The World in U.S. Courts: Summer 2017 - White Collar Criminal Law/Money Laundering
This is a civil action brought by the US Government for the forfeiture of more than USD 250 million held in bank accounts worldwide that were the proceeds of violations of various criminal statutes. The criminal violations all arose in connection with the activities of Pavel Lazarenko, a former Ukrainian politician who was found to have amassed the money through fraud, extortion, bribery, and misappropriation and/or embezzlement in the 1990s. The District Court in Washington, D.C. considered whether recent changes in the law of extraterritoriality prevented the US from seeking forfeiture of funds generated through conduct occurring largely outside the US. Among many issues addressed, the following are most relevant for present purposes:
The Court first considered the extraterritoriality of forfeiture claims under 18 USC 981, which applies to certain specifically-enumerated crimes. It analogized the legal issue to the extraterritoriality of the RICO statute, which was addressed in the US Supreme Court’s 2016 decision in the RJR Nabisco case. The RICO statute, like the forfeiture statute, is based on violations of enumerated criminal prohibitions. In RJR Nabisco, the Supreme Court held that substantive RICO violations would have extraterritorial effect to the extent the criminal violations allegedly forming the “pattern of racketeering activity” themselves provided for extraterritorial application. But a separate statute created a private right of action for damages caused by RICO violations, and the Supreme Court held that this statute had no extraterritorial effect—i.e., that no matter the RICO violation at issue, a private plaintiff could only recover for US “domestic injuries.”
Following RJR Nabisco, the Court determined in the forfeiture case that extraterritoriality must first be judged with reference to the Section 981, the forfeiture statute, and not the underlying criminal violations on which application of the statute was based. It then analogized Section 981 to the underlying RICO violation, concluding that forfeiture would be appropriate to the extent it was based on underlying criminal violations that had extraterritorial effect.
That left an analysis of the geographic scope of the criminal violations on which forfeiture was based. The Court first concluded that the money laundering statutes applied extraterritorially, rejecting Lazarenko’s argument that the statutes' requirement that transactions occur “in part” in the US was not satisfied by Electronic Funds Transfers (EFTs) in US dollars that passed through US banks because the EFTs flowed from one non-US bank to another. At least where the US banks were used “as a clearinghouse” for conduct illegal under US law, the Court found the forfeiture statute properly applicable.
The Court then considered the underlying violation of 18 USC 2314, which as relevant here prohibits certain transfers of funds obtained through fraud, and concluded that the provision gave no intent that it should be applied extraterritorially. That said, the second question under the RJR Nabisco analysis is whether sufficient US conduct occurred in connection with the “focus” of the statute that the alleged violation should be considered US “domestic.” The Court found the “focus” Section 2314 to be the “transportation or transfer of property,” and the numerous EFTs and alleged wire transfers into and out of the US to satisfy the requirement. The Court likewise found that the transfers violated Section 2315, which among other things prohibits certain transfers of illegally-obtained funds across a US “boundary.”
Forfeiture was also based on alleged violations of 18 USC 1951, which prohibits “robbery or extortion” that affects “all commerce over which the US has jurisdiction.” The Court found this expansive reference to jurisdiction inadequate to displace the presumption against extraterritoriality. It then determined that the “focus” of Section 1951 was the alleged act of extortion, and that no such domestic act had been pled.
The Court likewise found that the Wire Fraud Statute, 18 USC 1343, did not have extraterritorial application, and that the focus of the statute was the “scheme to defraud.” Thus, a US domestic violation could be found where the defendant committed in the US a “substantial” amount of conduct that was “integral” to the commission of the fraud, and at least “some” of the conduct involved use of US electronic communications. Because the US failed to allege conduct by Lazarenko that satisfied these requirements, judgment for Lazarenko was entered on the forfeiture claim to the extent based on a violation of Section 1343.