Dead Russian Billionaire Amplifies Sanctions Debate in US Courts

The US government’s campaign to keep billions of dollars from returning to Russia has seeped into a Miami courtroom, potentially derailing a years-long fight over a $3 billion fortune.

When Oleg Burlakov died at 72 in 2021, his sister Vera and brother-in-law Nikolai Kazakov claimed they owned half his fortune for more than three decades. His widow, Loudmila Bourlakova, and grown daughters argue in court documents that the money is theirs and allege the Kazakov’s case argument is built on forgeries. Litigation costs around the globe have soared into the tens of millions, according to Bourlakova’s attorneys.

Aside from all the intrigue and family drama, the widow’s lawyers have now hit on a gray area in US law: sanctions.

American judges had little reason until recently to get into the sanctions debate. That has changed in light of sanctions imposed after Russia attacked Ukraine in 2022.

“There have been a significant number of individuals and entities subject to sanctions that really are involved in the global financial system and global economy,” said Michael Gershberg, a partner at Fried Frank who represents clients in economic sanctions cases and has no involvement in any of the Burlakov legal matters. “A lot of these issues have really come up more recently with the Russia sanctions, so it’s still fairly new.”

Federal bankruptcy judges in Manhattan and Los Angeles have been asked to enforce judgments issued in Moscow courts. In both instances they have put the brakes on Moscow’s attempts to seize and return tens of millions of dollars allegedly stolen in Russia and stashed in the United States.

Recognition of foreign proceedings has historically been a routine matter in US courts, bound by treaties and federal law. But some of the cases involve now-sanctioned Russian banks and billionaires, forcing judges into a balancing act.

“Recently expanded sanctions by the Biden Administration have changed the landscape,” Judge Neil W. Bason of the US Bankruptcy Court for the Central District of California wrote in a May 14 opinion involving Moscow’s attempts to seize a property from a Russian living in California.

A Fortune at Stake

The fight for Oleg’s fortune began in about 2018, years before his Moscow death, when he told his family he was in love with and had impregnated a 24-year-old Latvian woman.

Before that pronouncement, Oleg and Loudmila Bourlakova were happily married for decades and lived a life of luxury few could imagine, according to court records. A $125 million apartment on Avenue Princess Grace in Monaco served as their main home, with properties scattered from London to Moscow to Miami’s Fisher Island.

And, of course, there was the boat. At 350 feet long and costing $200 million in 2018, the Black Pearl is considered one of the world’s largest and most technologically advanced sailing yachts.

Court files in London and Miami, the only part of the sprawling battle in the US, are filled with tales of extravagant spending sprees, bank transfers worth hundreds of millions of dollars at a time, and the fight over possession of the Black Pearl.

While the details are salacious, the cases hinge on whether Oleg’s brother-in-law owned half of his empire for nearly 40 years without anyone in the family knowing. Kazakov submitted documents during discovery in Miami that there was no paperwork backing his claims, and that the entire partnership giving him nearly half of the estate was only done orally.

Then, in a court filing in Moscow, the Kazakovs claimed that Oleg had left a written will produced without a lawyer that designates the Kazakovs as heirs to his half of the enterprise through a foundation they controlled, KESK Stiftung. The Bourlakovas have questioned the validity of the will and other documents essential to proving the Kazakovs’ claims.

That’s where the sanctions come in.

KESK is administered by Anton Wyss, a Swiss national labeled a “major enabler of Russian cash flow” on the US Treasury Department’s website.

Wyss and his Liechtenstein-based trust and corporate services provider, Audax Consulting Trust Establishment, were both sanctioned in August by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) for helping already-sanctioned Russians obfuscate Russian ownership and investments in foreign ventures. The public registry in Liechtenstein lists Wyss and Audax as administrators of Kazakov’s foundation KESK Stiftung.

That’s an issue, according to Bourlakova’s attorneys. They argued in an October court filing that the Miami case should be paused in favor of the foreign actions. The lawyers also questioned whether KESK, because of its connection to Wyss, is also subject to being sanctioned by OFAC.

“The Kazakovs’ reliance on a foundation administered and controlled by OFAC-designated SDNs gives rise to serious potential sanctions risks if the Kazakovs’ counterclaims proceed in Florida,” Roy Black, partner at Black Srebnick and counsel for the Bourlakovas, wrote in the filing.

The Kazakovs’ attorney Peter Levitt, of Shutts & Bowen, dismissed the filing as an attempt to allegedly “smear” his client. KESK has not been sanctioned, Levitt told Bloomberg Law in a response to questions. He said that Wyss and Audax are a “corporate service company” that “forms entities and supplies directors.”

“The Kazakovs have never seen or spoken to Anton Wyss,” Levitt told Bloomberg Law. “He has no economic interest in the litigation whatsoever. The Kazakovs are beneficiaries of KESK. We are not violating any Treasury Department regulations or orders.”

Practical Considerations

In other cases with a sanctions bent, the judges have largely sought to keep the money in the US.

“It’s still appropriate to recognize Russian bankruptcy proceedings, but the recognition ‘must be limited so as not to be ‘manifestly contrary to the public policy of the United States,’” Bason, the California bankruptcy judge, wrote in his May 14 opinion. The defendant, Aleksandr Sabadash, argues that the entire case is a sham cooked up in Russia to steal his various businesses.

Bason’s order allowed Russia’s representative to continue the case but banned him from shipping any money back to Russia without court approval.

Judge Martin Glenn of the US Bankruptcy Court for the Southern District of New York made a similar order in the case of two Russians accused of stealing more than $2 billion and hiding some of it in New York. That case was financed by A1, a Russian litigation finance company which has been sanctioned by the US government.

Gershberg says interpreting sanctions is not always clear cut, but he thinks it’s unlikely that the foundation in a case like the Burlakov matter would be subject to sanctions if the administrator is not the owner. The use of the foundation by a US citizen could still present issues, he said.

“If the decision is that funds do need to be transferred into this KESK there is a practical consideration that US persons can’t deal with the manager,” he said. “Usually, the way something like this would get resolved as a practical matter is usually the Liechtenstein entity would remove the sanctioned persons as managers so that they can continue to deal with others.”

Allegations of Involvement

For Miami-Dade County Circuit Judge Thomas J. Rebull, it may get even more complicated now.

Throughout the course of the cases, the two sides have feuded over the role of an outside Russian litigation funder. The widow’s motion to stay is one of the first times A1, the investment arm of Russian Financial giant Alfa Group, was listed by name in the Florida docket. A1’s three founders are all sanctioned by the US and UK governments.

A1 was placed on the US Treasury Department’s sanction list in September 2023 for “operating or having operated in the financial services sector of the Russian Federation economy.” In March, a Bloomberg Law investigation found that A1 had backed unrelated lawsuits in the US and UK both before and after its three founders were sanctioned.

Levitt, the lawyer for Kazakov, wrote in a 2023 filing that Kazakov engaged a litigation funder solely to assist him during settlement negotiations in the Burlakov case. He didn’t name the funder.

A1 looked at the possibility of funding Kazakov’s claims but did not pursue it following due diligence, Alexander Fain, CEO of A1, told Bloomberg Law through his representative. He said one A1 mediator attempted to represent Kazakov in settlement talks but the settlement discussions never took place.

A1’s former general counsel, Dmitri Tchernenko, who did not respond to a request for comment, has been advising Kazakov. He previously told Bloomberg Law that he started that work while still at A1, but was always acting in his personal capacity. Representatives for A1 have denied any involvement in the case and have said they no longer work with Tchernenko.

Since April 2023, Tchernenko has appeared in hearings in person and via Zoom for Kazakov’s case in London.

Bourlakova’s UK attorneys confirmed seeing him there, passing notes to Kazakov’s counsel. Tchernenko told Bloomberg Law in an emailed response to questions in March that after A1 decided not to fund the case, he wanted to assist Kazakov.

Tchernenko says he was advising Kazakov independently for nearly a year before he announced his resignation from A1 on March 28. He announced his resignation hours after a Bloomberg Law report detailed the firm’s involvement in unrelated bankruptcy cases in New York and London.

The next step in the case is a hearing in February over discovery.

“For a court that’s not primarily dealing with interpretation of sanctions and how OFAC thinks about these things, it’s not going to be entirely clear to a court what they should do,” said Gershberg.

The case is: Elena Bourlakova vs. Steven Landau, Fla. Cir. Ct., 2021-025928-CA-01, 10/14/24