facts to state a claim for foreign bribery
in violation of 18 U.S.C. § 1956(c)(7)(B)(iv) (Fourth Claim), see Am. Compl. ¶¶ 41-42; a claim
for interstate transportation and receipt of property stolen or taken by fraud, in violation of 18
U.S.C. §§ 2314 and 2315 (First Claim), see id. ¶¶ 42-43; and claims for money laundering, in
violation of 18 U.S.C. §§ 1956 and 1957 (Fifth, Sixth, Seventh, and Eighth Claims). See id.
4. The PMH/GHP Scheme
The United States alleges that Lazarenko used his position as Prime Minister of
Ukraine to favor GHP Corporation “by ensuring that the Ukrainian Cabinet of Ministers entered
into a contract with GHP Corporation for the purchase of six prefabricated homes.” Am. Compl.
¶ 45. GHP Corporation purchased the homes from Pacific Modern Homes (“PMH”), based in
Elk Grove, California. Id. ¶ 46. GHP Corporation purchased the homes for $524,763, and then
GHP Corporation agreed to sell the homes to the Ukrainian government for $1,416,000. Id.
¶¶ 46-47. Lazarenko argues that these facts do not state a valid claim for a domestic application
of honest services fraud, 18 U.S.C. §§ 1343 and 1346. Mem. at 38. The United States does not
argue that the scheme alleges honest services fraud, but it maintains that there is a claim for
money and property wire fraud, in violation of 18 U.S.C. § 1343. See Opp. at 55-56. It has not
argued on this motion that any of the claims for relief other than wire fraud apply to the
PMH/GHP Scheme. See id.
[Dkt. 595-1]. Although fact discovery has now closed, the parties have not had an opportunity to
inform the Court of any further discovery since Lazarenko filed the instant motion in December
of 2015. It is premature for the Court to make any findings of fact in connection with this
motion. These arguments may be raised later in these proceedings if appropriate.
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As the Court previously stated, a domestic violation of wire fraud requires that
(1) the defendant or coconspirator commits a substantial amount of conduct in the United States,
(2) the conduct is integral to the commission to the scheme to defraud, and (3) at least some of
the conduct involves the use of the U.S. wires in furtherance of the scheme. See supra at 32-33.
The facts alleged with respect to the PMH/GHP Scheme are too bare to support a claim for wire
fraud. Presumably someone had to use a telephone or wire to contact the PMH in California, but
those facts are not even alleged here. There are also no facts alleged regarding whether
Lazarenko received payments via financial transactions through U.S. institutions. Although the
prefabricated homes were allegedly shipped from California, the Court concludes that the
Amended Complaint fails to establish a domestic claim for wire fraud, in violation of 18 U.S.C.
§ 1343 (Third Claim).
IV. CONCLUSION
For the foregoing reasons, the Court will grant in part and deny in part
Lazarenko’s motion for partial judgment on the pleadings. An Order consistent with this
Opinion will issue this same day.
SO ORDERED.
___/s/_____________________
PAUL L. FRIEDMAN
United States District Judge
DATE: April 27, 2017
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