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By John Helmer, Moscow

Lawyers for the US Government have filed a court brief in New York this week, arguing that an earlier ruling by three federal appeals court justices was mistaken in deciding that the US law against racketeering cannot go after racketeers outside US territory, in Russia.

The effect of the intervention by the US Department of Justice and the District Attorney of New York is to back claims by a North American company, Norex Petroleum Limited, charging Victor Vekselberg and his associates with stealing its oilfield assets in the Tyumen region between 1997 and 2002. Read the full complaint here.

The claim asks for an award of compensation for the loss of Norex’s oilfields, oil reserves and oil in storage, cash in Russian banks, and other assets totalling $500 million. Added to that, the lawsuit requests treble damages of $1.5 billion, provided for by the Racketeering Influenced and Corrupt Organizations Act (RICO).

At the time of Norex’s initial US court filing in February 2002, Vekselberg held a US immigration green card; lived with his family in a New York apartment; and drove a New York-registered car. Through his US lawyers, however, he has been trying to stop the case going to trial by arguing that the US courts do not have jurisdiction over what may, or may not, have happened in central Siberia. Sources close to the case have said that to reduce his legal exposure in the US, Vekselberg formally renounced his US immigration visa.

What happened, according to Alex Rotzang, the owner of Norex and its Russian operating company Yugraneft, makes graphic reading for American judges. According to the court papers, “the Illegal Scheme… was effected by TNK [Tyumen Oil Company, before the merger with BP] in the “old fashioned way” – through fraudulent representations, sheer physical force of armed thugs, and corruption of the local government, legal system and law enforcement, which refused to intervene and protect Norex’s rights.”

Bringing the scheme within reach of the US statute-book and the courts, the Norex papers charge that “the Illegal Scheme has been masterminded, operated and directed by Access, Renova, Blavatnik, Vekselberg, Kukes, and Bakaleynik, through offices in New York City, and Spitz, through offices in London and New York, and through mail and wire communications originating from and sent to the United States and travel between foreign jurisdictions and the United States.”

The use of the US banking system through which to channel the profits of the alleged scheme also brought the claim within the RICO jurisdiction, according to Norex’s court filing. “Tens of millions of dollars were wired through banks in the United States from the Crown Group to these offshore shell companies to pay invoices for fabricated services in order to create a slush fund, as evidenced by the invoices from Isle of Man based Sandwell and Bahamas based LT Enterprises attached as Exhibit B. These funds were then either kicked back to certain Defendants or, upon information and belief, used to bribe Russian government officials. The Illegal Scheme included a massive tax fraud by which monies laundered through the slush funds were paid to the offshore accounts, i.e. “o/s” of American and UK citizens, who concealed such payments from taxation in violation of American and English tax law, as evidenced by the email attached hereto as Exhibit C.”

None of this has been tested by cross-examination or trial before judge or jury. And when a three-judge panel of the Court of Appeals in New York commenced their ruling in September, they reported that “somewhat in the manner of one of the great Russian novels of the nineteenth century, the first amended complaint is heavily laden with characters and incident.” But their September 28 opinion makes no judgement between what the judges believe to be fact, what fiction.

Instead, after reviewing a new case on another issue decided by the US Supreme Court early this year, the judges ruled that “because the RICO statute lacks a clear statement of extraterritorial reach, [Norex] plaintiff’s claims are barred…absent an express intention by Congress of extraterritorial effect, a statute applies only domestically.” Link here. Although not vindicated on the charges, Vekselberg appeared to have won the 8-year long battle.

Then on October 15, the US Government filed an application for time to file an amicus curiae (“friend of the court”) brief arguing that the judges had made a serious mistake, and that the full 17-man bench of the court should hear Norex and Vekselberg argue their case.

This intervention was then decided by the Department of Justice in Washington. The government’s 8-page brief was then drafted and signed by Assistant Attorney-General Lanny Breuer, his deputy in charge of the criminal division at the Department of Justice, Greg Andres, and by Preet Bharara, the US Attorney in charge of the Southern District of New York (Manhattan).

The brief was lodged on November 22: read in full here. It asks for a rehearing by the full appeals court in order to undo the mistaken interpretation of both RICO’s extraterritorial reach, and also that of other US statutes. The mistake in applying a rigid “presumption against extraterritoriality,”, argues the government paper, “without consideration of the specific statute and context at issue, could impair non-RICO criminal conspiracy prosecutions in cases related to international terrorism, narco-trafficking, arms-trafficking, and organized crime, where much of the underlying conduct may have occurred abroad. It could also impair government enforcement under statutes arising in other areas, including taxation and protection of the environment.”

The government lawyers argue that “courts have consistently held that where one statute piggybacks on a different, extraterritorial one in this fashion, the former also applies extraterritorially even if it is itself silent on the matter.” The practical impact of the latest ruling would severely restrict the US Government’s efforts to deter, prosecute, and stop criminal operations targeted at American interests. “Restricting [RICO] Sections 1962, 1963, and 1964(a) and (b) “to United States territory would severely diminish [their] effectiveness.” Yousef, 327 F.3d at 87. It would provide a dangerous loophole for transnational racketeering enterprises. United States v. Leija-Sanchez, 602 F.3d 797, 799-800 (7th Cir. 2010) (Easterbrook, J.) (18 U.S.C. § 1959, a criminal statute, applies to racketeering “enterprises that engage in or affect ‘foreign commerce’”; because “[c]riminal businesses may be international in scope,” the statute “cannot be implemented” effectively if it is limited to the domestic sphere).”

There is too much criminal moola which might go safely into offshore pockets unless the Appeals Court changes its mind, the state lawyers claim. “By one estimate, organized crime today comprises up to 15 percent of the global gross domestic product,” they report, citing a Justice Department estimate from last year.

“In short, when enforced by the government, RICO enjoys a presumption of extraterritoriality that its text, structure, purpose, and history only reinforce. United States v. Parness, 503 F.2d 430, 439 (2d Cir. 1974) (holding Section 1962(b) applies to investment of racketeering income in foreign enterprise, and finding “no indication” that “Congress intended to limit [RICO] to infiltration of domestic enterprises,” a reading that would flout RICO’s “inclusive” design and “frustrate[ ]” its “salutary purposes”); United States v. Noriega, 746 F. Supp. 1506, 1517 (S.D. Fla. 1990) (RICO “permits no inference” that “it was intended to apply only” domestically.”

The word “Russia”” doesn’t appear in the latest court filing, and the US Government stakes out its position to guide the judges without taking sides for or against Norex and Vekselberg. Vekselberg is the obvious loser if, as seems likely, the full appeals court bench decides to follow the advice of the US Government and abandon the claim that US courts cannot prosecute alleged Russian wrongdoing against US interests.

But the US Government filing carries cautions. “The government has a strong interest,” it says, “in ensuring that RICO remains available to prosecute and otherwise prevent and restrain extraterritorial offenses in appropriate cases. The Court should protect that interest by granting rehearing en banc for the limited purpose of clarifying that the panel did not decide any question beyond the availability of extraterritorial private civil RICO actions.”

Just how limited the judges will now view their task is likely to take another year to resolve. Vekselberg will be hoping that if the full bench takes the government’s advice at all, it will drop the interpretation that Vekselberg can’t be pursued by Norex, according to RICO; but toss Norex out of court just the same and for other reasons. Norex is hoping the court will agree to a full rehearing of all the issues at stake, opening the door again to a trial for Vekselberg on the charges.

The possibility that the US Government has an enforceable duty to support, not only civil racketeering claims, but also prosecute criminal ones against powerful but corrupt Russians, has this week taken new urgency – and not just because of the Norex case against Vekselberg. This is because of the announcement of the release shortly of documentary evidence collected by US government agencies of corruption by foreign government officials.
 

A warning of the impending release by Wikileaks has been sent by the US State Department and the Defence Department to Congress, indicating that allied governments – the press mentions Canada, Turkey, Israel, Australia, Britain, Denmark, Norway — may also be identified in, or embarrassed by the wrongdoing, reported to Washington by US diplomats and agents abroad. Officials in Russia, Afghanistan, and several former Soviet states in Central Asia are reportedly to be found in the classified files as acting corruptly.

The source for Wikileaks appears to be State Department files. The embarrassment anticipated from their public disclosure flows from the implication that State, the White House, and other agencies have failed to act on the information, or actively covered it up in order to protect the wrongdoing and the wrongdoers.

Philip Crowley, the State Department’s spokesman, has announced: “Without getting into specifics, typical cables describe summaries of meetings, analysis of events in other countries and records of confidential conversations with officials of other governments and with members of civil society. They are classified for a very good reason. They contain sensitive information and reveal sources of information that impact our national interests and those of other countries.”

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