NEW YORK, May 13 — The US agreed to take US$5.9 million to settle a money-laundering lawsuit tied to a US$230 million Russian tax fraud, avoiding a trial that was set to begin Monday.

A Cyprus-based company controlled by a Russian businessman claimed victory in avoiding a trial that promised to shed light on an intricate web of shell companies and middlemen that the US said were used to spirit dirty money out of Russia in violation of international financial regulations.

Prevezon Holdings Ltd agreed to settle the US claims for less than 3 per cent of the amount initially sought by the US government, according to the company. Acting Manhattan US Attorney Joon Kim said the settlement amount was roughly 10 times the money that was allegedly traced directly into US accounts and real estate.

"This settlement is nothing short of a victory for Prevezon,” Gay Faith, a lawyer for the company said in a phone interview. "It’s almost an apology by the government.”

The attempt to seize a lower Manhattan condominium acquired by the Russians and other assets began four years ago with former Manhattan US Attorney Preet Bharara filing the claim. Bharara was fired in March by President Donald Trump and Kim, Bharara’s successor, announced the settlement late yesterday.

"We will not allow the US financial system to be used to launder the proceeds of crimes committed anywhere — here in the US, in Russia, or anywhere else,” Kim said in a statement.

Decade-long drama

US lawyers were set to head to court to seize a lower Manhattan condo, which they said was linked to hundreds of millions of dollars looted by politically connected Russians. The case was at the heart of a decade-long drama stretching from Moscow to Moldova to Manhattan — part high political intrigue, part murder mystery. There’s an investment fund manager drummed out of Russia; Russian officials who may have helped in the fraud, and two dead people who may have known too much.

The trial was scheduled to start Monday, after years of delay, with the US set to offer the jury perhaps the deepest look into the way dirty Russian money was laundered.

The last-minute deal comes against a backdrop of diplomatic tensions and enormous interest in the illicit movement of Russian money. FBI Director James Comey was fired last week in the midst of a probe of Russia’s influence over the US presidential elections and US prosecutors are also looking into how wealthy Russians may have moved as much as US$10 billion out of the country earlier this decade through Deutsche Bank AG, which has since conceded massive compliance lapses.

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Government lawyers intended to argue that a trio of Russians bought US assets with ill-gotten cash, including money made from defrauding Hermitage Capital, once the largest foreign owner of Russian stocks. The Russian businessmen denied the claims, saying there was no evidence to support they were part of the scam or that they knew the money was dirty.

Hermitage’s manager, Bill Browder, who started a private investigation into the tangled web of companies that he alleged were created to move cash from the tax fraud out of Russia was expected to testify at the trial, providing a glimpse of how funds flowed from Russia to Moldovan and Latvian banks and into companies such as Prevezon via wire transfers routed though banks in the US.

Browder was barred from Russia more than a decade ago. One of his lawyers, Sergei Magnitsky, complained to Russian authorities that Hermitage was a victim of a fraud. He was arrested and died in a Russian prison at 37. Magnitsky’s death triggered a diplomatic standoff between Moscow and Washington and tit-for-tat sanctions, with Bharara, the US Attorney who oversaw the seizure case, being one of several Americans barred from Russia.

Prevezon targeted

The US claimed the Manhattan condo was bought with a chunk of US$230 million in fraudulent Russian tax refunds, linked to the Hermitage affair through Prevezon. The government was targeting Prevezon, owned by Moscow businessman Denis Katsyv, and 11 of its related companies in the forfeiture case. Katsyv, son of an ex-Moscow transportation minister, is involved in the firms along with Russian colleague Timofey Krit and Israeli businessman Alexander Litvak, according to court filings.

Prevezon didn’t admit any guilt in the settlement.

The US sought not only a condo at 20 Pine Street, but also more than US$8.5 million from the sale of four other units bought with money allegedly tainted by funds from the Russian tax fraud. The government said US$1.9 million from the fraud money was co-mingled with clean money in Prevezon accounts, making it all subject to seizure.

Browder says crony capitalism got him barred from Russia in 2005. At the time, he had been pushing for greater transparency at companies such as Gazprom, the state-controlled oil and gas company.

Russian Interior Ministry officials raided Hermitage’s Moscow offices and those of its law firm in 2007, hauling away boxes of records and corporate seals. A Russian criminal organization then used the seals to steal the corporate identities of companies belonging to Hermitage’s investment portfolio, US District Judge William Pauley said in a May 10 ruling denying Prevezon’s request to throw out the lawsuit.

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The organization re-registered the firms and sued the companies, winning default judgments of US$973 million, the judge wrote. The group claimed the judgments were equal to the profits of the former Hermitage companies and applied for a tax refund. A Russian tax official approved the US$230 million refund after her ex-husband received "significant kickback payments,” according to the judge.

Magnitsky, who was helping Browder investigate the alleged fraud, died in jail from heart failure and toxic shock caused by untreated pancreatitis, according to Russian authorities. He was tried and convicted in Moscow of tax evasion posthumously. Browder has said he believes Magnitsky was beaten to death while in custody.

US lawmakers enraged Russia’s President Vladimir Putin by enacting the so-called Magnitsky Act, three years after the attorney’s death. The law sanctioned Russian officials, judges and investigators that the US said were involved in human-rights abuses. Russia countered by banning US lawmakers and officials, including Bharara, from traveling to Russia.

Browder hired other lawyers in the US and Russia to track wire transfers of some of the US$230 million. The fund manager got a break when a whistle-blower named Alexander Perepilichny showed up in 2010 with bank records related to the scam, Browder said in his book, ‘‘Red Notice.” Perepilichny moved to the UK to help Browder with his investigation, then died.

Police said the 44-year-old’s collapse while jogging in 2012 wasn’t suspicious. Others weren’t so sure. Magnitsky’s mother, Natalya, told The Telegraph at the time that "it looks strange.”

The case is US v. Prevezon Holdings Ltd, CA No. 13-cv-06326 (TPG), US District Court for the Southern District of New York (Manhattan). — Bloomberg