Could U.S. Assets Seizure Lead To Expansion Of Magnitsky Blacklist?

WASHINGTON -- As shady Russian businessmen snapped up luxury apartments in New York City, lawyer Sergei Magnitsky was confined to the few square meters of a Moscow jail cell. He would die there under suspicious circumstances in 2009 after revealing a scheme by government officials and associates to steal $230 million from the Russian treasury. U.S. prosecutors say the proceeds of that heist paid for the Manhattan properties.

A complaint filed by the U.S. Department of Justice on September 10 seeks the seizure of the four Wall Street-area apartments as well as two commercial spaces. It also details the twists and turns of the fraud scheme. If approved, the seizure would be the first such move in a case that has already seen bank accounts frozen in several European countries.

But perhaps more significantly, at least for U.S.-Russian relations, the complaint names alleged beneficiaries of the fraud that are not included on the "Magnitsky list," a U.S. blacklist of Russian officials implicated in the case. It appears, then, to offer a potent argument for those members of the U.S. Congress seeking to expand the list and push back against any hesitation by the administration of President Barack Obama over harm that might cause to ties with Moscow.

Informed congressional sources told RFE/RL that the naming of names in the complaint had "been noted" and could be used to push the administration ahead of an upcoming deadline.

The U.S. legislation establishing travel and financial sanctions in the Magnitsky case requires that the State and Treasury departments add more names to the blacklist "as new information becomes available." The Obama administration must add names to the list by a December 14 congressional reporting deadline or justify why it hasn't done so.

The first version of the list, published in April, implicated 16 individuals in connection with the case (plus another two implicated in other crimes). Some U.S. lawmakers had expressed disappointment that more names had not been included. It was enough, however, to elicit rage -- and a retaliatory blacklist -- from Moscow.

One congressional source said, "If the Department of Justice has found new money and new names, where is the Treasury Department and Department of State and when will we see the promised update to the list?"

Prevezon Holdings

The civil forfeiture complaint alleges that Cyprus-based real-estate corporation Prevezon Holdings, owned by Russian businessman Denis Katsyv, was one of the companies that cashed in on the fraud scheme unraveled by Magnitsky.

The company and its eight subsidiaries laundered some of that money through the purchase of the real estate, the complaint claims. Prosecutors are also seeking the assets of two "related companies."

The U.S. Department of Homeland Security also signed off on the 65-page complaint.

Katsyv, whose father is a wealthy former transportation minister for the Moscow region, is one of several individuals not on the Magnitsky list but named in the Justice Department complaint as directly benefiting from, enabling, or overseeing the fraud scheme.

READ MORE: What Happens When Foreign Assets Are Seized In The U.S.

By the time Katsyv had become the sole owner of Prevezon Holdings in 2008, U.S. prosecutors argue, the company had received millions of dollars from the Russian treasury. That money had allegedly been funneled through Moldovan shell companies and Moldovan and Swiss bank accounts.

Another name in the complaint is that of Dmitry Klyuev, the owner of Russia's Universal Savings Bank, who is identified as "on information and belief the mastermind of the organization" that orchestrated the fraud and later prosecuted Magnitsky. Klyuev has previously been convicted of fraud and other charges.

The complaint says Vladen Stepanov and his former wife, Olga, who is included on the Magnitsky list, used some of the stolen money to purchase luxury property in Dubai.

Others named in the complaint include Timofei Krit, Prevezon's former director, and Aleksandr Litvak, identified as one of Katsyv's business partners.

Prosecutors also point to the involvement of lawyers Andrei Pavlov and Yulia Mayorova in court proceedings that enabled the fraud scheme.

William Browder is the CEO of Hermitage Capital Management, the company whose assets were targeted in the crimes that his lawyer, Magnitsky, had uncovered. A complaint he filed in September 2012 set the assets-seizure process in motion.

Browder said the case could now pave the way for an expansion of the Magnitsky list. "It adds an enormous amount of gravitas to our allegations to have the U.S. government basically repeat them with their own evidence," he said.

A U.S. State Department spokesperson told RFE/RL, "As required by law, we will closely examine any credible information that indicates an individual meets the criteria in the [Magnitsky] Act."

Katsyv, whose Manhattan real estate is frozen pending judgment, maintains his innocence.

A representative of Wellington International, the U.K.-based public relations firm that he has retained, told RFE/RL that Katsyv "rejects any suggestion of a connection with the Magnitsky case. He will be fighting this highly political and completely unfair claim."

Should a judge rule him an "innocent owner," his properties would not be seized. Otherwise, their value would go to the U.S. government, which could decide to keep it, share it with Moscow, or return it all.

Whether Russia would accept any of the assets seems unlikely, as doing so would be an apparent admission that the case outlined by U.S. prosecutors is true. Russia found Magnitsky guilty of financial crimes in an unprecedented posthumous trial in July.

The Russian Embassy in Washington did not respond to a request for comment.

A court date has not yet been set.