One of the sideshows in the Trump-Russia collusion frenzy concerns money laundering. It may help explain why Robert Mueller is hiring staff with experience in forensic accounting and tracking money laundering schemes. And it is one of these schemes that has attracted the attention of some conspiracy theory buffs because it involves the Russian lawyer, Natalia Veselnitskaya, a former US Attorney for the Southern District of New York (SDNY), Jeff Sessions, and some shady Russian characters. Throw in the termination of the attorney for SDNY, place Veselnitskaya in Trump, Jr.’s office and make Jeff Sessions Attorney General and you have the makings of a grand conspiracy. Or do we?
The case has piqued the interest of 21 Democratic Congressmen who sent a letter to Sessions wanting to know the details of the case. The whole scenario started in 2007 during a raid on the Moscow office of Hermitage Capital Management which uncovered tax fraud to the tune of about $230 million. Hermitage was accused of the fraud and hired a Russian lawyer named Sergei Magnitsky. His investigation suggested that the fraud was not occurring at Hermitage, but was directed by some in the Russian government.
This landed Magnitsky in jail where he died under suspicious circumstances. The Russian Human Rights Council determined that Magnitsky was denied medical treatment for pancreatitis and that he had been tortured. In 2012, the United States passed the Magnitsky Act sanctioning certain Russian officials.
In 2011, the founder and CEO of Hermitage, William Browder, hired Russian lawyer Nikolai Gorokhov to finish the work Magnitsky started. Unfortunately, he met a similar fate when he fell out of a window from his Moscow apartment. He was to testify in a Moscow court what he knew about the tax fraud scheme, Hermitage and Magnitsky.
Gorokhov was also a key witness in New York in the trial of Prevezon Holdings which was owned by Denis Katsyv. Prezevon was accused of laundering the ill-gotten gains of the tax fraud by investing in New York City real estate. Veselnitskaya is the lawyer for the Katsyv family whose patriarch, Pyotr, is the former vice governor of the Moscow region.
The case against Prevezon was complicated from the start. While the entire tax fraud case may have involved $230 million in funds, of all the money invested in New York real estate by Prevezon, only about $2 million could be definitively traced to the tax fraud. As for real estate investments in Manhattan itself which falls under the jurisdiction of the SDNY, prosecutors could directly trace only about $600,000.
In effect, although you clearly had a huge tax fraud case and potentially large money laundering case under US jurisdiction, the amounts that could be proven in court were small. While the press screamed headlines about a $230 million money laundering case, $2 million- at most- was closer to reality.
Two days before Katsyv was to go to trial, the SDNY attorney- Joon Kim- who had succeeded terminated attorney Preet Bharara- settled the case for about $6 million. In the fever of the Russia-Trump collusion crowd, this signaled to many that something nefarious was afoot since it was the Justice Department of Jeff Sessions who had settled the case. They proclaimed that the SDNY settled the case for pennies on the dollar.
In reality, what we had was a US Attorney- Bharara- grabbing a $600,000 toe of a $230 million scheme and forcing it into a US court. Given the refusal by officials in Moscow to turn over important documents, foot-dragging in other areas, and the loss of key witnesses, the SDNY was left with evidence that would have put the best of juries to sleep given the method of the laundering scheme through various shell companies before making its way to Prezevon. Before Bharara was fired, this was a very real concern by him.
To have gone to trial, there was a serious risk that they would have lost the case. Most of these documents in question which proved the laundering scheme were in Russian making it even more likely a jury would have discounted the government’s case. While the media was holding up Bharara as some martyr/hero, there were many who helped develop the case coming to the conclusion that this was no slam dunk. This was known while Bharara was employed by the Justice Department.
Another major consideration was that a loss in court in the United States would have set back efforts in other jurisdictions. Most of that money stolen in the tax fraud case was, in fact, laundered through shell corporations and eventually found its way into major banks in Germany, France, Great Britain and Eastern European countries. Some of the money has even been traced to South Korea’s Samsung. In other words, why upset those investigation efforts for $600,000?
Furthermore, Joon Kim has stated that there was no need to contact the DOJ or Jeff Sessions before making the decision to settle the case before trial. US attorneys do this all the time and often without approval from the Department of Justice. Even if they had contacted Sessions or the DOJ, given the risk of a trial loss, jeopardizing other larger investigations elsewhere, and the relatively small amount involved, they would have signed off on the settlement anyway.
The case was settled for a little under $6 million which is three times the amount of alleged total funds laundered by Prezevon. That is the maximum allowed (treble damages). And since only about $600,000 could be definitively proven, it is more than 10 times the amount.
The only things that makes this remotely suspicious are Veselnitskaya being one of Katsyv’s lawyers, Jeff Sessions being Attorney General, and the firing of Preet Bharara. To illustrate the non-controversy here, Bharara congratulated his successor, Joon Kim, for settling the case as he did. Even martyr/hero Bharara knew what other rational people not susceptible to conspiracy theory knew.