Opinion ID: 4017397
Heading Depth: 2
Heading Rank: 2

Heading: The 650 Fifth Avenue Company

Text: 650 Fifth Ave. Co. is a partnership created under New York law in 1989 as part of a plan to relieve Alavi of certain tax obligations. Although Alavi has always been a tax‐exempt not‐for‐profit organization, as a result of Bank Melli’s 1975 mortgages on the Property, rental income from the Building was taxable as debt‐financed unrelated business income. As explained by the Iranian Deputy Prime Minister (and then‐head of the Bonyad Mostazafan) in a July 25, 1987 letter 14 to the Prime Minister, “one of the major problems of the New York Mostazafan Foundation stem[med] from the debt it owe[d] to the New York branch of Melli Bank” because the resulting tax obligations left insufficient funds for the Foundation to provide $1.5 million in services as required by its articles of association. Supp. App’x 285. Thus, Alavi, together with the Government of Iran, the Bonyad Mostazafan, and, ultimately, Bank Melli, sought to eliminate the tax obligation. In his July 25, 1987 letter, the Deputy Prime Minister proposed a series of transactions that would allow Alavi to pay off the Bank Melli debt using money from the Government of Iran. First, he proposed creating “Company A” in New York and transferring to it both ownership of the Building and the Bank Melli loan. Second, he proposed establishing “Company B” in Europe “with anonymous shares.” Supp. App’x. 287. Third, he proposed allocating $45 million to the Bonyad Mostazafan, which would then loan the sum to Company B to purchase 40% of Company A’s stock from Alavi. These transactions would thereby permit permitting Alavi to pay off the Bank Melli loans. This plan was to be executed in 1988 but when that failed to occur, apparently due to Bank Melli’s failure timely to “resolv[e] the issue of a partnership in the Foundation’s 15 building,” App’x 6907, Alavi and the Bonyad Mostazafan began considering alternatives. In May 1989, Seyed Mohammad Badr Taleh (“Badr”), then Alavi’s Managing Director, met with representatives of the Bonyad Mostazafan and Bank Melli. Meeting minutes reveal that the participants agreed substantially to carry out the 1987 plan by forming a company “[o]n behalf of Bank Melli” that would “make partnership with” Alavi in order to alleviate Alavi’s tax obligations. App’x 6913; see also App’x 8694 (minutes from 1992 meeting between Alavi and Bank Melli explaining that Melli entered into 1989 Partnership with Alavi “to save the Foundation and prevent it from paying $3 million in annual taxes”). To accomplish this partnership, Bank Melli would “establish a Company in Jersey Island,” and “the established company via other Company will participate with the NY Foundation.” App’x 6913. In light of these tax concerns and the agreed solution, the “Company in Jersey Island” was formed as Assa Company Limited (“Assa Limited”) in 1989, which then and to this day wholly owns the “other Company” incorporated in New York, Assa Corporation (together, “Assa”). The understanding, as evident from a 1989 letter in which an Assistant Director of the Bonyad Mostazafan 16 explained the Assa‐Alavi partnership, was that “Assa . . . belong[ed] to Bank Melli.” App’x 6918–19. Indeed, Assa was the vehicle by which Bank Melli carried out the series of circular transactions that effectively relieved Alavi of its tax obligations without surrendering Melli’s interests in Alavi income. As explained in Bank Melli correspondence, Bank Melli financed Assa Limited, Assa Corporation purchased a 35% share in the 650 Fifth Ave. Co. Partnership from Alavi, and Alavi used the funds to pay off the Bank Melli mortgages. See App’x 6923–24. Pursuant to the 1989 partnership agreement, Alavi contributed the Building, then valued at approximately $128 million, 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.6 In October 1989, Alavi and Assa formed a partnership under New York law known as the 650 Fifth Ave. Co. In securing the requisite leave of the New 6 Although the agreement indicates that $128 million represented the “fair market value” of the Building at that time, App’x 6242, other record evidence indicates that the Building’s value was calculated so that Assa’s (and, therefore, Bank Melli’s) 35% partnership interest would be equivalent to the outstanding debt Alavi owed to Bank Melli, see App’x 6918 (Bonyad Mostazafan correspondence explaining that although Building was valued at $130 million, that value made Bank Melli’s 35% share in Partnership worth $45.5 million while debt Alavi owed to Bank Melli was $45 million, and, because Bank Melli could not “come up with the $500,000 difference,” value of the Building was “set . . . at $128 million”). 17 York Supreme Court for a transaction divesting all, or substantially all, assets of a non‐profit organization, see N.Y. NOT‐FOR‐PROFIT CORP. LAW §§ 510(a)(3), 511 (McKinney 1989), Alavi’s then‐president Badr stated in a verified petition that Assa Corporation was owned by Assa Limited, which was in turn “beneficially owned by two individuals, Mr. Mohammad Behdadfar and Mr. Mohsen Kakavand,” and that the formation of the Alavi‐Assa partnership “represent[ed] an arms‐length transaction.” App’x 6152. The filing explained that the 650 Fifth Ave. Co. partnership was formed to resolve Alavi’s tax liability arising from the Building’s rental income, which had been taxable as unrelated business income. App’x 6152–52. No mention was made of Bank Melli’s relationship to Assa. Based on their initial contributions, Alavi received a 65% interest and Assa received a 35% interest in 650 Fifth Ave. Co. Alavi later sold a further 5% to Assa; Alavi now holds 60% of the interest in the Partnership, while Assa holds 40%. Based on their ownership interests, Alavi and Assa received pro rata distributions of 650 Fifth Ave. Co.’s income from the Building. Between 2002 and 2004, the Building generated approximately $17 million in annual revenues. Between 2006 and 2009, the Building generated between $19 million and $21 million in annual revenues. Thus, through the circular transactions just 18 discussed, instead of Alavi owing a mortgage debt of approximately $45 million to Bank Melli, Bank Melli owned 35% (and, later, 40%) of the Building, initially valued at $44.8 million, and received a commensurate share of that Building’s substantial—and now tax‐free—rental income. Since the Partnership’s founding and until commencement of these forfeiture proceedings, Alavi served as 650 Fifth Ave. Co.’s managing partner, administering the day‐to‐day affairs of the Partnership, including management of the Building. III. Iran’s Involvement with Alavi, Assa, and 650 Fifth Ave. Co. Before 1995 As the preceding section shows, there is ample evidence of Bank Melli’s involvement with Alavi, Assa, and 650 Fifth Ave. Co. before 1995. See, e.g., App’x 6918 (Bonyad Mostazafan correspondence explaining that the partnership between Alavi and Assa “is based on prior agreements between the Ministry of Finance, Bank Melli Iran, and” Bonyad Mostazafan); App’x 6923–24 (Bank Melli correspondence explaining that structure of Assa entities was based on “ample study at the New York Foundation, the Central Office of the Foundation, and Bank Melli in Tehran”). Record evidence further shows that after Assa’s formation and prior to 1995, Bank Melli and Assa maintained a close—and at times inseparable—relationship. Indeed, Bank Melli had a substantial ownership 19 interest in Assa from its founding through 1995. From 1990 until 1992, two Bank Melli officials indirectly held approximately 96% of Assa’s total shares through another straw entity, Harter Holdings Ltd. (“Harter Holdings”), split equally. In 1993, the officials’ shares were transferred to Bank Melli Iran, which then held the 96% indirect interest in Assa until 1995.7 Record evidence indicates that Bank Melli sought to conceal its ownership of Assa through these arrangements. See App’x 7094 (Bank Melli correspondence dated December 29, 1993 explaining that Bank Melli took over ownership of Assa Limited and Harter Holdings because, with Channel Islands incorporation, “accessing the ownership backgrounds of the companies behind the captioned corporation is not an easy task for investigators,” and questioning “whether Mr. Naghshineh – the Assa Corp New York Director whose affiliation with the Bank could be easily proven – could be replaced with another individual whose affiliation with the Bank could not be easily proven”); App’x 7103 (Bank Melli correspondence dated June 25, 1994 discussing risk of seizure of “elements 7 Specifically, from 1989–1998, Harter Holdings held 98% of Assa Limited’s shares. From 1990–1992, between the two Bank Melli officials, each held 49% of Harter Holdings’ shares and, thereby, 96% of Assa Limited. From 1993–1995, Bank Melli Iran held this 98% interest in Harter Holdings, and indirect interest in Assa Limited. As discussed infra, sometime in 1995, Shakeri and Aghamiri took over that interest and held it until 1998. 20 connected to the Islamic Republic of Iran’s assets in the United States,” and asking its New York office to estimate “percentage of risk of the seizure of . . . properties in case of the revelation of the ownership by Assa Corporation”). Several letters between Alavi and Bank Melli officials also indicate that they viewed Assa as interchangeable with Bank Melli before 1995. Moreover, in 1992, representatives for Alavi and Bank Melli met in Tehran to discuss 650 Fifth Ave. Co.’s need for a $1.7 million loan. Meeting minutes reflect that Bank Melli’s representative confirmed Bank Melli’s commitment to stand by Alavi and to approve the loan if Alavi adopted a specific plan to pay the debt it owed to Assa. Record evidence also indicates that, in addition to Bank Melli, other Iranian government officials exercised some control over Alavi and 650 Fifth Ave. Co.’s affairs before 1995. From approximately 1982 to 1991, a Bonyad Mostazafan employee, Seyed Mojtaba Hesami‐Kiche, sat on Alavi’s Board and, every three months, provided reports about Alavi to the Prime Minister of Iran or the head of the Bonyad Mostazafan.8 Moreover, minutes from a 1991 meeting in Zurich, Switzerland indicate that Alavi’s Board of Directors made changes in the Board’s composition “as directed by the Supreme Leader” of Iran, ostensibly 8 According to Hesami‐Kiche, he was employed by the Bonyad Mostazafan from approximately 1980 to approximately 1984 or 1985, at which time he began working for a German company owned by the Bonyad Mostazafan. 21 referring to the Ayatollah. App’x 8647. In a subsequent 1991 letter to the Ayatollah, Alavi’s Managing Director, Badr, expressed concern that Iran’s Ambassador to the United Nations would exercise a “position of responsibility connected to [Alavi’s] affairs” going forward. App’x 8674. In a subsequent letter to an individual named Sobhani, Badr stated that, as a result of “inadvisable actions” taken by former executive directors of Alavi and Iran’s Ambassador, “both the Foundation and the assets of Bank Melli will face obliteration.” App’x 8663. That letter further explained that if the connection between Alavi and the Government of Iran were discovered, board members, including Hesami‐Kiche, could “be culpable of a heavy offence.” App’x 8662–64.