Forfeiture

• Pages: 7-10

63

international law update Volume 22, October–December 2016

© 2016 International Law Group, LLC. All rights reserved. ISSN 1089-5450, ISSN 1943-1287 (on-line) | www.internationallawupdate.com

FORFEITURE

In case of forfeiture complaint against

Iran-owned property in New York City

under IEEPA, Second Circuit remands

because of the unresolved issues of

knowledge of Iranian ownership and

money laundering

In this case, the United States Court of Appeals

for the Second Circuit reviews an appeal from a

summary judgment by the United States District

Court for the Southern District of New York. e

district court forfeited various Claimants’ interests

in multiple properties in the United States as

proceeds traceable to violations of the International

Emergency Economic Powers Act (“IEEPA”) and

certain Iranian Transactions Regulations issued by

the Department of the Treasury, and thus forfeitable

under 18 U.S.C. § 981(a)(1)(C), and as property

involved in money laundering transactions under 18

U.S.C. § 981(a)(1)(A). ese properties include a

36-story oce building located at 650 Fifth Avenue

in Manhattan ("the Building"), real properties in

Maryland, Texas, California, Virginia, and New

York, and several bank accounts, (collectively,

"Defendant Properties").

In 1973, the Shah of Iran, Mohammad Reza

Pahlavi, incorporated the Pahlavi Foundation as

a New York not-for-prot corporation. In 1974,

the Pahlavi Foundation acquired property at 650

Fifth Avenue in New York City (“the Property”).

In 1975, at the Shah’s direction, Bank Melli,

which is wholly owned by the Iranian government,

loaned the Pahlavi Foundation $42 million for

the construction of a 36-story oce tower on the

Property.

After the 1979 Iranian Revolution, the

new Iran’s Supreme Leader, Ayatollah Ruhollah

Khomeini, ordered the formation of the Bonyad

Mostazafan, an entity charged with managing

property expropriated by the revolutionary

government, including that at 650 Fifth Avenue.

In 1980 the Pahlavi Foundation was renamed the

Mostazafan Foundation of New York, while in

1992 it was renamed as the Alavi Foundation.

In addition to the Building, Alavi acquired

seven real properties in the 1980s and 1990s,

including two parcels of land in Rockville,

Maryland, one property in Houston, Texas, one

property in Carmichael, California, two parcels of

land in Prince William County, Virginia, and one

block of lots in Queens, New York (collectively,

“Alavi Real Properties”).

According to Alavi’s bylaws, its Board controls

the organization’s aairs and property and appoints

corporate ocers and directors, while its President

supervises operations and reports to the Board.

e President and the Board are responsible for

operational decisions such as charitable eorts,

personnel decisions, and program management.

Alavi has always been a tax-exempt not-for-

prot organization. However, due to Bank Melli’s

1975 mortgages on the Property, the rental income

from the Building was taxable as debt-nanced

unrelated business income. In 1989, the 650 Fifth

Ave. Co. was created as a partnership, in order to

relieve Alavi of certain tax obligations, because

Alavi’s tax obligation left insucient funds for the

Foundation to pay o the Bank Melli debt. e same

year the “Company in Jersey Island” was formed

as Assa Company Limited (“Assa Limited”), which

wholly owned the “other Company” incorporated

in New York, Assa Corporation (together, “Assa”).

Assa was the vehicle by which Bank Melli carried

out the series of circular transactions that eectively

relieved Alavi of its tax obligations without

surrendering Melli’s interests in Alavi income.

Moreover, Assa Corporation purchased a 35% share

in the 650 Fifth Ave. Co. Partnership from Alavi,

and Alavi used the funds to pay o the Bank Melli

mortgages. According to the 1989 partnership

agreement, Alavi contributed the Building to

the newly formed 650 Fifth Ave. Co., while Assa

contributed $44.8 million in cash, which Assa had

received from Bank Melli and which Alavi returned

to Bank Melli as payment for its mortgage debt.

Alavi later sold a further 5% of its interest to 650

Fifth Ave. Co. to Assa. at way, Bank Melli owned

40% of the Building and received a commensurate

share of that Building’s substantial—and tax-free—

rental income. Since the Partnership’s founding and

until commencement of the forfeiture proceedings,