The U.S. Attorney’s Office for the Southern District of New York recently unsealed an indictment of Charles McGonigal (“McGonigal”), a former high-ranking FBI official, who has been accused of helping Russian oligarch Oleg Deripaska (“Deripaska”) avoid U.S. sanctions. Last Thursday, Chairmen of the Senate and House Judiciary Committees wrote letters to U.S. Attorney General, Merrick Garland, and FBI Director, Christopher Wray demanding information.

We discuss here the letters, which are extremely pointed.  But first, it’s worth examining the allegations in the indictment, which paint a dramatic tale of abuse of office, concealment through shell companies, and a former high-level law enforcement officer allegedly engaging in the same of behavior that, until very recently, he was sworn to detect, investigate and prevent.

The Indictment

The indictment, which was unsealed on January 23, 2023, charges McGonigal and his co-defendant, Sergey Shestakov (“Shestakov”), with the following four counts: (1) conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”); (2) a substantive violation of the IEEPA; (3) conspiracy to commit money laundering; and (4) money laundering.  The indictment also charges Shestakov with false statements based upon his communications with the FBI.

The indictment first outlines McGonigal’s service in the FBI from 1996 to 2018, where he worked in Russian counterintelligence, organized crime, and counter-espionage, among other areas.  During the last two years of his FBI career, McGonigal served as the Special Agent in Charge (“SAC”) of the Counterintelligence Division of the FBI’s New York Field office.  In that role, McGonigal “supervised and participated in investigations of Russian oligarchs, including Deripaska.” Also in his role as SAC, in 2018 McGonigal “reviewed a then-classified list of Russian oligarchs with close ties to the Kremlin who would be considered for sanctions to be imposed as a result of Russia’s 2014 conflict with Ukraine.”  McGonigal was allegedly connected to Deripaska by Shestkov who served as a translator and diplomat for the Soviet Union and the Russian Federation from 1979 until 1993, and then worked as an interpreter for the federal courts and United States attorneys’ offices in the Southern and Eastern Districts of New York after his retirement. 

The Office of Foreign Asset Controls (“OFAC”) designated Deripaska as a Specially Designated National, or SDN, on April 6, 2018 pursuant to Executive order 13661 for having acted, or purported to have acted, for or on behalf of, directly, or indirectly, a senior Russian official.  OFAC also designated Deripaska under Executive Order 13622 for operating in the energy sector of the Russian economy.

The indictment alleges that Shestakov introduced McGonigal to an employee and agent of Deripaksa (“the Agent”) in 2018, while McGonigal was still serving as the SAC.  Shestakov allegedly then asked McGonigal to help the Agent’s daughter obtain an internship with the New York City Police Department, which he did.  The following year, after McGonigal retired from the FBI, the indictment alleges that McGonigal and Shestakov helped the Agent retain a law firm to have the OFAC Sanctions against Deripaska removed from OFAC’s SDN List, a process also known as “delisting.” The indictment outlines the terms of the engagement between the law firm and Deripaska, by which Deripaska allegedly paid the law firm $175,000 per month, with $25,000 “earmarked” for “certain other professionals.”  The indictment further alleges that the law firm retained McGonigal as a consultant and investigator on the Deripaska matter and paid him $25,000 per month by means of a corporation owned by Shestakov, per his request.  The Indictment alleges that the defendants and the Agent went out of their way to not refer to Deripaska by name, and instead referred to him as “the individual,” “our friend in Vienna,” and “the Vienna client.”  The indictment notes that the engagement with the law firm occurred pursuant to 31 C.F.R. § 589.506(a), “which provides a limited exception to the OFAC Sanctions for certain legal representation of persons subject to the OFAC Sanctions.”

However, the law firm’s work for Deripaska ended by in or about March 2020 — thereby also ending the applicability of the Section 589.506(a) exception.

Operating Without the Shield of a Law Firm Engagement

Beginning in spring 2021, the indictment alleges that the Agent began negotiating with McGonigal and Shestakov so that they would work directly for Deripaska without the law firm “and on a non-legal matter not lawful under the OFAC sanctions.”  The indictment alleges, again, that Shestakov and McGonigal were careful not to refer to Deripaska by name, instead referring to him as “you know whom,” “the big guy,” and “the client” in their exchanges.  The purpose of this new “project” was for Deripaska, operating through his Agent, to retain McGonigal and Shestakov to investigate another Russian oligarch.  Specifically, they were to investigate the oligarch’s interests in a large Russian corporation, which Deripaska and the oligarch were contesting control over, assets that the oligarch may have hidden outside Russia, and the possibility that the oligarch secretly held a passport issued by a nation other than Russia. 

According to the indictment, McGonigal, Shestakov, and the Agent signed a contract in August 2021 by which a Cyprus corporation would pay a corporation based in New Jersey (the “New Jersey Corporation”) $51,280 upon execution of the contract and $41,790 per month for “business intelligence services, analysis, and research relevant to [the Russian Corporation] its business operations, and shareholders.”  The indictment further alleges that, while McGonigal and Shestakov would be paid by Deripaksa pursuant to the contract negotiated by the Agent, none of them signed the contract, nor were any of them identified within it.  Nevertheless, the indictment alleges, on August 13, 2021, the $51,280 payment was wired from a Russian bank to the New Jersey Corporation, which was followed by monthly payments of $41,790 between August 18 and November 18, 2021.  The indictment states that McGonigal also retained subcontractors to assist in the operation but did not inform those subcontractors of Deripaska’s identity.

The indictment alleges multiple steps by the defendants to obscure their relationship and financial dealings with Deripaska.  The New Jersey Corporation allegedly was owned by McGonigal’s friend, who had arranged for McGonigal to participate in the business of the New Jersey Corporation while he was still serving as SAC with the FBI.  The indictment further claims that McGonigal had a corporate email account and cellphone under a false name, which he used in order to conceal the work he was doing for the New Jersey Corporation while employed by the FBI.  McGonigal purportedly did not tell his friend that he was using the New Jersey Corporation to receive payments under the contract.  When asked about the payments from the Russian bank, McGonigal allegedly told his friend that it was payment for “legitimate” work he was doing for a “rich Russian guy.”  The indictment suggests that McGonigal’s friend did not question this any further and subsequently transferred funds to both McGonigal and Shestakov.  The indictment states that this activity ceased only when special agents of the FBI seized McGonigal and Shestakov’s personal devices in November 2021.

The Letters

Following the unsealing of the indictment, Senator Dick Durbin (D-Ill.), Chairman of the Senate Judiciary Committee, wrote a letter to Attorney General Merrick Garland and FBI Director Christopher Wray stating that the allegations in the indictment “are extremely disturbing and raise concerns about the potential impact this misconduct may have had on the FBI’s counterintelligence matters and criminal investigations.”  Durbin also set forth a request that Garland and Wray contact staff by February 16, 2023 to schedule a briefing responding to certain questions.  The questions focus on the counterintelligence investigations McGonigal oversaw as SAC; McGonigal’s role in investigation the 2016 presidential election; any potential compromise in investigation evidence arising from McGonigal’s conduct; and Justice Department and FBI policies and procedures regarding misuse of public office.

Representative Jim Jordan (R-Ohio), Chairman of the House Judiciary Committee, also wrote a letter to FBI Director Wray, which was co-signed by Representative Matt Gaetz (R-Fla.).  Jordan’s letter sets forth three document requests, seeking: (1) McGonigal’s personnel records; (2) the FBI’s process for responding to investigations concerning McGonigal; and (3) communications relating to the actions to mitigate the national security risks posed by McGonigal.  Like Durbin’s, Jordan’s letter requests a briefing to take place by next week.  Jordan requests for the briefing to focus on what process(es) of review the FBI is undertaking to review matters that may have been impacted by McGonigal as well as the process the FBI has in place to prevent its senior officials from working on behalf of foreign actors.

The letters, of course, may involve a degree of political motivations.  Even so, the allegations in the indictment are extremely serious — even shocking — and this case likely will play out on several levels for some time.

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