On Friday, the Department of Justice (“DOJ”) filed a civil forfeiture complaint in the Southern District of Texas seeking recovery of approximately $144 million in assets that allegedly represent the proceeds of foreign corruption and which were laundered in and through the U.S. The complaint’s narrative focuses on Diezani Alison-Madueke, who is Nigeria’s former Minister for Petroleum Resources.  The 52-page complaint, which contains additional attachments, is very detailed – but nonetheless interesting reading – so we will discuss here only three salient points:

  • The most eye-catching property subject to forfeiture, the spectacular yacht Galactica Star (which you can inspect here), apparently has no discernible nexus to the U.S. – except that the funds used to acquire the yacht allegedly were transferred through correspondent bank accounts at financial institutions which process their U.S. dollar wire transactions through the U.S.
  • The complaint emphasizes the continued enforcement focus on high-end U.S. real estate as a potential vehicle for money laundering from abroad.
  • The complaint purports to quote a recording of a conversation allegedly made by Ms. Alison-Madueke herself, in which she allegedly offers a co-schemer some critiques on his approach to laundering illicit funds.

The government’s press release summarizes the forfeiture complaint as follows:

[F]rom 2011 to 2015, Nigerian businessmen Kolawole Akanni Aluko and Olajide Omokore conspired with others to pay bribes to Nigeria’s former Minister for Petroleum Resources, Diezani Alison-Madueke, who oversaw Nigeria’s state-owned oil company. In return for these improper benefits, Alison-Madueke used her influence to steer lucrative oil contracts to companies owned by Aluko and Omokore. The complaint alleges that the proceeds of those illicitly awarded contracts were then laundered in and through the U.S. and used to purchase various assets subject to seizure and forfeiture, including a $50 million condominium located in one of Manhattan’s most expensive buildings – 157 W. 57th Street – and the Galactica Star, an $80 million yacht.

More specifically, the complaint alleges in part that the assets at issue are subject to forfeiture because they constitute or are derived from proceeds traceable to the following “specified unlawful activity” under the criminal money laundering statutes:

  • foreign offenses involving “the misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official;”
  • foreign offenses involving bribery of a public official;
  • interstate transportation of stolen or fraudulently obtained property, in violation of 18 U.S.C. § 2314;
  • interstate receipt of stolen property, in violation of 18 U.S.C. § 2315;
  • wire fraud, in violation of 18 U.S.C. § 1343; and
  • a felony violation of the Foreign Corrupt Practices Act, in violation of 15 U.S.C. § 78dd-1 et seq.

Continued Expansive Claims of Extraterritorial Application of U.S. Law

The civil complaint has a distinctly international flair. All of the underlying political corruption alleged in the complaint occurred overseas. Foreign individuals allegedly bribed a foreign politician to obtain improper contracts for foreign companies from a foreign state-owned oil company.  Many of the allegations in the complaint do involve subsequent financial transactions occurring in the U.S., such as the acquisition of furniture and U.S. real estate.  However, one substantial asset subject to forfeiture, the $80 million yacht Galactica Star, has no discernible connection to the U.S. – with one apparent exception.

The Galactica Star is registered in the Cayman Islands. The complaint alleges that Aluko purchased it with dirty funds wired through various bank accounts in Switzerland and the U.K. held by either foreign companies or individuals.  The purchase allegedly was brokered by a foreign entity in the Bailiwick of Guernsey.  The vessel was titled in the name of a British Virgin Islands entity, and it leased a berth in Barcelona, Spain.  Although the complaint alleges that a U.S. subsidiary of a foreign company once wired $400,000 in relation to the yacht, this alleged wiring occurred after the purchase and was made to a foreign management company.

What is the nexus to the U.S. that might provide jurisdiction for this particular forfeiture? Although the government’s true legal position remains to be seen, the government likely will rely again upon the involvement of correspondent bank account transfers to justify the otherwise extraterritorial application of U.S. law to foreign activity.  Although the Galactica Star complaint is not always easy to follow on this point, the funds used to purchase the yacht allegedly flowed at least in part from dirty funds previously wired between foreign bank accounts though one or more transfers “into and out of correspondent bank accounts at financial institutions which process their U.S. dollar wire transactions through Newark, N.J. and Jersey City, N.J.”  We previously have blogged about the government’s successful reliance upon the involvement, no matter how fleeting, of correspondent bank accounts and transfers initiated, transmitted, and received by foreign banks but processed mid-stream by U.S. banks, in order to reach otherwise foreign conduct. The Galactica Star complaint appears to push this envelope even further, because it is not even clear from the face of the complaint that the funds directly used to buy the yacht – as opposed to earlier transfers occurring during the ongoing flow of funds – involved U.S. banks.  If this case is litigated, this issue presumably will be warmly contested.

Continued Enforcement Focus on Laundering Through High-End U.S. Real Estate

We repeatedly have blogged (here, here, here, here, here and here) about the sustained focus of U.S. law enforcement and regulators on the potential use of the high-end U.S. real estate market as a vehicle for money laundering by foreigners.  We also have blogged previously on related concerns regarding the U.S. as a potential haven for money laundering and tax evasion.

The Galactica Star complaint adds a robust chapter to this continuing story.  Specifically, the complaint seeks forfeiture relating to multiple luxury properties, including any funds arising out of an upcoming foreclosure auction of one unit in 157 West 57th Street, New York City – which allegedly was purchased by Aluko for almost $50 million and titled in the name of a British Virgin Islands company – and 815 Cima Del Mundo Road in Montecito, California – which allegedly was purchased by Aluko for over $23 million and titled in the name of a California corporation. These allegations bring to mind the strategy of FinCEN to issue Geographical Targeting Orders, or GTOs, requiring all title insurance companies to identify and report on the natural persons behind shell companies that make cash-only purchases of high-end real estate in six major metropolitan markets, including New York City and in California.

Pointed Advice on How to Launder Money

Finally, paragraphs 118 to 121 of the complaint detail alleged conversations between Alison-Madueke and Aluko which, according to the complaint, Alison-Madueke herself recorded.  The complaint is intriguingly silent regarding how or where the U.S. government obtained these alleged recordings, which apparently were not made by a government agent, or obtained via a government wiretap or bug, but by the individual who, according to the complaint, is at the center of the alleged wrongdoing.

Regardless of whether these recordings ended up in the hands of the U.S. government due to cooperation by an individual and/or another government (the government press release vaguely refers to DOJ’s “commitment to working with our law enforcement partners around the globe” and to “international law enforcement partners”), the alleged conversations – in which Alison-Madueke chides Aluko for having bought the attention-grabbing Galactica Star – presumably pleased the investigators.  The below alleged recording, quoted in the complaint, has the unusual quality of simultaneously (I) providing some practical advice regarding how to keep a low profile when attempting to launder the funds of an underlying scheme, and (ii) assuming that one is not acting as a government cooperator, representing a master-class example of what not to purposefully say on tape:

I spoke to you several times about your general behavior, acquisition of assets, etc., asking you to be a bit more careful because [INAUDIBLE] will start following you. I remember we had this open discussion more than once. You kept telling me that there was no issue because you did it in a certain way, you did it in a certain—and I kept telling you that it doesn’t matter how you do it. Once you start acquiring, acquiring, acquiring at a certain level, then you’ll be—whether you like it or not, whether it was done in the most transparent—you understand?— manner or not, because they will want to trace where it came from. This is an age of terrorism.

            . . . .

If you want to hire a yacht, you lease it for two weeks or whatever. You don’t go and sink funds into it at this time when Nigerian oil and gas sector is under all kinds of watch, as we have been for some time, and where [a Nigerian oil corporation listed in the civil forfeiture complaint] itself has been the subject of all kinds of speculation.

Whatever the true nature of these alleged conversations, they describe well the basic problem of any scheme, if success is actually attained: how to effectively take advantage of the resulting proceeds.

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