Source: https://www.bna.com/isnt-iranic-b57982092499/
Timestamp: 2018-12-11 02:35:52
Document Index: 138514694

Matched Legal Cases: ['§ 371', '§ 1705', '§ 1344', '§ 1349', '§ 1956', '§ 1956']

Isn’t It Iranic: Iran Sanctions Evasion in Washington – Who Would Have Thought It Figures | Bloomberg Law
Isn’t It Iranic: Iran Sanctions Evasion in Washington – Who Would Have Thought It Figures
In March a strange story briefly made local news headlines in Washington: the arrest of an Iranian national living in the nation’s capital, charged with crimes including conspiracy to violate U.S. sanctions against Iran and conspiracy to commit money laundering, involving more than $115 million originating from Venezuela. The same Iranian national was the chairman of a bank in Malta allegedly involved in money laundering. Little noticed and quickly forgotten in the U.S., these still-developing cases illustrate the ease with which money launderers can exploit shell companies, multiple passports, and even entire financial institutions to move funds internationally.
The alleged conspiracy involved one of Iran’s wealthiest families and a son and additional family members living in the U.S. The full extent of the alleged conspiracy is probably not yet known, with the U.S. criminal prosecution only beginning and further U.S. and European Union investigations likely. What is known now is that the key figure now under arrest allegedly conducted all of his actions while living in Washington, taking advantage of weaknesses in the legal systems of several countries to conceal his activity. The ease with which he used them should be lessons for financial institutions monitoring for sanctions evasion and money laundering and the law enforcement and regulatory authorities combating them.
The Iran Sanctions and Money Laundering Violations
“Iranic” is an archaic word for Iranian, and the conduct that led to this U.S. criminal case is suitably old-fashioned in significant ways. The U.S. criminal case has its origins not in activity by Iran’s Revolutionary Guards or nuclear program, but rather in a business deal between an Iranian family owned conglomerate, Stratus Holding Group, and the government of Venezuela. According to the indictment, the governments of Iran and Venezuela had entered into agreements in 2004 and 2005 for cooperation in the construction of housing in Venezuela, and Stratus Holding Group became the leader of the project. Stratus Holding Group, whose founder and chairman, Mohammad Sadr Hasheminejad, is one of the wealthiest men in Iran, has a wide range of businesses in engineering, construction, banking, leasing, insurance, and manufacturing, and according to its company literature it has undertaken construction projects in numerous countries including Iraq, Pakistan, Yemen, and Djibouti. In December 2006, Stratus Holding Group incorporated a subsidiary named Iranian International Housing Corporation which in July 2007 entered into a contract with the Venezuelan state-owned oil and gas company to build approximately 7,000 housing units in exchange for approximately $476 million. The project, unnamed in the indictment, appears to be Ojeda New City, located outside Ojeda in western Venezuela.
A crucial problem for Stratus Holding Group was how to transfer revenue from the project from Venezuela to itself. Payments for the project were in U.S. dollars, and with U.S. sanctions prohibiting U.S. persons from engaging in transactions with Iran, U.S. dollar payments to Iranian entities or individuals were blocked from going through banks and other financial institutions. Furthermore, under U.S. anti-money laundering requirements, the correspondent banks clearing these U.S. dollar transactions would be required to scrutinize and report transactions involving Iranian entities. Stratus Holding Group includes a bank established in 2001, Eghtesad Novin Bank, but conducting U.S. dollar transactions through it would have encountered the same problem of its correspondent banks being required to scrutinize and report the transactions. (The Office of Foreign Assets Control added Eghtesad Novin Bank to the Specially Designated Nationals list on July 12, 2012.) The solution used the founder and chairman’s son, Ali Sadr Hasheminejad, who remarkably resided in Washington.
Ali Sadr Hasheminejad had arrived in the U.S. several years earlier and resided in the Washington area over the course of a decade, interrupted by problems with his immigration status. He had applied for asylum in 2003, claiming that his life would be in danger if he returned to Iran and that he had been tortured by Iranian authorities, and was granted asylum 2004, according to a memorandum filed by the U.S. Attorney for the Southern District of New York. Immigration authorities revoked his asylum in 2010 because they determined that his attorney had submitted a fraudulent affidavit about his fear of persecution, and he left the U.S. for several years. He applied for and received lawful permanent residency on 2012, according to a memorandum filed by his attorney, living in an apartment in Washington while his mother lived in nearby Bethesda, Maryland.
During these periods of U.S. residence, Ali Sadr Hasheminejad was a citizen of Iran and also possessed multiple passports from the Caribbean state of St. Kitts & Nevis. According to the U.S. Attorney’s memorandum, he accumulated four passports from St. Kitts & Nevis under its Citizenship-by-Investment program, through a company in the business of facilitating such programs in St. Kitts & Nevis and other jurisdictions. St. Kitts & Nevis was the subject of a 2014 Financial Crimes Enforcement Network (FinCEN) Advisory warning of the use of the Citizenship-by-Investment program to obtain St. Kitts & Nevis passports for the purpose of engaging in illicit financial activity, including by Iranian nationals. He used these passports to travel in and out of the U.S., presumably more easily than with his Iranian passport, and to engage in the alleged illicit financial activity that led to his arrest.
According to the indictment, the father and son set up an international structure of shell companies, in a conspiracy to commit sanctions evasion and money laundering. In 2010, each used St. Kitts & Nevis passports to incorporate two entities outside of Iran, Clarity Trade and Finance in Switzerland and Stratus International Contracting in Turkey. From April 2011 to November 2013, Ali Sadr Hasheminejad and other conspirators allegedly directed 15 payments totaling approximately $115 million from Venezuela to Iranian International Housing Corporation, through banks in the U.S. to the accounts of the Swiss and Turkish entities that Ali Sadr Hasheminejad opened at banks in Switzerland. From there, most of the funds were transferred to another entity in the British Virgin Islands incorporated by Ali Sadr Hasheminejad and others in February 2009.
How and why Ali Sadr Hasheminejad allegedly went from a person living a low profile life in the Washington area using his family’s wealth to an international sanctions evader and money launderer for the family business is not explained in the indictment. No one other than himself and his family may ever find out unless he cooperates with the FBI and the Justice Department, but there clearly were financial benefits to him and other family members in the U.S. The indictment states that in February 2012, Clarity Trade and Finance wired more than $2 million of the proceeds from the Venezuela project to the U.S., where they were used to purchase real property in California. Forfeiture provisions of the indictment describe five parcels in the Fresno area and an address in Malibu. The Malibu address is an ocean view 3.78 acre lot, purchased for $920,000 in April 2012, whose listed owner is Pegah Sadr Hasheminejad, his sister. Mr. Hasheminejad also established a series of companies in the U.S. from 2012 onward, including a California real estate and agricultural investment business named Sapene LLC (co-owned with Pegah, a realtor) in 2012, a private equity fund named Altitude Capital in Texas in 2015, and two California companies for managing pistachio farms named Altum Farm Holding, LCC and Verterre, LLC in 2016. Whether proceeds from the project in Venezuela went into any of these companies remains to be seen.
These international and nationwide financial activities came to an end when the FBI arrested Ali Sadr Hasheminejad at an airport in Washington on March 19. The FBI, the U.S. Attorney’s Office for the Southern District of New York (USAO-SDNY), and the New York County District Attorney cooperated in the investigation, which according to the USAO-SDNY’s press release began in 2013. He was initially detained in the Eastern District of Virginia, then transferred to the Southern District of New York. USA v. Nejad, Docket No. 1:18-mj-00143 (E.D.Va. Mar 20, 2018); USA v. Nejad, Docket No. 1:18-cr-00224 (S.D.N.Y. Mar 19, 2018). The charges against him include conspiracy to defraud the United States (18 U.S.C. § 371), conspiracy to violate the International Emergency Economic Powers Act (50 U.S.C. § 1705, 31 CFR 560.203, 560.203 & 560.205), bank fraud (18 U.S.C. § 1344), conspiracy to commit bank fraud (18 U.S.C. § 1349), money laundering (18 U.S.C. § 1956(a)(2)(A)), and conspiracy to commit money laundering (18 U.S.C. § 1956(h)). These charges carry maximum prison sentences of 5 years, 20 years, 30 years, 30 years, 20 years, and 20 years, respectively.
Sanctions Violations, Money Laundering, and International Mobility
The arrest and indictment of Ali Sadr Hasheminejad send a clear message that enforcement of Iran sanctions continues to be a high priority for federal and New York law enforcement. Along with the January 2018 conviction in a jury trial of Mehmet Hakan Atilla for conspiring to evade U.S. sanctions against Iran, the action against Mr. Hasheminejad sends a clear message about the strength of U.S. efforts to enforce the Iran sanctions. Moreover, several aspects of the case point out issues that should concern financial institutions monitoring for sanctions evasion and money laundering, as well as regulatory and law enforcement authorities seeking to prevent or investigate them.
Iranian expatriates. This case involved a citizen of Iran without any apparent connection to the government of Iran or other sanctioned entities or individuals, one of many Iranians from wealthy or politically influential families living in Europe or the United States. His alleged actions could be have been those of a single individual acting only on behalf of his family’s business interests, or one of many conducting similar transactions more widely. This case may lead to more criminal cases involving similar charges against expatriate Iranians in the United States, Europe, and elsewhere if further investigation uncovers evidence of similar acts by other Iranian expatriates, or if Mr. Hasheminejad reveals information about such individuals in exchange for a plea deal.
Passports for sale and customer due diligence. Mr. Hasheminejad’s use of St. Kitts & Nevis passports to establish shell companies highlights the significance of citizenship by investment programs to the problem of customer due diligence. Customer due diligence is a significant concern for financial institutions right now, with the new FinCEN rule establishing explicit customer due diligence requirements scheduled to become effective on May 11, 2018, and multiple passports create an additional problem for due diligence of shell companies. They enable individuals to obscure their identities and moreover to conceal citizenship in problematic countries. In Mr. Hasheminejad’s case, the St. Kitts & Nevis passports happened to be from the sole country that has been the subject of a FinCEN Advisory for its Citizenship-by-Investment program. How to treat passports from other countries will be less clear, unless there are further actions by FinCEN to identify problematic jurisdictions.
Real estate and money laundering. The investment into California real estate of proceeds from Mr. Hasheminejad’s alleged sanctions evasion and money laundering is another noteworthy instance of purchasing U.S. real estate being part of an international money laundering scheme. It follows FinCEN’s August 2017 actions addressing money laundering risks of real estate, the Geographic Targeting Orders requiring U.S. title insurance companies to identify the natural persons behind shell companies used to pay for high-end residential real estate in seven metropolitan areas, and the Advisory to financial institutions, real estate firms and professionals on money laundering risks associated with real estate transactions.
Editor's Note: This is part one of a two-part piece. Part two, Making a Malta You Can’t Refuse: Iran Sanctions and Money Laundering Investigation Reaches Pilatus Bank in Malta, was published Tuesday, May 8.