Case Highlights the Role of Correspondent Bank Accounts and Circumvention of AML Programs
Court Order Describes Seizure as a “Reckoning” for Atrocities in the Ukraine
On April 4, 2022, Magistrate Judge Zia M. Faruqui of the United States District Court for the District of Columbia granted the government’s Application for Warrant to Seize Property Subject to Forfeiture, finding that there was probable cause to believe that the yacht Tango, a 255-foot luxury yacht allegedly owned by sanctioned Russian oligarch Viktor Vekselberg, was subject to forfeiture based on alleged violations of U.S. bank fraud, money laundering, and sanction statutes. The Tango is located in a shipyard on the Spanish island of Mallorca, and the warrant and subsequent seizure by the United States and its allies was part of Task Force KleptoCapture, an interagency law enforcement task force designed to help deploy U.S. prosecutorial and law enforcement resources to identify sanctions evasion and related criminal conduct.
Sanctions were imposed on Vekselberg and the company he founded, the Renova Group, in April 2018 by the Treasury Department. Following Russia’s invasion of Ukraine, Vekselberg was hit with new penalties by the U.S. government on March 11, 2022. These sanctions were pursuant to various Executive Orders under the International Emergency Economic Powers Act (“IEEPA”) imposed against persons responsible for or complicit in certain activities with respect to Ukraine.
The Affidavit in Support
According to the affidavit supporting the seizure warrant application, Vekselberg bought the Tango in 2011 and has owned it continuously since that time. It further alleged that Vekselberg used shell companies to obfuscate his interest in the Tango to avoid bank oversight into related U.S. dollar transactions. The affidavit cited three confidential witnesses, including a manager and employee of a company that provided services during the vessel’s design and construction, who identified Vekselberg as the true owner.
Additionally, despite his status as an individual under sanction, Vekselberg, and those working on his behalf, continued to make U.S. dollar payments through U.S. banks for the support and maintenance of the Tango and its owners. These included a payment for a December 2020 stay at a luxury water villa resort in the Maldives, as well as mooring fees for the yacht. According to the affidavit, Vekselberg had an interest in these payments and therefore necessitated a license from the Treasury Department, which was not obtained.
The affidavit stressed the role of correspondent bank accounts, which are the primary way foreign financial institutions (or “respondent banks”) gain access to the U.S. financial system. By establishing a correspondent bank account, the U.S. bank may receive deposits from, or make payments or other disbursements on behalf of the respondent bank, or to handle other financial transactions related to the respondent bank. As the affidavit notes, “[n]early all U.S. dollar wire transactions conducted by foreign financial institutions are processed through correspondent bank accounts held in the United States.” According to the affidavit, Vekselberg and his agents transferred funds internationally through correspondent accounts held at U.S. financial institutions, using shell companies to do so in order to “hide the true nature of the transactions from U.S. financial institutions, undermine KYC protocols, and present the U.S. financial institutions from issuing [Suspicious Activity Reports] related to the transactions.”
When finding that probable cause supported the warrant, the Court first observed that willfully attempting to circumvent U.S. sanctions, such as trying to circumvent the anti-money laundering (“AML”) procedures implemented by U.S. financial institutions under the Bank Secrecy Act to prevent the misuse of correspondent bank accounts, is a criminal violation of the IEEPA. Further, deceiving banks which are trying to enforce U.S. sanctions law through their AML programs is bank fraud. Moving funds involved in such activity is money laundering.
The Court addressed jurisdiction to seize, and noted that the Treasury Department’s OFAC had designated Vekselberg as part of U.S. sanctions against Russia. The Court agreed that the government had established probable cause to believe Vekselberg structured transactions involving the Tango to conceal his identity, including via use of shell companies, as part of a scheme to violate the IEEPA and commit bank fraud, as part of a related international money laundering scheme. These transactions were subject to U.S. jurisdiction because they passed through the United States via correspondent bank account transfers. The Tango therefore was subject to forfeiture under 18 U.S.C. Sections 981(a) and 982(a).
Next, the Court stated that venue for the warrant for seizure was established because Congress empowered the District Court for the District of Columbia to seize property located in a foreign country. Although the Court had rejected the government’s initial request to search items located in the Tango because the Court lacked venue to issue a search warrant for property held at a foreign port, the Court nonetheless reasoned that no search warrant was necessary because the Fourth Amendment does not apply to the search of property owned by a nonresident alien located in a foreign country, and Vekselberg lacked a reasonable expectation of privacy in the Tango.
The Court concluded by discussing the Excessive Fines Clause of the Eighth Amendment, which limits the Government’s forfeiture power. The Court noted that an Excessive Fines challenge at this stage was premature because Eighth Amendment issues are not ripe until after a court enters a civil or criminal forfeiture order. Nevertheless, the Court addressed the proportionality of the forfeiture to the crime and stated, “Far from being grossly disproportionate to Putin’s murder of civilians, destruction of Ukrainian cities, and attack on Ukraine’s sovereignty, forfeiture of the [Tango] is wholly justified. The seizure of the [Tango] is just the beginning of the reckoning that awaits those who would facilitate Putin’s atrocities. Neither the Department of Justice, nor history, will be kind to the Oligarchs who chose the wrong side.”