SAN FRANCISCO (CN) – The U.S. government forfeited its right to nearly $2.5 million in money-laundered assets of a former Ukrainian prime minister by screwing up forfeiture proceedings, the 9th Circuit ruled on Tuesday.
Pavel Ivanovich Lazarenko was convicted by a federal jury in 2004 for laundering money, obtained in a host of illegal activities, through banks worldwide, including Antigua and Barbuda’s European Federal Credit Bank, or Eurofed.
As the U.S. indicted Lazarenko on criminal charges, Antiguan officials ordered the liquidation of Eurofed and appointed several liquidators to assist in the collection and distribution of its assets.
A portion of the funds and Ukrainian bonds in question, about $2.5 million, were held in two Eurofed correspondent accounts at Bank of America in San Francisco. After Lazarenko’s conviction, the U.S. seized those assets and sought criminal forfeiture.
Since the U.S. did not learn about the money-laundering offenses before 1999, however, the five-year statute of limitations barred its 2005 civil forfeiture complaint.
On Oct. 26, 2005, a district court granted summary judgment to the Antiguan liquidators in the civil action. That same day, at the government’s request, the district court also issued a criminal seizure warrant over the same assets, and the U.S. retained possession.
In January 2006, the liquidators moved to reclaim the illegally seized funds, claiming the government’s criminal forfeiture action was barred by the statute of limitations, res judicata and the act of state doctrine.
The liquidators could not move forward with an appeal for the funds until Lazarenko was convicted for money laundering and conspiracy to commit money laundering. They argued that Congress’ procedural scheme violated their due process rights.
Writing for a three-judge panel of the 9th Circuit, Judge Susan Graber agreed with the liquidators’ claims.
“If the government’s criminal prosecution of the property owner fails, that failure does not prevent the government from pursuing civil forfeiture,” Graber wrote. “Here, however, we face the reverse situation. The government sought civil forfeiture but filed its action too late.”
The government had already conceded that its civil action was time-barred, but tried again with criminal forfeiture targeting the same property, the ruling states.
“Only when the government bumbles its forfeiture proceedings, as happened here, will res judicata pose any sort of obstacle to obtaining a person’s crime-connected property,” Graber wrote.
Citing a 1st Circuit ruling, the San Francisco-based appeals panel said the doctrine of “res judicata bars a criminal forfeiture following dismissal with prejudice of a prior civil forfeiture proceeding involving the same property.”
The court reversed the forfeiture order, remanding the case with orders to exclude the assets in question and to direct the government to return the seized assets to the liquidators.
In November 2010, the 9th Circuit also reversed a $19 million restitution award that ordered Lazarenko to pay a co-conspirator in his money-laundering scheme. A month later, the court declined to reconsider the ruling.