Monday August 14, 2017
Monday August 14, 2017
A decade-long battle between the United States government and the owners of a New York skyscraper was concluded last month when a US jury agreed with the government’s assertion that the Alavi Foundation, the majority owners, were guilty of money laundering and violating sanctions on Iran.
650 Fifth Avenue, the building in question, is a prized piece of New York real estate: a 36-floor, 490ft skyscraper in Midtown Manhattan, on the periphery of the Rockefeller Center and a stone’s throw from St. Patrick’s Cathedral and the Museum of Modern Art. Its sale is expected to raise over half a billion dollars, the proceeds of which will go to the family members of terrorism victims in the US.
Ownership was divided between the Alavi Foundation, a non-profit that funds Iranian cultural programmes in the US, and the Assa Corporation, a front-company for Bank Melli, a state-controlled Iranian bank. A 2013 trial ordered Assa and Alavi to forfeit their assets, but Alavi contested the decision and won a retrial, asserting they were unaware of Assa’s link to the Iranian government.
The Alavi Foundation claimed that, whilst it knew Assa was state-controlled when it entered into partnership with it in 1989, they were later hoodwinked into believing that Assa had passed into private hands following the implementation of sanctions in 1995. Lawyers for Alavi said that the company’s attempts to meet the new owner’s face-to-face were fruitless, and that therefore Alavi could not be held accountable.
The court disagreed, and has given the government the green light to seize the building in what has been described as the biggest terrorism-related civil forfeiture in US history. It is thought that the sum raised by the sale of the building will reach over half a billion dollars.
The terrorism angle comes from the US government’s classification of Iran as a state sponsor of terrorism worldwide. Present in court were family members of those who died on September 11, 2001. The figure raised by the sale of the building will be distributed to the families of terror victims.
Could deficiencies in US beneficial ownership procedures have contributed to the building being in Iranian hands for so long? Weaknesses were identified in FATF’s most recent US Mutual Evaluation Report in December, which stated the there was a ‘lack of timely access to adequate, accurate and current beneficial ownership information’ was one of the country’s ‘fundamental gaps’.
The building’s conception is itself entangled in the story of US sanctions on Iran. Constructed by the Shah of Iran in the 1970s, it housed the Pahlavi Foundation, a charitable enterprise promoting Iranian interests in the US. It passed into the hands of the new Iranian government when the Shah was deposed in 1979; shortly afterwards, the US imposed its first sanctions on Iran, a year after the building was constructed.
The building and Pahlavi Foundation (which rebranded as the Alavi Foundation) subsequently came under the control of the newly established Iranian government. Alavi’s funding derived from renting space in the building. It’s location in the heart of New York makes it an extremely lucrative enterprise (Nike recently took out an estimated $700 million 15-year lease).
Co-owners the Assa Corporation operated as a shell company owned by Iranian state-controlled Melli Bank. Melli was added to the US Treasury’s 2007 Specially Designated Nationals (SDN) list for providing financial services to entities involved in Iran’s missile and nuclear programmes. Money laundering charges were filed against Assa in 2008 by the Department of Justice (DoJ).
The nuclear deal reached with Iran in 2015 eased a number of sanctions against the country, though some, including those concerned with human rights and terrorism support, remain in place. Ongoing monitoring is crucial, particular in regard to Iran, as the new US president’s unpredictable nature and the Iranian response can make keeping up with the back-and-forth nature of sanctions against the country difficult to track.
There are a number of conclusions we can draw from this case: half-measures – such as the attempt by Alavi to meet the supposedly new owners of the Assa Corp. – are unacceptable; inadequate efforts at merely trying to do the right thing will not constitute an excuse; and the US will pool the services of several agencies to diligently and patiently pursue and prosecute those violating sanctions, even if takes a decade.
How can ICA help?
Sanctions are a key tool in the armoury of the global fight against financial crime. Understanding sanctions remains a complex yet fascinating topic and is crucial for the development of a well-rounded strategy in combatting financial crime. We offer two courses on managing sanctions risk:
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