international law update Volume 22, October–December 2016
© 2016 International Law Group, LLC. All rights reserved. ISSN 1089-5450, ISSN 1943-1287 (on-line) |
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
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,

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