Conflict-of-Interest Query Resurfaces in Russian Money Laundering Case

Russian Money Laundering Case

A complex and contentious civil money laundering case involving an alleged $230 million Russian tax fraud just got more complicated.

On Monday, the Second U.S. Circuit Court of Appeals put the case on hold two days before it was set to go to trial in Manhattan federal court.

Federal prosecutors from the Manhattan U.S. Attorney’s office have accused several Russian businessmen and their company Prevezon Holdings of laundering the proceeds of the alleged Russian tax fraud – allegations they have denied. London-based hedge fund Hermitage Capital, and founder William Browder, have provided information to prosecutors and could testify at trial against the defendants.

Mr. Browder – though not party to the case – has repeatedly sought to have the defendants’ lawyer, John Moscow, and his firm, Baker Hostetler LLP, removed from the case arguing Mr. Moscow previously represented Hermitage in a related matter and is now using information obtained during that representation to attempt to undermine Mr. Browder’s credibility.

The appeals court said Monday it would postpone the trial and would give Mr. Browder that chance but did not set a specific date for any arguments.

This comes after U.S. District Judge Thomas P. Griesa, who is due to preside over the trial, already ruled on the issue on three separate occasions. Judge Griesa first denied Mr. Browder’s motion to remove Mr. Moscow in October 2014, granted a renewed motion by Mr. Browder in December, and finally reversed himself in January.

“There is now a very real possibility that BakerHostetler will be in a position where it would be trying to show that its current clients… are not liable and showing this by attacking its former client (Hermitage) on the very subject of BakerHostetler’s representation of that former client,” lawyers for Mr. Browder said in papers filed with the appeals court.

A lawyer for Mr. Browder declined to comment. A spokesman for the Manhattan U.S. Attorney’s office, which supported Mr. Browder’s move in a hearing last week, did not immediately respond to a request for comment Monday.

“The government is engaged in a meritless tactical maneuver to delay giving our client the trial he has been seeking for over two years,” said Bakerhostetler lawyer Mark Cymrot, who along with Mr. Moscow is representing defendant Prevezon Holdings, and its owner Russian businessman Denis Katsyv. Law Blog reached out to Mr. Moscow for comment.

“We believe the Appeals Court will come to the same conclusion the trial judge and the Southern District’s grievance committee reached on the three previous occasions this tactic has been attempted.”

The tangled debate over whether there is a conflict of interest involving Mr. Moscow is almost as complicated as the civil forfeiture case in which prosecutors are seeking nearly $2 million in New York real estate holdings controlled by Mr. Katsyv’s company that are allegedly derived from the $230 million tax fraud on the Russian treasury. Prosecutors are also seeking the forfeiture of nearly $15 million in funds they allege were used to hide laundered money.

Mr. Katsyv and his company, Prevezon Holdings, deny the allegations.

The alleged tax fraud at issue in this case was exposed by Mr. Browder’s Russian lawyer, Sergei Magnitsky, who was arrested in 2008 by the Russian officials he accused. He died in prison in 2009. Since then, Mr. Browder has campaigned to find those responsible for Mr. Magnitsky’s death and has lobbied prosecutors to pursue cases related to the alleged tax fraud, including the current case against Mr. Katsyv.

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