High Profile Corruption, High End Real Estate, Shell Companies . . . and Fine Art

Second of Two Posts on Evolving Issues Regarding Real Estate and Money Laundering

In our last post, we blogged on a major regulatory tool to combat the use of real estate as a potential vehicle for money laundering: the real estate Geographic Targeting Orders (“GTOs”) issued by the Financial Crimes Enforcement Network. Today we explore a major enforcement tool in action: civil forfeiture of real estate by the U.S. Department of Justice (“DOJ”).

This summer, the International Unit of the DOJ’s Money Laundering and Asset Recovery Section (MLARS) filed numerous complaints for civil forfeiture for real estate and other assets. This blog post will highlight a few – but not all – of these interesting and high-profile cases. Some of these cases may have been informed by data and leads obtained through the GTOs.

We explore here a trio of civil forfeiture actions pertaining, respectively, to alleged public corruption cases arising out of Gambia, Nigeria, and Malaysia. All of these cases involve foreign public officials who allegedly obtained wealth through corruption schemes committed abroad and laundered that money through shell companies to purchase real estate and other assets – sometimes located in the U.S., but sometimes not. Although the officials’ alleged initial crimes – the “specified unlawful activity,” or SUAs, as underlying crimes are defined under the federal money laundering statutes – took place overseas, the U.S. money laundering statutes provide that foreign misappropriation, embezzlements, and theft of public funds to benefit a public official constitute SUAs, thereby allowing the U.S. government to pursue civil forfeiture claims against assets located in the U.S. or abroad which are linked to the funds from underlying crimes committed primarily or even outside of the U.S.

This is the “civil forfeiture version” of a tactic used with increasing frequency by DOJ on which we repeatedly have blogged: the use of the criminal money laundering statutes to prosecute foreign officials for spending the fruits of entirely foreign crimes, when some of the financial transfers involved in the subsequent money laundering transactions occurred in the U.S.

Finally, another theme running throughout the allegations in these civil forfeiture actions is the unfortunate connection between money laundering and corruption and human rights abuses.

Civil Forfeiture Snapshot

First, some general background. Unlike criminal or most civil cases, civil forfeiture is an in rem action—meaning that the government goes to court against the property or assets directly. In these cases, the property itself is the defendant. To simplify greatly, under 18 U.S.C. §§ 981(a)(1)(A) and 981(a)(1)(C), if property is traceable to the proceeds of the SUA or is property “involved in” money laundering violations, then such property is subject to civil forfeiture. Civil forfeiture law can be very complex but it generally provides very broad powers to the DOJ.

Although the DOJ may prosecute individuals involved in money laundering transactions through a separate criminal action, civil forfeiture allows the DOJ to deprive bad actors of their illicit gains without subjecting the DOJ to the “beyond a reasonable doubt” standard of proof for criminal cases, or to issues involving the extradition of individuals to the United States. Civil forfeiture actions also require anyone asserting a property interest in the asset to be forfeited to come forward and explain and defend in court why their interests are legitimate and superior to the interests of the government in the asset, if they want to contest the forfeiture – something which bad actors seeking to avoid criminal prosecution generally are loath to do.

Republic of The Gambia: Monopoly Rights for Real Estate

In this case, the U.S. brought an action for civil forfeiture against a multi-million dollar mansion in Potomac, Maryland (the “Potomac Property”). The owners of the Potomac Property are Yahya Jammeh (“Jammeh”), the former President of Gambia, and Zineb Jammeh (“Zineb”), his wife. Jammeh’s 22-year authoritarian reign was marred by intense corruption and human rights violations, including the alleged use of an assassination squad to carry out systematic “forced disappearances” of his dissenters. When he finally relinquished power in 2017, the new Gambian government, together with the international community, launched a special investigation to determine the extent of Jammeh’s corruption.

According to the complaint, Jammeh and Zineb’s corruption scheme centered on bribery of and extortion from Gambian businesses. By controlling entire sectors of Gambian industry—primarily fuel importation and telecommunication rights—Jammeh could grant exclusive monopoly rights to the highest bidders. Over a period of years, Jammeh allegedly squeezed these businesses for more and more money, threatening to rescind their monopoly rights if they refused. Jammeh used this tactic over the course of his presidency. Although he made a modest “official” salary as President of Gambia and had no known independent sources of legitimate wealth, Jammeh accumulated at least 281 properties and operated over 100 bank accounts.

Once Jammeh accumulated his allegedly ill-gotten gains through bribes and kickbacks, Zineb allegedly helped launder the money through shell companies and trusts. In 2010, the couple purchased the Potomac Property through a trust established by Zineb. According to the complaint, the purchase happened days after a petroleum company transferred $3.5 million to the Zineb family trust in a series of installments. Interestingly, a few days prior, this same company had allegedly been informed that its monopoly rights would soon cease. Once the money came through to the trust, however, the petroleum company received a letter renewing its monopoly over all petroleum imports into Gambia.

Worth $3.5 million, the Potomac Property will no doubt be seen as a success for the DOJ as well as the international efforts to reverse some of Jammeh’s wrongdoing. However, the devastation that he brought to the Gambia remains, and there are many seeking punishment for both Jammeh and Zineb. According to the complaint, the couple is currently exiled in Equatorial Guinea.

Nigeria: Oil Kickbacks for Luxury Items

This case involves the former Nigerian Minister for Petroleum Resources, Diezani Alison Madueke, and her many “friends” in the oil industry. Her alleged co-conspirators were Aluko and Omokore—both Nigerian citizens who were the beneficial owners of Atlantic Energy Holdings, Ltd., a company set up in the British Virgin Islands, and its subsidiaries (the “Atlantic Companies”).

According to the complaint, the corruption scheme was predicated on Madueke’s power to grant Strategic Alliance Agreements (“SAAs”) from Nigeria’s state-owned oil company to other companies. Madueke granted two major SAAs to the Atlantic Companies, who, according to the complaint, were entirely unqualified to perform their obligations under the SAAs. With Madueke’s help, the Atlantic Companies obtained enormous quantities of crude oil from Nigeria’s state-owned oil corporation. Aluko and Omokore, through the Atlantic Companies, then allegedly sold the crude oil to third party oil trading companies for profits. This scheme allowed Aluko and Omokore to acquire over $1.5 billion in revenue, which they then used to make a series of lavish purchases for themselves and Madueke.

Many of Madueke’s assets already have been seized by law enforcement. In 2017, the DOJ filed a complaint seeking forfeiture of $144 million in assets, including a condo in Manhattan and an $80 million luxury yacht. In 2019, a Nigerian court ordered the seizure of $40 million of luxury items, including jewelry and a customized gold iPhone.

In the most recent matter, the U.S. filed an in rem action against a property in Los Angeles, California (the “Sarbonne Property”), as one of the remaining ill-gotten assets not yet seized. According to the complaint, in 2015 Aluko purchased four California properties for almost $100 million, using multiple shell companies to hide his identity. At some point, Aluko decided to trade the Sarbonne Property for a 3.5 year lease of a private jet. Aluko made this trade via an oral agreement, and transferred the deed of trust through many layers of shell companies—leaving no paper trail tying the house to Aluko. The government’s theory now rests on the fact that the sale of the house in exchange for the jet was intended to “disguise the nature . . . of the proceeds of specified unlawful activity,” making the Sarbonne Property subject to forfeiture.

Malaysia: Another Chapter in the 1MDB Scandal

Lanterns at Kek Lok Si temple, George Town, Penang, Malaysia

We previously have blogged on the enormity of the 1Malaysia Development Berhad (“1MDB”) scheme and the lavish assets that were purchased through it. 1MDB was a company wholly-owned by the Malaysian government and intended to be a fund for economic development in Malaysia, primarily through foreign investments. Over six years, and employing an intricate, multi-phase scheme, officials of the fund misappropriated more than $4.5 billion into their personal bank accounts. Through a series of complex transactions, the conspirators allegedly defrauded international banks and laundered their fortune through U.S. financial institutions. The money was used to purchase real estate, acquire over $200 million in artwork, invest in a major New York real estate development project, and even fund the production of Hollywood films.

As we blogged, the DOJ already has settled its case against the mastermind behind the 1MDB scheme, Malaysian financier Low Taek Jho (“Jho Low”) and his family. In October 2019, the DOJ reached a settlement with Jho Low for over $700 million in assets—making it the largest DOJ civil forfeiture effort to date.

The current matter, brought in the Central District of California, is actually comprised of six in rem complaints, all filed contemporaneously. Each complaint has essentially the same set of facts, but with a different defendant property: a house in Paris (worth approximately $19.5 million), a Basquiat drawing, two Warhol paintings and two funds tied to foreign bank accounts. The various complaints note third parties who may have an interest in the properties at issue.

Unlike the cases highlighted above, the defendant properties here are scattered around the globe: in Switzerland, the UK, the U.S., and France. Because these assets are located outside the borders of the United States, this case shows the power of an in rem action. Federal law – specifically, 28 U.S.C. § 1355 – allows the U.S. government to bring claims of civil forfeiture against property located abroad in a federal judicial “district in which any of the acts or omissions giving rise to the forfeiture occurred.” As stated in the complaint: “Use of the U.S. financial system was an essential feature of both the fraudulent diversion of 1MDB funds and of the subsequent movement of ill-gotten proceeds around the world.” Without getting into the weeds of an extremely detailed and complex 280-page forfeiture complaint, the thrust of the DOJ’s jurisdictional allegations in the action targeting the Paris property appears to be that part of the financial transactions furthering the underlying Malaysian corruption scheme occurred through acts in the Central District of California. Whether this generalized claim will suffice to establish U.S. jurisdiction and venue remains to be seen – assuming that anyone challenges it.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.  If you would like to read more on money laundering and real estate, please see this detailed article from Ballard Spahr here.