Daniel S. Ruzumna (DR-2105) Patterson Belknap Webb & Tyler ...Daniel S. Ruzumna (DR-2105) Leonard M....
Transcript of Daniel S. Ruzumna (DR-2105) Patterson Belknap Webb & Tyler ...Daniel S. Ruzumna (DR-2105) Leonard M....
Daniel S. Ruzumna (DR-2105)Leonard M. Braman (LB-4381)Krista D. Caner (KC-7358)Patterson Belknap Webb & Tyler LLP1133 Avenue of the AmericasNew York, New York 10036Telephone 212-336-2000Facsimile 212-336-2222
UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA
v.
ALL RIGHT, TITLE, AND INTEREST OF ASSACORPORATION, ASSA COMPANY LIMITED,AND BANK MELLI IRAN IN 650 FIFTHAVENUE COMPANY, INCLUDING BUT NOTLIMITED TO THE REAL PROPERTY ANDAPPURTENANCES LOCATED AT 650 FIFTHAVENUE, NEW YORK, NEW YORK, WITHALL IMPROVEMENTS AND ATTACHMENTSTHEREON, ET AL.,
Defendants in rem.
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Civil Action No. 08 Civ. 10934 (RJH)
ALAVI FOUNDATION’S AND 650 FIFTH AVENUE COMPANY’SMEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO DISMISS THE
AMENDED COMPLAINT
PATTERSON BELKNAP WEBB & TYLER LLP1133 Avenue of the AmericasNew York, New York 10036
Attorneys for Claimants Alavi Foundationand 650 Fifth Avenue Company
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PRELIMINARY STATEMENT ................................................................................................. 1
ALLEGATIONS OF THE COMPLAINT ................................................................................. 4
A. The Foundation and the Building .................................................................................... 4
B. The Fifth Avenue Company............................................................................................. 5
C. The Foundation’s Other Real Properties.......................................................................... 7
D. The Foundation’s and the Fifth Avenue Company’s Accounts....................................... 8
ARGUMENT................................................................................................................................. 8
I. The Complaint’s § 981(a)(1)(C) Claim Should Be Dismissed as to Most of Claimants’Interests Because the Interests Are Not “Proceeds” of IEEPA Violations...................... 10
A. Property Acquired Before 1995 Cannot Be “Proceeds” of an IEEPA Violation .......... 10
B. Properties Not Obtained as a Result of or Through the Allegedly Unlawful Services AreNot “Proceeds” of an IEEPA Violation......................................................................... 13
II. The Court Should Dismiss the § 981(a)(1)(A) Claim as to Most of Claimants’ InterestsBecause the Interests Were Not Involved in a Money Laundering Transaction ............ 18
A. The Majority of the Alleged Money Laundering Transactions Do Not Constitute MoneyLaundering ..................................................................................................................... 18
B. Most of Claimants’ Interests Were Not “Involved In” or “Substantially Connected” to aMoney Laundering Transaction..................................................................................... 21
1. The Building, the Partnership, and the Partnership Accounts ................................. 23
2. The Foundation’s Real Properties............................................................................ 27
CONCLUSION ........................................................................................................................... 29
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TABLE OF AUTHORITIES
CASES
Ashcroft v. Iqbal,__ U.S. __, 129 S. Ct. 1937 (2009)........................................................................12, 28
Manhattan Eye, Ear & Throat Hosp. v. Spitzer,715 N.Y.S.2d 575 (N.Y. Sup. Ct. 1999) ........................................................................4
United States v. $1,399,313.74 in U.S. Currency,591 F. Supp. 2d 365 (S.D.N.Y. 2008)..........................................................8, 12 n.4, 20
United States v. Anguilo,897 F.2d 1169 (1st Cir. 1990)......................................................................................14
United States v. Approximately 250 Documents Containing the ForgedHandwriting of President John F. Kennedy and Others,No. 03 Civ. 8004 (GBD), 2008 WL 4129814(S.D.N.Y. Sept. 5, 2008)................................................................13, 15, 16, 22, 25, 27
United States v. Benyo,384 F. Supp. 2d 909 (E.D. Va. 2005) ..........................................................................14
United States v. Blumhagen,No. 03-CR-56S, 2005 WL 3059395 (W.D.N.Y. Nov. 15, 2005) ..........................19, 25
United States v. Capoccia,503 F.3d 103 (2d Cir. 2007)...................................................................................11, 22
United States v. Daccarett,6 F.3d 37 (2d Cir. 1993).................................................................................................8
United States v. Hodge,558 F.3d 630 (7th Cir. 2009) .......................................................................................17
United States v. Horak,833 F.2d 1235 (7th Cir. 1987) ...............................................................................14, 16
United States v. Huber,404 F.3d 1047 (8th Cir. 2005) .....................................................................................22
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United States v. Iacaboni,221 F. Supp. 2d 104 (D. Mass. 2002) ..............................................................22, 26, 27
United States v. Loe,49 F. Supp. 2d 514 (E.D. Tex. 1999).......................................12, 21, 22, 25, 26, 27, 28
United States v. McCarthy,271 F.3d 387, 395 (2d Cir. 2001)) ...............................................................................19
United States v. Napoli,54 F.3d 63 (2d Cir. 1995).................................................................................19, 20, 25
United States v. Ofchinick,883 F.2d 1172 (3d Cir. 1989).................................................................................14, 15
United States v. One 1980 Rolls Royce VIN # SRL 39955,905 F.2d 89 (5th Cir. 1990) .........................................................................................28
United States v. One 1989 Jaguar XJ6,No. 92 Civ. 1491, 1993 WL 157630 (N.D. Ill. May 13, 1993) ...................................22
United States v. One 1998 Tractor,288 F. Supp. 2d 710 (W.D. Va. 2003) .........................................................................23
United States v. Pole No. 3172, Hopkinton,852 F.2d 636 (1st Cir. 1988)..................................................................................11, 12
United States v. Porcelli,865 F.2d 1352 (2d Cir. 1989).................................................................................14, 16
United States v. Santos,553 U.S. 507, 128 S. Ct. 2020 (2008)..........................................................................19
United States v. Schlesinger,396 F. Supp. 2d 267 (E.D.N.Y. 2005) .........................................................................22
United States v. Van Alstyne,584 F.3d 803 (9th Cir. 2009) .................................................................................20 n.6
United States v. Wittig,333 F. Supp. 2d 1048 (D. Kan. 2004)...................................................................13, 16
Zigman v. Giacobbe,944 F. Supp. 147 (E.D.N.Y. 1996) ..............................................................................20
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STATUTES
18 U.S.C. § 981...................................................................................................... 1, passim
18 U.S.C. § 982............................................................................................................22, 26
18 U.S.C. § 983............................................................................................................18, 23
18 U.S.C. § 1956.......................................................................3 n.1, 18, 19, 20 n. 6, 28 n.9
18 U.S.C. § 1957.................................................................................18, 19, 20 n. 6, 25, 28
18 U.S.C. § 1960................................................................................................................18
49 U.S.C. § 80303..............................................................................................................23
50 U.S.C. § 1701-1707 (1977)............................................................................... 1, passim
146 Cong. Rec. H2040.......................................................................................................23
N.Y. Not-for-Profit Corp. Law §§ 501 (McKinney Supp. 2008) ........................................4
N.Y. Not-for-Profit Corp. Law §§ 601 (McKinney Supp. 2008) ........................................4
MISCELLANEOUS
Federal Rule of Civil Procedure 12(b)(6) ........................................................................1, 8
Admiralty and Maritime Claims and Asset Forfeiture ActionsSupplemental Rule G .................................................................................................1, 8
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Claimants Alavi Foundation (the “Foundation”) and 650 Fifth Avenue Company
(the “Fifth Avenue Company” or the “Partnership” or, collectively, “Claimants”) hereby move,
pursuant to Federal Rule of Civil Procedure 12(b)(6) and Rule G(8)(b) of the Supplemental
Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions, to dismiss the Verified
Amended Complaint filed on November 12, 2009 (the “Complaint”) as to Claimants’ interests in
certain Defendant Properties. For the following reasons, the Court should dismiss the claims
against these interests and vacate all restraints and seizure orders consistent with the dismissal.
PRELIMINARY STATEMENT
By way of this action, the Government seeks forfeiture of essentially all of the
Foundation’s and the Fifth Avenue Company’s property, claiming, first, that Claimants’ interests
in the Defendant Properties constitute “proceeds” of violations of the International Emergency
Economic Powers Act, 50 U.S.C. § 1701-1707 (1977), (“IEEPA”) and are subject to forfeiture
under 18 U.S.C. § 981(a)(1)(C), and, second, that Claimants’ interests are forfeitable under
§ 981(a)(1)(A) as properties “involved in” money laundering transactions. The Government
does not allege that the Foundation is owned by or serves as a front for Iran—nor could it, since
the Foundation’s status as a New York not-for-profit corporation has been established for over
thirty years. (Cmpl. ¶ 24). Instead, the Complaint alleges that Iran has controlled the
Foundation since the 1970s, and that therefore the Foundation’s normal business activities, e.g.,
managing its property and performing charitable activities, were really unlawful “services”
performed on behalf of Iran. Even under the Government’s expansive view of unlawful services,
however, the Government’s claims fail because they seek forfeiture of properties that do not
constitute “proceeds” of the alleged crimes, and which are neither “involved in” nor have a
“substantial connection” to the alleged money laundering transactions.
2
The Government’s § 981(a)(1)(C) claim, i.e., the “proceeds” forfeiture claim,
should be dismissed as to Claimants’ interests for at least two reasons. First, many of the
Defendant Properties cannot be IEEPA proceeds because Claimants acquired interests in them
long before IEEPA was enacted or made applicable to services performed on behalf of Iran.
Indeed, IEEPA was first enacted in 1977, and was only made applicable to services performed
on behalf of Iran in 1995 at the earliest. But the building at 650 Fifth Avenue (the “Building”)
was built by the Foundation in the 1970s and transferred to the Partnership in 1989. The
Foundation acquired its interest in the Partnership in 1989. And the Foundation purchased all
but one of the its other real properties sought to be forfeited by the Government (the “Real
Properties”) before 1995. Though the Foundation has supported the Real Properties financially
since 1995, any forfeiture based on such support could occur only in proportion to the amount of
alleged IEEPA proceeds as compared to untainted funds that went into the Real Properties.
Second, the § 981(a)(1)(C) claim fails because the Complaint seeks forfeiture of
property that does not meet the statutory definition of “proceeds.” Section 981(a)(2) defines
“proceeds” as property obtained as the result of the commission of the offense giving rise to
forfeiture, or the amount of money acquired through the illegal transactions resulting in forfeiture
(less the direct costs of providing the services). Properties that would have been obtained
whether or not unlawful services were performed are not proceeds of those services. Under
§ 981’s definition, the Fifth Avenue Company’s rental income from the Building is not IEEPA
“proceeds.” Likewise, “ownership distributions” received by the Foundation as a result of an
ownership interest in the Partnership (Cmpl. ¶ 100) are not “proceeds” subject to forfeiture. The
only “proceeds” of an IEEPA violation alleged in the Complaint are the “management fees” the
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Foundation received for managing the Building and properties traceable to those fees. (Cmpl.
¶ 98). As to all other Defendant Properties, the § 981(a)(1)(C) claim should be dismissed.
The Government’s § 981(a)(1)(A) claim, i.e., the money laundering forfeiture
claim, is equally deficient. Most of the alleged money laundering transactions that purportedly
give rise to forfeiture are not money laundering transactions at all. With a limited exception not
relevant here,1 money laundering requires a transaction involving the proceeds of specified
unlawful activity. The Complaint alleges that the Foundation engaged in specified unlawful
activity by performing services for Iran in violation of IEEPA. But as noted above, the only
possible “proceeds” of those services were the Foundation’s management fees. While later
transactions involving these fees may constitute money laundering, most of Claimants’ interests
were not “involved in” and did not bear any substantial connection to these later transactions.
Finally, the Court should dismiss the Complaint’s § 981(a)(1)(A) claim because,
for property to be subject to forfeiture under this section, it must be “involved in” a money
laundering transaction. Involvement in the predicate specified unlawful activity—here, services
in violation of IEEPA—is not enough to permit forfeiture. The Building, the Foundation’s 60%
interest in the Partnership, the Partnership’s bank accounts, and major portions of the other Real
Properties were not “involved in” a money laundering transaction under § 981(a)(1)(A). At best,
the Complaint alleges that these Defendant Properties were involved in IEEPA violations. But
even if that allegation were true, that is not enough; the money laundering forfeiture claim still
would have to be dismissed.
1 The money laundering statutes also prohibit the transfer of funds across the United Statesborders for the purpose of promoting an IEEPA violation. See 18 U.S.C. § 1956(a)(2). TheAmended Complaint does not allege that the Foundation or the Fifth Avenue Companytransferred any funds in such a manner, and thus the Government has not alleged a violation ofthese provisions as against the Foundation or the Fifth Avenue Company.
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Accordingly, as set forth more fully below, even assuming the truthfulness of the
allegations in the Complaint, the Court should dismiss the Government’s claims with respect to
the vast majority of Claimants’ interests in the Defendant Properties.
ALLEGATIONS OF THE COMPLAINT
In the Complaint, the Government offers two theories of forfeiture: (1) the
Defendant Properties are subject to forfeiture pursuant to § 981(a)(1)(C) as “proceeds” of an
IEEPA violation; and (2) the Defendant Properties are forfeitable as property “involved in”
money laundering transactions in violation of § 981(a)(1)(A). (Cmpl. ¶ 2). Both theories rely on
allegations that the Foundation is “controlled by the Islamic Republic of Iran and has been
providing services to the Iranian Government, in violation of IEEPA,” without a license from the
Department of Treasury, Office of Foreign Asset Control. (Cmpl. ¶¶ 21, 23). The alleged
services include “managing a charitable organization for the Iranian Government, running a
charitable organization for the Iranian Government, and transferring funds from 650 Fifth
Avenue Company to Bank Melli.” (Cmpl. ¶ 21).
A. The Foundation and the Building
The Foundation was established in 1973 by the former Shah of Iran, Shah Reza
Mohammad Pahlavi, as “a not-for-profit corporation organized under the laws of the State of
New York, to pursue Iran’s charitable interests in the United States.” (Cmpl. ¶ 24). As a New
York not-for-profit corporation, the Foundation does not have any owners, members or
shareholders as a matter of New York law. See N.Y. Not-for-Profit Corp. Law (“N-PCL”)
§§ 501, 601 (McKinney Supp. 2008); see also Manhattan Eye, Ear & Throat Hosp. v. Spitzer,
715 N.Y.S.2d 575, 592-93 (N.Y. Sup. Ct. 1999). Accordingly, neither Iran nor any Iranian entity
or individual owns the Foundation.
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In the 1970s, the Foundation borrowed $42,000,000 from Bank Melli in order to
“acquire the rights to real estate and to construct a commercial office building located at 650
Fifth Avenue, New York, New York.” (Cmpl. ¶ 24). The Building was constructed in the
1970s, and the Foundation owned the Building until 1989, when, as is further described below, it
transferred it to the Fifth Avenue Company in return for the majority interest in the Partnership.
(Cmpl. ¶¶ 41- 42). The vast majority of the Foundation’s income has consisted of “proceeds of
the Building,” i.e., rental payments from the Building’s tenants and, starting in 1989, ownership
distributions from the Fifth Avenue Company, which in turn were made up of such rental
payments. (Cmpl. ¶ 125). In contrast to its “ownership distributions,” which resulted from its
ownership interest in the Partnership (Cmpl. ¶ 100), the Foundation also received a
“management fee” as “payment for its management services.” (Cmpl. ¶ 98). The Foundation’s
other income consisted largely of income on investments and savings. (Cmpl. ¶ 126).
The Iranian revolution broke out in 1978, and in the following years, the Iranian
government attempted to “centralize, take possession of, and manage property expropriated by
the revolutionary government,” including property belonging to the Foundation. (Cmpl. ¶¶ 25-
30). According to the Complaint, from the time of the revolution, the Iranian government has
controlled the Foundation. The Iranian government, or entities working at its direction, held
conferences with the Foundation’s directors and influenced the composition of the Foundation’s
board. (Cmpl. ¶¶ 28, 49-52, 60). Iranian ambassadors to the United Nation sometimes attended
Foundation board meetings, met with Foundation officers, and suggested ideas on how the
Foundation should conduct its charitable activities. (Cmpl. ¶¶ 52, 63, 65, 67-77).
B. The Fifth Avenue Company
In the 1980s, facing “a substantial tax liability as a result of the Bank Melli debt
on the Building,” Iranian officials and the Foundation “devised a plan to create 650 Fifth Avenue
6
Company in order to remove the mortgage on the Building and free the rental income from
federal income tax.”2 (Cmpl. ¶ 31). The Fifth Avenue Company was created “on or about July
31, 1989” as a partnership between the Foundation and Assa Corporation (“Assa”), a New York
corporation owned indirectly by Bank Melli. (Cmpl. ¶¶ 38-41). Bank Melli holds a 40% interest
in the Fifth Avenue Company through Assa and Assa’s corporate parent, Assa Company
Limited, a corporation domiciled in Jersey, Channel Islands, United Kingdom. (Cmpl. ¶ 20).
Under the partnership agreement entered into by the Foundation and Assa (the “Partnership
Agreement”), the Foundation contributed the Building, and Assa contributed $44.8 million.
(Cmpl. ¶ 42).
Pursuant to the Partnership Agreement, the Foundation has “the obligation of
administering the day-to-day business and affairs of the Partnership,” as well as the “sole
authority to execute instruments on behalf of the Partnership.” (Cmpl. ¶ 96). The Foundation
has played a critical role in “managing the Building, acting as the Building’s managing partner
and overseeing all of the Building’s finances.” (Cmpl. ¶ 98). The Foundation “directed when
ownership distributions were made to the partners of 650 Fifth Avenue Company—the Alavi
Foundation and Assa Corp.” (Cmpl. ¶ 100). The ownership distributions for Assa were
typically $200,000 per month. (Id.).
As payment for its management services—services the Government claims were
performed on behalf of Iran—the Fifth Avenue Company paid the Foundation a “management
2 Consistent with its efforts to paint all of the Foundation’s conduct in the most sinister light, theGovernment suggests that the creation of the Fifth Avenue Company partnership was animproper tax dodge. In reality, the partnership was a legitimate tax planning effort and itspurposes were fully disclosed to the Internal Revenue Service and New York Attorney General’sOffice. For purposes of this motion, the most relevant aspect of the Partnership is that it wascreated six years before providing services to Iran became unlawful and ten years before BankMelli was designated part of Iran.
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fee,” which was used to pay a portion of the salaries of the Foundation’s president, controller and
secretary for “their work on behalf of 650 Fifth Avenue Company.” (Cmpl. ¶ 98). The fee for
the Foundation’s services was “approximately $20,000 per month from at least in or about April
2001 through 2002, and increased to approximately $30,000 per month in or about 2003.” (Id.).
The last management fee was paid on or about December 1, 2008. (Id.). The Fifth Avenue
Company also engaged a real estate management company to manage the buildings from at least
1997 to the present. (Cmpl. ¶ 97).
C. The Foundation’s Other Real Properties
The Complaint seeks forfeiture of seven real properties other than the Building
held in the name of the Foundation (the “Real Properties”). All but one of these Real Properties
were purchased well before IEEPA prohibited transactions with Iran. They are briefly described
as follows:
Real Property-2 is property located in Houston, Texas that the Foundation purchasedon or about November 7, 1988 (Cmpl. ¶ 135);
Real Property-3 is property located in Queens, New York that the Foundationpurchased from on or about March 20, 1991 through on or about April 14, 1997(Cmpl. ¶ 136);
Real Property-4 is property located in Carmichael, California that the Foundationpurchased on or about March 21, 1989 (Cmpl. ¶ 139);
Real Properties-5 and -6 are properties located in Catharpin, Virginia that theFoundation purchased on or about May 25, 1990 (Cmpl. ¶ 140); and
Real Properties-7 and -8 are properties located in Rockville, Maryland that theFoundation purchased on or about July 22, 1981 and October 30, 1984 respectively(Cmpl. ¶ 141).
From the date of acquisition until the filing of the Complaint, the Foundation paid for
improvements and paid real estate taxes for the Real Properties. (Cmpl. ¶¶ 135-43). Though the
Complaint alleges in a conclusory fashion that the Foundation spent “millions of dollars in
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proceeds of IEEPA violations on the Foundation Real Properties” (Cmpl. ¶ 134), it offers no
details as to whether the alleged proceeds were used to acquire or maintain the Real Properties,
what the actual payments were, or what services generated the alleged proceeds.
D. The Foundation’s and the Fifth Avenue Company’s Accounts
Finally, the Complaint seeks forfeiture of three bank accounts held in the name of
the Foundation at Sterling National Bank, N.A. (the “Alavi Accounts”), and two bank accounts
held in the name of the Fifth Avenue Company at JPMorgan Chase Bank, N.A (the “Partnership
Accounts”). (Cmpl. ¶¶ 124-33). The majority of funds deposited in the Alavi Accounts
allegedly came directly or indirectly from the Fifth Avenue Company (Cmpl. ¶¶ 124-29), though
the Complaint does not break down the amounts that consisted of ownership distributions or
management fees. A lesser amount of the Foundation’s deposits consisted of “dividends and
capital gain on investments, interest on savings and temporary cash investments, contributions,
rental income … and ‘miscellaneous’” income. (Cmpl. ¶ 126). The sole source of the funds in
the Partnership Accounts was “income from the Building.” (Cmpl. ¶ 130). From the Partnership
Accounts, approximately $36,720,900 was transferred to the Foundation. (Cmpl. ¶ 131).
ARGUMENT
The Government’s two claims for forfeiture fail to state a claim under Rule
12(b)(6) of the Federal Rules of Civil Procedure and the “more stringent” pleading standards of
Rule G(2)(F) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture
Actions. United States v. Daccarett, 6 F.3d 37, 47 (2d Cir. 1993). Under that standard, the
Government must “state sufficiently detailed facts to support a reasonable belief that the
government will be able to meet its burden of proof at trial.” U.S.C. Admiralty and Maritime
Claims R. G(2); see also Daccarett, 6 F.3d at 47; United States v. $1,399,313.74 in U.S.
Currency, 591 F. Supp. 2d 365, 369 (S.D.N.Y. 2008). The § 981(a)(1)(C) claim fails because
9
Claimants’ interests in most Defendant Properties are not “proceeds” under § 981’s definition or
traceable to such proceeds. The § 981(a)(1)(A) claim is deficient because Claimants’ interests in
the Defendant Properties were not “involved in” money laundering transactions. With limited
exceptions, the Government’s claims should be dismissed.
For ease of reference, the Defendant Properties in which Claimants have an
interest are identified in the table below, followed by an indication or lack of indication as to
whether a particular ground for dismissal is appropriate as to that Defendant Property.
Defendant PropertyInterest Arose
Before 1995
Not Obtained asResult of IEEPA
Violation
Not “InvolvedIn” MoneyLaunderingTransaction
Interest of Alavi Foundation in 650 Fifth AvenueCompany
Real Property located at 650 Fifth Avenue, New York,New York (Real Property 1)
Real Property located at 2313 South Voss Road,Houston, Texas (Real Property 2)
*
Real Property located at 55-11 Queens Boulevard,Queens, New York (Real Property 3)
* *
Real Property located at 4836 Marconi Avenue,Carmichael, California (Real Property 4)
*
Real Property located at 4204 and 4230 Aldie Road,Catharpin, Virginia (Real Properties 5 and 6)
*
Real Property located at 7917 Montrose Road and8100 Jeb Stuart Road, Rockville, Maryland (RealProperties 7 and 8)
*
All Funds at JPMorgan Chase Bank in Acct. Nos.230484468 and 230484476 in the name of 650 FifthAvenue Company (Accounts 5 and 6)
All Funds at Sterling National Bank Acct. Nos.3802032201, 3802032216, and 3852524414 in thename of Alavi Foundation (Accounts 7, 8, and 9)
*
Check marks with an asterisk indicate that the Defendant Property is not subject to forfeiture,
except, at most, in proportion to any IEEPA proceeds used to support or fund it.
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I. The Complaint’s § 981(a)(1)(C) Claim Should Be Dismissed asto Most of Claimants’ Interests Because the Interests Are Not“Proceeds” of IEEPA Violations
The Court should dismiss the Government’s § 981(a)(1)(C) claim as to
Claimants’ interests in all Defendant Properties except for those containing or derived from the
management fees paid to the Foundation. Section 981(a)(1)(C) subjects to forfeiture “property,
real or personal, which constitutes or is derived from proceeds traceable to a violation of … any
offense constituting ‘specified unlawful activity,’” including an IEEPA violation. But only the
Foundation’s management fees arguably constitute “proceeds” under § 981(a)(2)’s definition
and, therefore, only those fees and the Defendant Properties that received them can be subject to
forfeiture under this claim. As to the Building, the Foundation’s interest in the Partnership, and
the Partnership Accounts, the § 981(a)(1)(C) claim fails as a matter of law because these
Defendant Properties were acquired before IEEPA became applicable to services for Iran, or
were not obtained as a result of or through the allegedly unlawful services.
A. Property Acquired Before 1995 Cannot Be “Proceeds” of anIEEPA Violation
As the Government appeared to concede in a previous submission,3 Claimants’
interests in Defendant Properties that were acquired before IEEPA prohibited the performance of
services on behalf Iran cannot be proceeds of an IEEPA violation. Section 981(a)(2) defines
proceeds as either: “property of any kind obtained directly or indirectly, as the result of the
commission of the offense giving rise to forfeiture, and any property traceable thereto,” see 18
U.S.C. § 981(a)(2)(A), or “the amount of money acquired through the illegal transactions
3 In its response to Assa’s July 9, 2009 motion to dismiss the original complaint, which includedthe argument that Assa’s interest in the Partnership could not be proceeds because it wasacquired prior to 1995, the Government conceded that it was seeking to forfeit the Partnershipinterests only as property “involved in” money laundering, not as proceeds of an IEEPAviolation. (See Gov't Opp. Mot. Dismiss at 17 n.7, Oct. 14, 2009).
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resulting in the forfeiture, less the direct costs incurred in providing the goods and services,” see
18 U.S.C. § 981(a)(2)(B). Under either definition, therefore, proceeds are limited to property
acquired after the unlawful activity (or at least after the unlawful activity began) and because of
the unlawful activity.
Here, Claimants’ interests in the Defendant Properties were acquired before
IEEPA and the relevant Iranian Transactions Regulations (“ITRs”) made the performance of
services on behalf of Iran unlawful and therefore these interests cannot be proceeds under either
definition set forth in § 981(a)(2). Indeed, forfeiture case law makes clear that such interests are
not “proceeds” and not forfeitable. See United States v. Capoccia, 503 F.3d 103, 116 (2d Cir.
2007) (Sotomayor, J.) (“[T]he government has not established (nor logically could it) that the
funds involved in the pre-May 2000 transfers were ‘obtained…as a result’ of the later, particular
transfers of which [defendant] was convicted.”); United States v. Pole No. 3172, Hopkinton, 852
F.2d 636, 641 (1st Cir. 1988) (reversing decision wherein “United States was given full title to a
parcel of land that was purchased two years before the forfeiture statute was even passed, two
years before any indication of involvement with drugs, and five years before the date on which
the government first shows the owner profiting from a transaction in drugs”).
According to the Complaint, the provision of services on behalf of Iran first
became unlawful in May 1995 at the earliest. (Cmpl. ¶¶ 7-10). By May 1995, the Foundation
already had acquired its 60% interest in the Partnership and all but one of the other Real
Properties, and the Fifth Avenue Company already had acquired the Building. Indeed, the
Foundation acquired its interest in the Partnership in 1989 and in the Real Properties (other than
the Queens property) from 1984 through 1990. (Cmpl. ¶¶ 41, 135-141). The Fifth Avenue
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Company acquired the Building in 1989 and has held it since then. (Cmpl. ¶ 41-42). Thus, none
of these Defendant Properties were purchased with proceeds of an IEEPA violation.
The Government has also alleged that the Foundation “spent millions of dollars in
proceeds of IEEPA violations” on land, improvements and real estate taxes for the Real
Properties (other than the Building). (Cmpl. ¶¶ 134, 135. 137-140. 142-143). But even if this
conclusory allegation were accepted as true, see Ashcroft v. Iqbal, __ U.S. __, 129 S. Ct. 1937,
1949-52 (2009) (holding that conclusory recitations are “disentitle[d]” a presumption of truth and
do not contribute to the establishment of the elements of a cause of action), only that portion of
the Real Properties that received IEEPA proceeds would be subject to forfeiture.4 See Pole No.
3172, Hopkinton, 852 F.2d at 639 (“The property was purchased with a downpayment
constituting 20.8% of its value. Since that 20.8% interest was acquired two years before the
earliest indication of drug activity there is absolutely no reason to believe it is forfeitable.”)
(emphasis added); United States v. Loe, 49 F. Supp. 2d 514, 523 (E.D. Tex. 1999) (“Here, 52.6%
of the purchase funds was tainted property, therefore, the United States’ interest is limited to this
portion.”). The use of proceeds to support or maintain a property does not render the entire
property forfeitable. See Pole No. 3172, Hopkinton, 852 F.2d at 639 (“We do not believe … that
forfeitability spreads like a disease from one infected mortgage payment to the entire interest in
the property acquired prior to the payment.”). Thus, that portion (or a pro rata interest)—and
4 Should the Court conclude that the management fees are proceeds of an IEEPA violation, onlythose proceeds or portion of property representing those proceeds are subject to forfeiture under§ 981(a)(1)(C). Notably, the Complaint alleges that the Foundation’s management fees were“used to pay a portion of the salaries” of Foundation employees (Cmpl. ¶ 98), not that themanagement fees were used to support the Foundation’s Real Properties. Absent such anallegation, these properties are not forfeitable as proceeds of an IEEPA violation. United Statesv. $1,399,313.74 in U.S. Currency, 591 F. Supp. 2d 365, 374 (S.D.N.Y. 2008) (concluding thatthe Government’s general and “conclusory allegations that [were] insufficient to raise a right torelief above the speculative level” could not survive motion to dismiss) (citations omitted).
13
exclusively that portion—of the Real Properties would be subject to forfeiture if the Foundation
used IEEPA proceeds to make capital improvements in them.
Accordingly, no portion of the Fifth Avenue Company’s interest in the Building
and no portion of the Foundation’s interest in the Partnership is subject to forfeiture under
§ 981(a)(1)(C), and the claim should be dismissed as to Claimants’ interests in these two
Defendant Properties. Further, the Court should dismiss the § 981(a)(1)(C) claim as to the
Foundation’s interests in the other Real Properties, with the possible exception of those portions
that received financial support traceable to an IEEPA violation.
B. Properties Not Obtained as a Result of or Through theAllegedly Unlawful Services Are Not “Proceeds” of an IEEPAViolation
The Court should dismiss the majority of the § 981(a)(1)(C) claim for another
related reason: most of Claimants’ interests were not “obtained … as a result of” or “acquired
through” the alleged IEEPA violations. 18 U.S.C. §§ 981(a)(2)(A), 981(a)(2)(B). Besides the
interests Claimants acquired before 1995, which temporally cannot be proceeds of the alleged
violations, the Partnership’s rental receipts that comprise the Partnership Accounts and the
Foundation’s ownership distributions contained in the Alavi Accounts cannot causally be
unlawful proceeds because they resulted from non-criminal sources and, therefore, do not meet
§ 981(a)(2)’s definition of proceeds.
“Proceeds” of a criminal offense in a § 981 civil forfeiture proceeding are strictly
limited to property obtained as the result of or through an offense; they do not indiscriminately
include anything that arguably may be related to the offense. See 18 U.S.C. § 981(a)(2); see also
United States v. Approximately 250 Documents Containing the Forged Handwriting of President
John F. Kennedy and Others, No. 03 Civ. 8004 (GBD), 2008 WL 4129814, at *2 (S.D.N.Y.
Sept. 5, 2008) (“250 Documents”); United States v. Wittig, 333 F. Supp. 2d 1048, 1051-1053 (D.
14
Kan. 2004). Courts have consistently held that forfeitable proceeds are limited to what would
not have been obtained “but for” the offense giving rise to forfeiture. See, e.g., United States v.
Anguilo, 897 F.2d 1169, 1213 (1st Cir. 1990) (RICO); United States v. Ofchinick, 883 F.2d 1172,
1183 (3d Cir. 1989) (RICO); United States v. Porcelli, 865 F.2d 1352, 1363, 1365 (2d Cir. 1989)
(RICO); United States v. Horak, 833 F.2d 1235, 1243 (7th Cir. 1987) (RICO); United States v.
Benyo, 384 F. Supp. 2d 909, 914 (E.D. Va. 2005) (§ 981 forfeiture using procedures set forth in
21 U.S.C. § 853) (citing Horak, 833 F.2d at 1243).
In Horak, for instance, the Seventh Circuit reversed a RICO forfeiture order,
finding that the district court’s analysis of what constitutes an interest “acquired or maintained”
by the unlawful conduct was “overly expansive.” 833 F.2d at 1242. The district court had
ordered the forfeiture of the defendant’s salary, bonuses, and profit-sharing and pension plans
because his illegal acts “enhanced” his job performance. In remanding for further consideration,
the Court of Appeals instructed:
[O]n remand, the court must determine what portion of Horak’sinterests would not have been acquired or maintained “but for” hisracketeering activities. That is, in order to win a forfeiture order,the government must show on remand that Horak’s racketeeringactivities were a cause in fact of the acquisition or maintenance ofthese interests or some portion of them.
Id. at 1243. Thus, because the defendant’s interests in his salary, bonuses, and benefit plans had
not been established to result from the crime, reversal of the forfeiture order was necessary. Id.
Similarly, in Ofchinick, the Third Circuit reversed another RICO forfeiture order,
holding that the Government failed to link the defendant’s decision to acquire or maintain
ownership of stock in a privately held company to the fraudulent scheme. 883 F.2d at 1183-84.
The Court noted that the purpose of forfeiture is “not to seize legitimately acquired property,”
but to forfeit the gains of the illegal acts. Id. at 1183. In holding that the stock was not subject to
15
forfeiture, the Court found that the company’s existence pre-dated the scheme, that the stock was
issued before the scheme began, and that the stock was not acquired or maintained because of the
scheme. Id. at 1184. Thus, the Government could not satisfy the ‘but for’ test, because the
defendant’s interest in the stock resulted from his legitimate ownership, not from the criminal
conduct. Id. at 1183-84.
In the § 981(a)(1)(C) context, this Court in 250 Documents denied forfeiture of
forged documents at the heart of a mail and wire fraud scheme, holding that “the documents do
not fall within the statutory definition of ‘proceeds’ as a matter of law.” 2008 WL 4129814, at
*2. Despite finding that the documents were “the instrumentality or means” that enabled the
defendant to commit the offense and reap “ill-gotten gains,” the Court held that they were not
subject to forfeiture under § 981’s definition of “proceeds” because the defendant’s fraud was
“not used to ‘obtain’ the documents.” Id. Accordingly, the Court limited forfeiture to those
monies obtained as a result of fraud, which the Court held constituted the “proceeds” of the
offense. Id.
Here, the funds contained in the Partnership Accounts and the ownership
distributions contained in the Alavi Accounts were not obtained as a result of or through the
alleged IEEPA violations, and consequently are not forfeitable. As the Government concedes in
the Complaint, “[t]he only source of funds in the Partnership Accounts is income from the
Building.” (Cmpl. ¶ 130). But the “income from the Building” is not proceeds of an IEEPA
violation; it is income derived from rental payments by tenants of the Building. The Partnership
acquired its interest in the Building in 1989, i.e., six years before IEEPA and the ITRs made it
unlawful to provide services to Iran, and has been receiving rental income from the Building
since then. (Cmpl. ¶¶ 31, 41). The Government thus cannot show that the funds in the
16
Partnership Accounts would not have been received “but for” an IEEPA violation. Porcelli, 865
F.2d at 1365; Horak, 833 F.2d at 1243. Accordingly, the funds in the Partnership Accounts are
the result of the Partnership’s ownership interest in the Building and are not subject to forfeiture.
See Wittig, 333 F. Supp. 2d at 1052 (removing restraint imposed pursuant to § 981 forfeiture
claims on defendant’s advanced legal fees because they existed “by virtue of [employer’s]
Articles of Incorporation” and were not “derived from the alleged scheme or conspiracy to
commit the underlying charges”).
Likewise, the Foundation’s “ownership distributions” that were deposited into the
Alavi Accounts are not subject to forfeiture because they were obtained as a result of the
Foundation’s 60% interest in the Fifth Avenue Company, which also was acquired in 1989. The
Government admits that “the vast majority of the Alavi Foundation’s income has consisted of
proceeds of the Building,” as opposed to “proceeds of IEEPA violations.” (Compare Cmpl.
¶ 125 with Cmpl. ¶ 134). The concession is well taken since the majority of the “proceeds of the
Building” consists of what the Government has aptly described as “ownership distributions.”
(Cmpl. ¶ 100). As the terms make clear, “ownership distributions” resulted because of the
Foundation’s ownership interest in the Partnership, while the Foundation’s “management fee”
resulted from the performance of services that allegedly violated IEEPA. Though the
Government may later claim that all funds in the Alavi Accounts are subject to forfeiture because
of the commingling of ownership distributions and management fees—an allegation that is
conspicuously absent from the Complaint—the “ownership distributions” cannot be proceeds as
a matter of law. See 250 Documents, 2008 WL 4129814, at *2 (documents not subject to
forfeiture because “[t]hey are not the proceeds generated from his mail and wire fraud
offenses”).
17
In considering forfeiture of assets derived from two revenue sources—one a
criminal source, the other not—the recent case of United States v. Hodge, 558 F.3d 630 (7th Cir.
2009), is instructive. In Hodge, the Seventh Circuit reaffirmed the principle that “the forfeiture
statute [18 U.S.C. § 981(a)(2)(A)] covers only income and assets obtained from the unlawful
deeds.” Id. at 635 (emphasis added). The Hodge case involved a massage parlor business that
had been providing illegal prostitution services. The district court had ordered forfeiture of all
revenue of the business, but the Seventh Circuit reversed. The Seventh Circuit concluded that,
unless the massage parlor would have “closed its doors but for the prostitution,” its entire
revenue was not subject to forfeiture. Id. Rather, “if it could have operated as a legitimate
massage parlor, then the revenues of the legal part of the business are not forfeitable.” Id. 635.
Indeed, the court made clear, “[w]hen a business has both lawful and unlawful aspects, only the
income attributable to the unlawful activities is forfeitable.” Id.
Because the funds in the Partnership Accounts were derived solely from non-
criminal rental payments by tenants of the Building, those funds are not proceeds of an IEEPA
violation. And because the Foundation’s ownership distributions resulted solely from its
ownership interest in the Partnership, those distributions are not proceeds of an IEEPA violation,
and the Alavi Accounts are not forfeitable as to these distributions. Accordingly, the
Government’s § 981(a)(1)(C) claim should be dismissed as to: (1) the Building; (2) the
Partnership Accounts; (3) the Foundation’s interest in the Fifth Avenue Company; (4) the
Foundation’s interests in the Real Properties, except to the possible extent they were improved
with management fees; and (5) the Foundation’s “ownership distributions” contained in its Alavi
Accounts.
18
II. The Court Should Dismiss the § 981(a)(1)(A) Claim as to Most ofClaimants’ Interests Because the Interests Were Not Involved in aMoney Laundering Transaction
The Complaint’s second claim, premised on 18 U.S.C. § 981(a)(1)(A), should be
largely dismissed because many of the transactions that the Government alleges give rise to
forfeiture do not constitute money laundering, and, even if they did, Claimants’ interests were
not involved in the transactions. Section 981(a)(1)(A) subjects to forfeiture “[a]ny property, real
or personal, involved in a transaction or attempted transaction in violation of section 1956, 1957
or 1960 of [Title 18], or any property traceable to such property.” If the Government pursues a
claim based on a theory that property “was involved in the commission of a criminal offense,” as
it has done here, “the Government shall establish that there was a substantial connection between
the property and the offense.” 18 U.S.C § 983(c)(3). Here, the Building, the Foundation’s 60%
interest in the Fifth Avenue Company, the Partnership Accounts, and the majority portions of the
Foundation’s Real Properties were not “involved in” and do not have a “substantial connection”
to money laundering transactions.
A. The Majority of the Alleged Money Laundering TransactionsDo Not Constitute Money Laundering
For the Complaint’s § 981(a)(1)(A) claim to survive a motion to dismiss as to
Claimants’ interests, the interests must have been involved in a transaction involving the
proceeds of specified unlawful activity. Indeed, with a limited exception not relevant here,5 to
constitute money laundering in violation of either 18 U.S.C. §§ 1956 or 1957—i.e., the money
laundering statutes referenced in the Complaint (Cmpl. ¶¶ 2, 149-57)—a financial transaction
must at a minimum involve “proceeds of some form of specified unlawful activity” or
“criminally derived property” (which is defined as “any property constituting, or derived from,
5 See supra note 1.
19
proceeds obtained from” specified unlawful activity). 18 U.S.C. §§ 1956(a)(1), 1957(a),
1957(f)(2). Because only the Foundation’s “management fees” arguably constitute proceeds of
its alleged IEEPA-violating services, only those transactions involving management fees could
conceivably constitute money laundering transactions.
As stated by the Second Circuit, “[t]he two-step analytical process required by the
domestic money laundering statute requires the defendant to (1) acquire the proceeds of a
specified unlawful activity, and then (2) engage in a financial transaction with those proceeds.”
United States v. Napoli, 54 F.3d 63, 68 (2d Cir. 1995) (citation omitted); see also United States
v. Blumhagen, No. 03-CR-56S, 2005 WL 3059395, at *2 (W.D.N.Y. Nov. 15, 2005).
Accordingly, if a transaction does not involve proceeds of an unlawful activity, there can be no
money laundering offense. See Blumhagen, 2005 WL 3059395 at *2 (quoting United States v.
McCarthy, 271 F.3d 387, 395 (2d Cir. 2001)) (“[W]hen the underlying crime is completed, a
transaction conducted with the proceeds from that crime may provide the basis for a money
laundering conviction.”).
The meaning of “proceeds” in the money laundering context is similar in all
respects pertinent here to § 981’s definition of proceeds. That is, property cannot constitute
proceeds of specified unlawful activity, such as an IEEPA violation, unless that property was
obtained as a result of the unlawful activity. Indeed, in 2008, the Supreme Court considered the
meaning of proceeds under § 1956 in the context of an illegal gambling operation. United States
v. Santos, 553 U.S. 507, 128 S. Ct. 2020 (2008). The Santos Court, in a plurality decision, noted
that “Congress has defined ‘proceeds’ in various criminal provisions, but sometimes has defined
it to mean ‘receipts’ and sometimes ‘profits.’” 128 S. Ct. at 2024. Finding the statute
ambiguous, the Court interpreted proceeds to mean profits. Id. at 2025 (“Because the ‘profits’
20
definition of ‘proceeds’ is always more defendant-friendly than the ‘receipts definition,’ the rule
of lenity dictates that it should be adopted.”). But regardless of which definition the Court had
adopted, there was no question that proceeds only referred to property acquired as a result of
specified unlawful activity.6 United States v. $1,399,313.74 in U.S. Currency, 591 F. Supp. 2d
365, 373 (S.D.N.Y. 2008) (rejecting Government’s money laundering theory where there was
“no allegation that the [funds] used to purchase the dollars that were deposited into the Account
were in any way derived from the commission of a crime”); Zigman v. Giacobbe, 944 F. Supp.
147, 157 (E.D.N.Y. 1996) (“[T]o allege a predicate act for money laundering, the proceeds must
be from a ‘specified unlawful activity.’”).
Rental income received from the Building’s tenants and deposited into the
Partnership Accounts are not “proceeds” of an IEEPA violation or any other specified unlawful
activity. Transactions involving this income, which the Government has admitted is “income
from the Building” (Cmpl. ¶ 130), are not and cannot be money laundering transactions. See
Napoli, 54 F.3d at 68. Accordingly, the Defendant Properties generating, receiving, distributing,
or holding the Building’s rental income—i.e., the Building, the Foundation’s 60% Partnership
interest, and the Partnership Accounts—are not properties “involved in” money laundering
transactions or properties subject to forfeiture under § 981(a)(1)(A).
Similarly, transactions involving the Foundation’s “ownership distributions” are
not money laundering transactions and do not give rise to § 981(a)(1)(A) forfeiture. “Ownership
distributions,” which were obtained as a result of an ownership interest and not an IEEPA
6 Consistent with this principle, in May 2009, §§ 1956 and 1957 were amended to include thedefinition of proceeds as “any property derived from or obtained or retained, directly orindirectly, through some form of unlawful activity, including the gross receipts of such activity.”18 U.S.C. §§ 1956(c)(9), 1957(f)(3) (emphasis added). The amendments are not retroactive, seeUnited States v. Van Alstyne, 584 F.3d 803, 814 n.12 (9th Cir. 2009), but in any event confirmthat proceeds still can only consist of property resulting from unlawful conduct.
21
violation, were received by the Alavi Accounts and were used to improve and maintain the
Foundation’s Real Properties. These transactions did not involve criminal proceeds and cannot
constitute money laundering. Thus, those Defendant Properties alleged to have been “involved
in” transactions utilizing “ownership distributions” are not subject to forfeiture under
§ 981(a)(1)(A), unless the transactions also involved the Foundation’s management fees. And
even if management fees were used to make capital improvements to the Real Properties, the
Real Properties would only be “involved in” a money laundering transaction in proportion to the
amount of funds used. See, e.g., United States v. Loe, 49 F. Supp. 2d at 521 (finding that “52.6%
of the property is subject to forfeiture as property traceable to property involved in a money
laundering offense. As to the remaining 47.4% of the property, the Court concludes that the
$457,508.89 payment of untainted funds precludes a finding that this portion of the property is
subject to forfeiture.”).
B. Most of Claimants’ Interests Were Not “Involved In” or“Substantially Connected” to a Money LaunderingTransaction
Even if all of the alleged transactions, including those involving rental receipts
and ownership distributions, were considered to be money laundering transactions, most of the
Defendant Properties (i.e., the Building, the Foundation’s Partnership interest, the Partnership
Accounts, and the majority portion of the Real Properties) still would not be subject to
§ 981(a)(1)(A) forfeiture because they were not “involved in” and did not have a “substantial
connection” to these transactions as the terms are defined in forfeiture law. 7
7 According to the allegations of the Complaint, there were numerous transfers between theFoundation’s bank accounts, including its Alavi Accounts. To the extent these transfers includedmanagement fees, these transfers potentially constituted money laundering. The Foundation isnot seeking dismissal of the §981(a)(1)(A) claim at this time as to the Alavi Accounts becausethe Complaint alleges that the Alavi Accounts received transfers of potentially laundered IEEPAproceeds.
22
“Involved in,” in the forfeiture context, has been interpreted to mean “any
property involved in, used to commit, or used to facilitate the money laundering offense.”
United States v. Schlesinger, 396 F. Supp. 2d 267, 271-272 (E.D.N.Y. 2005) (collecting cases);
see also 250 Documents, 2008 WL 4129814, at *3 (“The term ‘involved in’ refers to property
that is itself being laundered, as well as property used to facilitate a money laundering offense.”).
As the language of the statute makes clear, forfeiture under § 981(a)(1)(A) is permitted only if
property is involved in a money laundering transaction, not simply if property is involved in the
predicate specified unlawful activity. 18 U.S.C. § 981(a)(1)(A); see also United States v. Huber,
404 F.3d 1047, 1061 (8th Cir. 2005) (“[F]acilitation under section 982(a)(1)’s [the analogous
criminal forfeiture statute] ‘involved in’ clause is geared at the forfeitability of
instrumentalities…that facilitate (or promote) the money-laundering transactions”) (emphasis in
original); United States v. Iacaboni, 221 F. Supp. 2d 104, 116 (D. Mass. 2002) (“To justify
forfeiture under § 982 it is not enough merely to show that the Union St. property was involved
in the gambling operation; the Government must demonstrate that the house was involved in
money laundering.”), aff’d in part, rev’d in part on other grounds, 363 F.3d 1 (1st Cir. 2004).
Thus, “[i]t is not sufficient to establish that property was ‘involved in’ the underlying [predicate
offense] but rather it must also be ‘involved in’ the money laundering itself.” Loe, 49 F. Supp.
2d at 519.
This requirement of a “substantial connection” was initially developed by the
courts, see, e.g., United States v. One 1989 Jaguar XJ6, No. 92 Civ. 1491, 1993 WL 157630, at
*2-3 (N.D. Ill. May 13, 1993), and then codified by Congress in the Civil Asset Forfeiture
Reform Act of 2000 (CAFRA), a statute enacted to remedy the Government’s “abuse of the civil
forfeiture process.” Capoccia, 503 F.3d at 116. As its legislative history shows, the “substantial
23
connection” test is “intended to mean something, it is intended to require that facilitating
property have a connection to the underlying crime significantly greater than just ‘incidental or
fortuitous.’” 146 Cong. Rec. H2040 at 2050 (daily ed. Apr. 11, 2000) (Statement of Rep. H.
Hyde) (emphasis added).
For instance, in United States v. One 1998 Tractor, 288 F. Supp. 2d 710, 711
(W.D. Va. 2003), the defendant, “a truck driver who transport[ed] goods in his tractor-trailer for
a living,” was convicted of transporting contraband cigarettes in the cab (tractor) of the tractor-
trailer. The Government sought to forfeit the entire tractor-trailer as “involved in” the offense
under the forfeiture provision in 49 U.S.C. § 80303, arguing that the trailer facilitated the offense
by “creating the appearance that the claimant was engaged in a legitimate trucking business.” Id.
at 712, 714. Applying the “substantial connection” requirement of § 983(c)(3), the court held
that the tractor had a substantial connection to the offense, but the trailer, which never carried
the contraband, did not, and that forfeiture of the trailer was inappropriate where the Government
failed to show that the trailer was not used for legitimate business purposes. Id. at 714.
Here, the Building, the Foundation’s interest in the Fifth Avenue Company, the
Partnership Accounts, and the majority portion of the Real Properties were not involved in and
had no substantial connection to the transactions alleged in the Complaint. As to these interests,
the §981(a)(1)(A) claim must be dismissed.
1. The Building, the Partnership, and the PartnershipAccounts
The Building, the Foundation’s 60% interest in the Fifth Avenue Company, and
the Partnership Accounts were not involved in a money laundering transaction or substantially
connected to one. Few allegations in the Complaint directly address the Building, which is
described as “[t]he principal asset of 650 Fifth Avenue Company.” (Cmpl. ¶ 20). The
24
Complaint does not allege that the Building was purchased or built with IEEPA proceeds; to the
contrary, the Complaint acknowledges that land was purchased and the Building was built at
least fifteen years before services to Iran became unlawful. (Cmpl. ¶ 24). Nor does the
Complaint allege that the Building was used to launder funds. The only allegation linking the
Building to purported unlawful conduct is that the Foundation violated IEEPA by “managing a
commercial building for the Iranian Government.” (Cmpl. ¶ 21). But even if this allegation
were true,8 at most, it would only imply that the Building was involved in the predicate IEEPA
violation, not a money laundering transaction.
The Foundation’s interest in the Partnership and the Partnership Accounts are also
not linked to a laundering transaction, as required for forfeiture under § 981(a)(1)(A). The
Complaint establishes that the Partnership pre-dates IEEPA’s application to services for Iran by
six years. (Cmpl. ¶ 41). The Fifth Avenue Company’s sole source of revenue and the sole
source of funds in its Partnership Accounts consisted of rental income from the Building. (Cmpl.
¶ 130) (“The only source of funds in the Partnership Accounts is income from the Building.”).
The Partnership transferred a substantial portion of its rental income to the Foundation, but the
Complaint establishes that only a small portion constituted payment for the Foundation’s alleged
IEEPA-violating services. (Compare Cmpl. ¶ 98 (“As payment for its management services, the
Alavi Foundation directed 650 Fifth Avenue Company to pay the Foundation a management
fee.”) with Cmpl. ¶ 100 (describing payment of “ownership distributions”)). But even if these
transfers were payments for unlawful services, those payments would constitute only IEEPA
8 Though it is not relevant for purposes of this motion, this allegation in the Complaint should berejected. The Complaint acknowledges that the Building was built in the 1970s and majorityowned since then (directly and then through its interest in the Partnership) by the Foundation.(Cmpl. ¶¶ 20, 24, 42). Even if Iran controlled the Foundation, as is alleged in the Complaint, theFoundation’s management of the Building was on its own behalf.
25
proceeds; the payments would not constitute money laundering. See Napoli, 54 F.3d at 68
(describing “two-step analytical process” requiring a defendant to “(1) acquire the proceeds of a
specified unlawful activity, and then (2) engage in a financial transaction with those proceeds”);
Blumhagen, 2005 WL 3059395 at *2.
The Court faced a very similar issue in 250 Documents. In that case, the
Government sought to forfeit forged documents, claiming that the documents were involved in a
money laundering transaction. 2008 WL 4129814 at *3. The Government’s complaint alleged
that the documents were involved in a § 1957 transaction because the defendant “used the
proceeds of the sale [of the documents] to conduct monetary transactions over $10,000.” Id.
The Court denied forfeiture, finding that “[t]he documents are not property that were themselves
being laundered nor were they otherwise involved in, derived from, or used to facilitate a money
laundering offense.” Id. The Court explained its reasoning as follows:
[The defendant] obtained the proceeds of his criminal acts byfraudulently creating and selling the documents to unwary third-party purchasers. [The defendant's] subsequent monetarytransactions, with the proceeds of his mail and wire fraudactivities, did not involve the documents that were now in the legalpossession of innocent owners. Since the documents were notinvolved in a money laundering transaction, the property is notsubject to forfeiture under § 981(a)(1)(A).
Id. In essence, the Court ruled that property that generates proceeds that are later laundered is
not “involved in” the subsequent laundering transaction, and that property cannot be forfeited
under § 981(a)(1)(A).
Similarly, in United States v. Loe, the court denied the Government’s attempt to
forfeit leasehold rights in a marina because they were not “involved in” money laundering
transactions of insurance fraud proceeds derived from the marina. 49 F. Supp. 2d at 519-20.
The Loe defendants were convicted on conspiracy and money laundering charges for
26
participating in a scheme fraudulently to obtain flood insurance proceeds for interests in the
marina and by which they subsequently laundered the proceeds of the fraud. 49 F. Supp. 2d at
516. The Government sought to forfeit the lease rights in the marina as property “involved in’
money laundering, but the court refused, holding that “the Government failed to show sufficient
nexus between the money laundering offenses and the lease rights.” Id. at 519. The court found
that “the Government failed to offer evidence that the lease rights had a connection to the money
laundering offenses themselves, as distinct from the underlying mail or wire fraud conspiracy.”
Id. at 520.
And finally, in United States v. Iacaboni, after considering whether to forfeit the
defendant’s house as property “involved in” a money laundering transaction, the court denied
forfeiture despite “[t]he fact that substantial evidence suggest[ed] that the house was used to
promote the illegal gambling operation” because the evidence did not demonstrate “that
defendant’s use of the house in any way constituted the crime of money laundering.” 221 F.
Supp. 2d at 114. The court relied on the fact that the house was not proceeds of the illegal
gambling business, nor made a part of laundering transactions using criminal proceeds. Id. at
115. The involvement of the house in the gambling business was held to be insufficient to render
it forfeitable as property “involved in” or having a “substantial connection” to money laundering.
See id. at 116-17 (“To justify forfeiture under § 982 [the criminal analog to § 981], it is not
enough merely to show that the Union St. property was involved in the gambling operation; the
Government must demonstrate that the house was involved in money laundering.”).
Claimants’ interests in the Building, the Partnership, and the Partnership Accounts
are equally not “involved in” and do not have a “substantial connection” to the alleged money
laundering transactions involving the Foundation’s management fees. The Building generated
27
rental income; the Fifth Avenue Company owned the Building; and the Partnership Accounts
held and later transferred the rental receipts. None of these Defendant Properties were “involved
in” or “substantially connected” to the subsequent purported money laundering transactions by
the Foundation or by Assa under the law and the clear reasoning of 250 Documents, Loe, or
Iacaboni. Whatever connection these Defendant Properties may have had to the alleged IEEPA
violations is simply irrelevant to the § 981(a)(1)(A) claim. To be subject to forfeiture under
§ 981(a)(1)(A) claim, Claimants’ interests must have been involved in and had a substantial
connection to the alleged money laundering transactions. They did not. This claim should be
dismissed as to these interests.
2. The Foundation’s Real Properties
The Foundation’s Real Properties also were not “involved in” or “substantially
connected” to the alleged money laundering transactions, with the possible exception of those
portions of the Real Properties that purportedly received “proceeds of IEEPA violations” for
capital improvements. (Cmpl. ¶ 134). The other far larger portions of the financial support
received by the Real Properties were not “involved in” a laundering transaction, and, at a
minimum, the Complaint’s § 981(a)(1)(A) claim should be dismissed as to these portions.
The Complaint confirms that the Foundation purchased all but one Real Property
prior to 1995 (Cmpl. ¶¶ 135, 139, 140, 141), and therefore by definition all but that one could not
have been purchased with proceeds, or laundered proceeds, of an IEEPA violation. The
Complaint contains no allegations that the Real Properties were used for laundering criminal
proceeds or facilitated the purported laundering. The Complaint includes only a conclusory
allegation that: “The Alavi Foundation has spent millions of dollars in proceeds of IEEPA
violations on the Foundation Real Properties.” (Cmpl. ¶ 134).
28
If the Court were to find that the Government has sufficiently alleged that the
Foundation’s Real Properties received transfers of IEEPA proceeds in excess of $10,000, then
the Complaint would adequately have pled a § 1957 money laundering violation.9 The
Complaint’s allegations, therefore, would be adequate to establish that the Real Properties were
“involved in” money laundering transactions in proportion to the amount of funds allegedly
transferred in violation of § 1957. But only to that proportion. See United States v. One 1980
Rolls Royce VIN # SRL 39955, 905 F.2d 89, 90-92 (5th Cir. 1990) (holding that portion of
properties purchased with legitimate funds were not forfeitable under the drug forfeiture statute);
Loe, 49 F. Supp. 2d at 523 (“Once the property was purchased, the United States’ interest in
tainted funds was transformed into a proportion of the property equal to the percentage of the
tainted funds used to purchase the property.”). Thus, at most, the Complaint may state a
§ 981(a)(1)(A) claim as to those portions of the Real Properties that were supported by transfers
of IEEPA proceeds; the Complaint fails to state a claim as to the remainder of the Real
Properties.
And even as to those portions allegedly supported by laundering transactions, the
Court should dismiss the § 981(a)(1)(A) claim because the Complaint does not sufficiently allege
that the post-1995 money transfers to the Defendant Properties represented the Foundation’s
“management fees”—i.e., the proceeds of the alleged IEEPA violations. If they did not, then
they cannot constitute money laundering. The Government’s single, conclusory allegation that:
“The Alavi Foundation has spent millions of dollars in proceeds of IEEPA violations on the
Foundation Real Properties” (Cmpl. ¶ 134) is insufficient. See Iqbal, 129 S. Ct. at 1949-52.
9 The Complaint does not allege that the Foundation transferred funds to the Real Properties topromote or conceal its IEEPA violations, so these transfers cannot be deemed violations of§ 1956(a).
29
Notably absent in the Complaint is any allegation that the Real Properties were supported by the
Foundation’s “management fees.” To the contrary, the Complaint alleges that “the management
fee was used to pay a portion of the salaries of the Alavi Foundation’s president, controller and
secretary,” not to support the Real Properties. (Cmpl. ¶ 98-99). Thus, the Court should dismiss
the § 981(a)(1)(A) claim as to the entirety of the Real Properties.
CONCLUSION
For the foregoing reasons, this Court should Grant the Foundation and Fifth
Avenue Company’s motion to dismiss the Complaint as to the properties set forth above in
which they have an interest.
Dated: March 1, 2010
PATTERSON BELKNAP WEBB & TYLER LLP
By: _/s/ Daniel S. Ruzumna________________________Daniel S. Ruzumna (DR-2105)Leonard M. Braman (LB-4381)Krista D. Caner (KC-7358)1133 Avenue of the AmericasNew York, New York 10036-6710Telephone: (212) 336-2000
Attorneys for Claimants Alavi Foundationand 650 Fifth Avenue Company