The Spy Hunter and a Russian Oligarch
- December 31, 2023
- Clayton Rice, K.C.
A former counterspy has been sentenced to prison by a New York court for his unlawful work for Russian oligarch Oleg Deripaska. When he entered the guilty plea to violating U.S. sanctions against Russia stemming from its aggression in Ukraine he told the court he knew his investigative work for the sanctioned billionaire was unlawful because he was paid with money that originated in Cyprus and was filtered through U.S. shell companies. It was a long fall for the respected special agent formerly in charge of the counterintelligence division of the FBI’s New York field office and a brief window into the obscure workings of the Acela corridor.
On April 6, 2018, the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury sanctioned Russian oligarch, Oleg Deripaska, for acting on behalf of a senior official of the government of the Russian Federation and for operating in the energy sector of the Russian economy. (here) The U.S. District Court for the District of Columbia in Washington, D.C. affirmed the sanctions finding that OFAC’s determination that Mr. Deripaska acted as an agent of Russian President Vladimir Putin was supported by the evidence. I discussed the indictment charging Mr. Deripaska with conspiracy to violate sanctions imposed on him in response to Russia’s annexation of Crimea in a previous post to On The Wire. (here) On August 15, 2023, Charles McGonigal, former special agent of the FBI Counterintelligence Division in New York, pleaded guilty to conspiracy to violate the U.S. International Emergency Economic Powers Act (IEEPA) and conspiracy to commit money laundering in connection with an agreement to provide services to Mr. Deripaska. (here) On December 14, 2023, U.S. District Judge Jennifer H. Rearden sentenced Mr. McGonigal to 50 months imprisonment, three years probation and a $40,000 fine. (here)
On January 12, 2023, the indictment was filed in the United States District Court, Southern District of New York. On January 18, 2023, six days later, a second indictment was filed in the U.S. District Court for the District of Columbia, in Washington, D.C., alleging that Mr. McGonigal concealed from the FBI the nature of his relationship with a former foreign security officer who had business interests in foreign countries and before foreign governments. (here) It alleges, specifically, that Mr. McGonigal received $225,000 in cash from the individual and traveled abroad with that person to meet with foreign nationals. The individual later served as an FBI source in a criminal investigation involving foreign political lobbying over which Mr. McGonigal had supervisory responsibility. On September 22, 2023, Mr. McGonigal pleaded guilty and the sentence hearing is presently scheduled for February 16, 2024. In a press release issued on January 23, 2023, U.S. Attorney for the District of Columbia, Matthew M. Graves, described Mr. McGonigal’s conduct of covering up assets and hiding financial relationships as “a gateway to corruption.” (here) I will, however, restrict my following comments to the New York indictment and Mr. McGonigal’s sentence hearing that concluded on December 14, 2023.
3. Oleg Deripaska and the Blocked Persons List
On March 6, 2014, former President Barack Obama issued Executive Order 13660 under IEEPA that declared a national emergency as a result of Russia’s aggression against Ukraine. (here) The order blocked all property of individuals determined by the Secretary of the Treasury to meet specified criteria including individuals responsible for or complicit in actions that threaten Ukraine. On March 16, 2014, and March 20, 2014, President Obama expanded the scope of the declared emergency by Executive Orders 13661 and 13662 that address “the recent deployment of Russian Federation military forces in the Crimea region” and its “use of force in Ukraine”. (here and here) To implement the Executive Orders, OFAC issued Ukraine Related Sanctions Regulations that include a list of persons published in the Federal Register and incorporated into the “Specially Designated Persons” and “Blocked Persons List”. On April 6, 2018, OFAC designated Mr. Deripaska as a Specially Designated Person pursuant to Executive Orders 13661 and 13662. (here) The national emergency declared in Executive Order 13660 has remained in effect and was recently continued by President Joseph R. Biden on March 1, 2023. (here)
4. The Scheme
The co-defendant in the New York indictment, Sergey Shestakov, served as a translator and diplomat for the Ministry of Foreign Affairs of the Soviet Union and the Russian Federation from 1979 until his retirement in 1993. Following retirement, Mr. Shestakov continued to work in New York as an interpreter. He introduced Mr. McGonigal to one of Mr. Deripaska’s employees by email who is identified in the indictment by the pseudonym “Agent-1”. Agent-1 was a former diplomat for the U.S.S.R. and was rumoured to be a Russian intelligence officer. He was an officer of a corporation primarily owned by Mr. Deripaska that was subject to IEEPA sanctions. As an FBI official, Mr. McGonigal was involved in investigations that targeted Mr. Deripaska and other Russian oligarchs and, as a “Special Agent in Charge”, he supervised investigations regarding alleged sanctions violations. At the same time, however, he cultivated a relationship with Agent-1 for the purpose of doing business with Mr. Deripaska after he retired.
In 2018, Mr. Shestakov asked Mr. McGonigal to help Agent-1 obtain an internship with the New York City Police Department for Agent-1’s daughter in the the fields of counterterrorism and “international liaisoning.” Mr. McGonigal agreed and asked for help from a contact with the NYPD. “I have an interest in her father for a number of reasons,” he said. Agent-1’s daughter received “VIP treatment” that raised the suspicions of a sergeant who reported it to NYPD and the FBI because “it was unusual for a college student to receive such special treatment”. In 2019, Mr. Shestakov and Mr. McGonigal introduced Agent-1 to an international law firm in New York. Agent-1 sought to retain the firm to work on having Mr. Deripaska “delisted” from the OFAC sanctions. Although Mr. McGonigal traveled to meet Mr. Deripaska at his residences in London and Vienna, and Mr. Deripaska signed an engagement letter, the law firm’s services were interrupted by the COVID-19 pandemic and work and payment ceased by March 2020.
In 2021, Agent-1 began negotiating with Mr. McGonigal and Mr. Shestakov to retain them to work directly for Mr. Deripaska, without the involvement of the law firm, on a matter that was unlawful under the OFAC sanctions. The indictment asserts that Mr. McGonigal agreed to investigate a rival Russian oligarch, identified by the pseudonym Oligarch-2, in return for concealed payments from Mr. Deripaska. (paras. 18-22) While negotiating and performing services for Mr. Deripaska, Mr. McGonigal and Agent-1 attempted to conceal Mr. Deripaska’s involvement by not directly naming him in electronic communications (para. 15), using shell companies in a contract that outlined the services to be performed, using a forged signature on the contract (para. 20), and using the same shell companies to receive payment from Mr. Deripaska. The scheme was shut down when FBI agents obtained search warrants and seized the defendants’ electronic devices after only a few months of operation. (para. 22)
5. The Sentence Hearing
Mr. McGonigal’s involvement with the international law firm to work on getting Mr. Deripaska “delisted” was not illegal but his subsequent assignments on behalf of Mr. Deripaska were. That core admission was made by Mr. McGonigal at the sentence hearing pursuant to a plea agreement executed on August 15, 2023. (here) Expressing remorse for his conduct in addressing the court, he “sounded weary” according to The New York Times and “fought to keep his composure” according to The Washington Post. (here and here) Judge Rearden said the sentence was meant to “balance Mr. McGonigal’s more than two decades as a law enforcement officer with the ‘extremely serious’ nature of his crimes.” A graduate of Kent State University and Johns Hopkins University where he earned an M.A. degree in government, Mr. McGonigal had been assigned to the Russian sleeper agents Illegals Program and was involved in the FBI’s investigation regarding Paul Manafort, a campaign manager for former President Donald Trump. He had been part of the cleanup effort after the 9/11 attacks and helped prevent a terrorist attack on the New York City subway system. But, in the end, “[i]f nations such as Russia can avoid and influence these sanctions through conduct like [McGonigal’s], then the sanctions would be ineffective,” Judge Rearden said.
In an article titled America has a McGonigal problem published by Business Insider on December 20, 2023, freelance journalist Mattathias Schwartz said Assistant U.S. Attorney Hagan Scotten made clear in court why Mr. McGonigal’s relationship with Mr. Deripaska should be so worrying. Countering an argument by Mr. McGonigal’s lawyers that his crime was less serious than transferring military equipment, Mr. Scotten asked Judge Rearden to consider the value to the Kremlin of having a former counter-intelligence chief on their payroll. “What is more valuable to them? How much would Putin ask his oligarchs to pay here?” Mr. Scotten asked rhetorically. While the U.S. government has never alleged Mr. McGonigal was spying for Russia, Mr. Scotten “believed that’s where things were likely headed.” (here) However, the “bigger story” painted by Mr. Schwartz is the one about transnational flows of money, intelligence, and influence, and the weakness of the legal and ethical firewalls that are supposed to constrain them. “The two McGonigal indictments,” he said, “offer a rare glimpse of the inner workings of the Acela corridor, a global bazaar where contacts, secrets, and influence are swapped for millions while the laws that are supposed to protect US national security interests are often ignored.”