On August 16, 2022, the U.S. Court of Appeals for the District of Columbia Circuit rejected an attempt by Pavel Lazarenko, a former prime minister of Ukraine, to prohibit the U.S. government from seeking forfeiture of a trust he created, with assets held in a Guernsey bank. (U.S. v. All Assets Held at Credit Suisse (Guernsey) Limited, No. 20-5356 (D.C. Cir. 2022).)
Underlying Criminal Case
Pavel Lazarenko held various political positions in the Ukrainian government during the 1990s, including serving as prime minister from 1996–1997. In 1997, Lazarenko established an irrevocable trust, listing family members as the beneficiaries. According to the U.S. government, Lazarenko transferred approximately $121 million into the trust within a year of its creation. The government further alleged that Lazarenko amassed his fortune through fraud, extortion, and embezzlement, and unlawfully laundered these illicitly obtained funds through U.S. financial institutions.
In 2001, a grand jury in the U.S. District Court for the Northern District of California charged Lazarenko with 53 counts of several financial crimes. A jury found Lazarenko guilty on 14 counts and, on appeal, convictions on seven counts of money laundering and one count of conspiracy were affirmed. In 2004, the U.S. government initiated a civil forfeiture action to take the property of Lazarenko that was associated with the crimes.
Civil forfeiture proceedings permit a government to seize property that is connected to criminal activity. This type of action is filed separately from the underlying criminal case, and the suit is filed against the property itself, which is referred to as an in rem proceeding. Although jurisdiction over these cases was traditionally limited to property within the court’s geographic boundaries, in 1992 Congress expanded federal district court jurisdiction to include property that is subject to U.S. forfeiture laws but located in a foreign country. This law is codified at 28 U.S.C. § 1355(b)(2).
Federal statutes also permit the government to seek court permission to freeze assets potentially subject to forfeiture in order to protect the property while a forfeiture action is pending. (18 U.S.C. § 983(j)(1).) The rules governing these proceedings permit a person asserting an interest in the property to file a claim in the forfeiture action (Supp. R. G(5)(a)(i); the government may then move to strike a claimant’s filing because of lack of standing in accordance with Supp. R. G(8)(c)(i)(B).
Litigation Between the U.S. Government and Lazarenko
When the U.S. government filed its civil forfeiture action, it sought approximately $230 million held in overseas bank accounts, including the trust at issue in this case. Relying on 18 U.S.C. § 983(j)(1), the government sought, and the Federal District Court for the District of Columbia granted, an order prohibiting Lazarenko and others from taking steps that would interfere with the availability or value of the trust assets. The U.S. government then contacted the Guernsey government for assistance with protecting the funds. In July 2004, the Royal Court of Guernsey granted an application from the Guernsey government to restrain, or freeze, the trust and other assets located in Guernsey. In that order, the Royal Court noted that “any person affected by this Order may apply … for the discharge or variation of this Order.” (U.S. v. All Assets Held at Credit Suisse (Guernsey) Limited, No. 20-5356, slip op. at 5 (D.C. Cir. Aug. 16, 2022).)
Litigation over the trust assets continued for several years. During this time, Lazarenko and others submitted claims to the property, and the U.S. government responded with motions to strike the claims. In 2020, the District Court struck Lazarenko’s claim to the assets for lack of standing, concluding that as a trust settlor, Lazarenko had “no concrete interest in the disposition of its assets.” (All Assets Held at 6.) Because Lazarenko was no longer a party to the District Court case, he then filed a motion to modify the restraining order to allow him to litigate the civil forfeiture proceedings in Guernsey, under Guernsey law. The District Court denied this request, as well as a similar request submitted by other claimants, concluding that the restraining order’s purpose was to protect the trust assets during the course of the forfeiture proceedings. Lazarenko appealed to the U.S. Court of Appeals for the D.C. Circuit.
Circuit Court Opinion
Lazarenko made three arguments before the Circuit Court. First, the District Court could not prohibit him from litigating the case in Guernsey because he was no longer a party to the District Court’s case. Second, the District Court lacked statutory authority to restrain him from litigating a case in a foreign court. Finally, the injunction violated principles of international comity.
The D.C. Circuit rejected each of Lazarenko’s arguments. First, the Circuit Court concluded that Lazarenko is still a party to the District Court case because that court has not issued a final judgment, and Lazarenko’s claims to other assets subject to forfeiture remain pending. Next, the court held that 18 U.S.C. § 983(j)(1) grants courts the authority to “enter a restraining order or injunction … or take any other action to seize, secure, maintain, or preserve the availability of property subject to civil forfeiture” regardless of whether an individual is a party to the case. Lastly, the court overruled Lazarenko’s arguments related to international comity principles on procedural grounds, concluding that because he waited 16 years to make these arguments before the lower court, it would be unfair and a burden to the parties to start litigating a novel argument at this time. The Circuit Court concluded, “His delay squarely reflects a lack of diligence. … [E]xcusing his delay would risk wasting the considerable time and resources that the parties have invested in the district court proceedings.” (All Assets Held at 13–14.)
Thus far, the parties have filed no pleadings indicating whether they intend to appeal the D.C. Circuit’s decision to the U.S. Supreme Court.