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United States of America v. All Assets Held At Bank Julius Baer & Company

March 25, 2011

UNITED STATES OF AMERICA, PLAINTIFF,
v.
ALL ASSETS HELD AT BANK JULIUS BAER & COMPANY, LTD.,GUERNSEY BRANCH, ACCOUNT NUMBER 121128, IN THE NAME OF PAVLO LAZARENKO LAST VALUED AT APPROXIMATELY $2 MILLION IN UNITED STATES DOLLARS, ET AL., DEFENDANTS IN REM.



The opinion of the court was delivered by: Paul L. Friedman United States District Judge

OPINION

The United States, proceeding as the plaintiff in this civil forfeiture action, has filed a motion for judgment on the pleadings against claimant OAO Gazprom ("Gazprom"). The Court heard oral argument on the motion on May 14, 2010. Upon consideration of the parties' arguments, the relevant authorities, and the entire record in this case, the Court concludes that Gazprom lacks standing to challenge the proposed forfeiture.*fn1 The motion for judgment on the pleadings therefore will be granted.

I. BACKGROUND

The United States initiated this litigation in order to seek the forfeiture of more than $250 million scattered throughout bank accounts located in Guernsey, Antigua & Barbuda, Switzerland, Lithuania, and Liechtenstein. Am. Compl. ¶ 1. The money in those accounts is allegedly "traceable to a series of" acts of "criminal fraud, extortion, bribery, misappropration, and money laundering"carried out by, among others, Pavlo Ivanovich Lazarenko, a Ukrainian politician who, with the aid of various associates, was "able to acquire hundreds of millions of United States dollars through a variety of acts of fraud, extortion, bribery, misappropriation and/or embezzlement" committed during the 1990s. Id. ¶ 10. According to the United States, those illegal acts, and subsequent attempts to launder the resulting criminal proceeds, involved the transfer of large sums of U.S. dollars into and out of United States financial institutions. Id. ¶¶ 11-13. Plaintiff, the United States, claims ownership of those sums of money pursuant to federal statutes that provide for the forfeiture to the United States government of funds traceable or otherwise related to criminal activity that occurred at least in part in the United States. See id. ¶ 1.

The funds at issue in this action allegedly derive in part from what the United States terms "the UESU energy scheme." See Am. Compl. at 16. According to the amended complaint, Mr. Lazarenko served in 1995 and 1996 as the First Vice Prime Minister of Ukraine. Id. ¶ 35. During that time Mr. Lazarenko "was in charge of the energy sector of the Ukrainian economy and presided over a re-organization of the natural gas importation and distribution system." Id. He used that position to award highly lucrative energy contracts to certain companies. See id. ¶ 36. In particular, Mr. Lazarenko conferred upon United Energy Systems of Ukraine ("UESU"), a corporation "controlled by Lazarenko associate Yulia Tymoshenko and others," the exclusive right "to distribute natural gas to the Dnepropetrovsk region of Ukraine." Id. ¶ 36. In order to exercise that right, UESU entered into contracts to purchase natural gas from Gazprom, a large Russian energy company. Id. Pursuant to those contracts, Gazprom supplied natural gas to UESU from late 1995 through 1997. Id.

During the relevant time period, UESU was eighty-five percent owned by United Energy International, Ltd. ("UEIL"), an entity "created on October 17, 1995, at the direction of" Lazarenko associate Yulia Tymoshenko. Am. Compl. ¶ 37. UESU transferred title to the natural gas it had purchased from Gazprom to UEIL. Id. Payments from Ukrainian consumers who used that natural gas were in turn collected in bank accounts registered to UEIL. Id. In 1996, UEIL transferred some $140,000,000 from those accounts to "Somolli Enterprises, a Cypriot company that was registered in Cyprus on October 8, 1992, and was controlled by Yulia Tymoshenko and others." Id. ¶ 37. Ms. Tymoshenko and affiliated individuals in turn used Somolli Enterprises and other business entities under their control as vehicles for payments to Mr. Lazarenko of "at least $162,000,000 in 1996 and 1997." Id. ¶ 38. The United States alleges that some portion of the defendant assets in this case is traceable to those illicit payments. Id. ¶20.

During roughly the same time period that Ms. Tymoshenko and associates were allegedly shifting money from UESU to UEIL and ultimately to Mr. Lazarenko, UESU failed to make the payments required by its contracts with Gazprom. Am. Compl. ¶ 37. Gazprom, which does not contest the foregoing account of the UESU energy scheme, see Am. Ans. ¶¶ 36-38, claims that, as a result of the UESU energy scheme and UESU's failure to meet its contractual obligations to Gazprom, Gazprom has an ownership interest in some of the defendant assets at issue in this forfeiture action. See Gazprom Cl. at 5.

II. STANDARD OF REVIEW

In a forfeiture action brought in rem pursuant to a federal statute, the United States "may move to strike a claim or answer" at "any time before trial." SUPPLEMENTAL RULES FOR ADMIRALTY OR MARITIME CLAIMS AND ASSET FORFEITURE ACTIONS [hereinafterSUPP. R.],Rule G(c)(i). Such a challenge to a party's claim and answer "may be presented as a motion for judgment on the pleadings." Id. G(c)(ii)(B).

Rule 12(c) of the Federal Rules of Civil Procedure states that "[a]fter the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings." FED. R. CIV. P. 12(c). The standard of review for motions for judgment on the pleadings is essentially the same as that for motions to dismiss under Rule 12(b)(6). See Schuchart v. La Taberna Del Alabardero, Inc., 365 F.3d 33, 35 (D.C. Cir. 2004). On either motion, the Court "must accept as true all of the factual allegations contained in the [claim]." Erickson v. Pardus, 551 U.S. 89, 94 (2007); see also Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The claim "is construed liberally in the [claimant's] favor, and [the Court should] grant [the claimant] the benefit of all inferences that can be derived from the facts alleged." Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Nevertheless, the Court need not accept inferences drawn by the claimant if those inferences are unsupported by facts alleged in the claim and answer, nor must the Court accept the claimant's legal conclusions. See id.; see also Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). As with a motion to dismiss under Rule 12(b)(6), a court may grant judgment on the pleadings only if the facts alleged in the claim and answer do not "raise a right to relief above the speculative level," Bell Atlantic Corp. v. Twombly, 550 U.S. at 555, or fail to "state a claim to relief that is plausible on its face." Id. at 570.

As with a motion to dismiss, the Court may not rely on facts "outside" the pleadings in deciding a motion for judgment on the pleadings. See Kowal v. MCI Commc'ns Corp., 16 F.3d at 1276. The Court may consider, however, documents "upon which [a party's pleading] necessarily relies," even if those documents are not physically attached to the filed pleading. Hinton v. Corrections Corp. of Am., 624 F. Supp. 2d 45, 46 (D.D.C. 2009); accord 5B CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 1357 (3d ed. 2004). In this case, Gazprom relies in its claim and answer upon its contractual relationship with UESU, see Am. Ans. ¶ 36; id. at 29-30, and a judgment in its favor issued by the Arbitrazh Court of Moscow on May 7, 2001. See id. at 30. Gazprom attached copies of those documents to its memorandum in opposition to the plaintiff's motion for judgment on the pleadings. See Opp., Exs. G, H, M, & N. Because Gazprom relies on those documents in its pleadings and has provided copies of the documents whose authenticity is not disputed, the Court considers those documents in rendering its decision on the plaintiff's motion.

III. APPLICABLE LAW AND THIS COURT'S JURISDICTION

The United States brings this action pursuant to 18 U.S.C. § 981, which authorizes the forfeiture of property "involved in," "derived from," or "traceable to" a variety of specified federal crimes. 18 U.S.C. § 981(a)(1). Gazprom, however, claims that United States law is inapplicable to this proceeding because the defendant assets are located in foreign financial institutions. See Opp. at 23-33. According to Gazprom, to determine whether assets in, say, Antigua are subject to forfeiture, this Court must apply the forfeiture laws of Antigua. See id. at 25. The sole legal authorities cited by Gazprom in support of this entirely unpersuasive assertion are the set of treaties that address, among other things, the extent to which one signatory shall release property in its control to another signatory who claims that the property is subject to forfeiture. See id. at 23-24; id., Exs. O ("Antigua and Barbuda MLAT"); P ("U.K. MLAT"); Q ("Liechtenstein MLAT"); R ("E.U. MLAT"); S ("Switzerland MLAT"). But those documents, known as Mutual Legal Assistance Treaties ("MLATs"), provide no support for Gazprom's argument.

Each of the foreign jurisdictions that is home to one or more of the financial institutions holding the defendant assets at issue in this case - Guernsey, Antigua and Barbuda, Switzerland, Lithuania, and Liechtenstein - is party to an MLAT with the United States which provides for international cooperation in forfeiture proceedings under certain circumstances. See Opp., Exs. O-S. Under each of those MLATs, the United States may request that the other signatory party ("the co-signatory") transfer into the United States' possession any property within the co-signatory's territory that the United States believes to be subject to forfeiture ("forfeited property"). See Antigua & Barbuda MLAT, art. 16; U.K. MLAT, art. 16; Liechtenstein MLAT, art. 17; E.U. MLAT, art. 16; Switzerland MLAT, art. 1. With the exception of the U.S.-Switzerland MLAT, each of those documents provides that the cosignatory will "dispose" of the forfeited property "in accordance with the laws [of the cosignatory]." E.U. MLAT, art. 16, ¶ 3; see Antigua & Barbuda MLAT, art. 16, ¶ 3 (similar language); U.K. MLAT, art. 16, ¶ 3 (similar language); Liechtenstein MLAT, art. 17, ¶ 3 (similar language).*fn2 In other words, under the plain language of the treaties, the United States may request, say, Liechtenstein, to transfer possession of property or assets to the United States, but it is up to Liechtenstein to decide, in accordance with the laws of Liechtenstein, whether to comply with that request in a particular case.

Gazprom contends that because the MLATs applicable to Antigua, Guernsey, Lithuania, and Liechtenstein provide that each of those countries will dispose of forfeited property according to its own laws, this Court must apply the law of each of those countries in these forfeiture proceedings. See Opp. at 23-25. This argument is, frankly, frivolous. Obviously, as just noted, the country that has physical control over property sought by the United States will determine, by application of that country's own law, whether it will release any property to the United States upon request; the United States cannot use its own domestic law to force another country to relinquish property. But whether the assets are subject to forfeiture in the first place and whether forfeiture orders should issue is a question of United States law. See, e.g., United States v. All Funds in Account Nos. 747.034/278, 295 F.3d 23, 27 (D.C. Cir. 2002) (applying federal law to determine the statute of limitations applicable to a forfeiture action ...


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