777 F. Supp. 2d 529
S.D.N.Y.2011Background
- In rem forfeiture action, the United States seeks to forfeit real properties, partnership interests, and accounts linked to the 650 Fifth Avenue Building, the Alavi Foundation, Assa Corp., and Assa Ltd for alleged IEEPA violations and money laundering.
- The Foundation and Assa Claimants formed the 650 Fifth Avenue Company partnership in 1989 to retire a Bank Melli Iran debt and to hold the Building; ownership was split 60/40 Foundation/Assa Corp. with the Foundation managing the Partnership.
- Allegations assert Iranian government control over Assa Corp. and the Foundation through Bank Melli and the Iranian Mission to the United Nations, including board influence and directive roles.
- The government contends the Partnership and Foundation provided real estate and related management services to Iran, with rent proceeds used in ways that concealed Iranian ownership and/or supported illicit activity.
- A number of factual disputes concern whether rent proceeds qualify as proceeds of illegal activity under the statutory definitions, and whether the Building and related assets are forfeitable as proceeds or as traces of such proceeds.
- Procedural posture: the government filed a complaint in December 2008; claimants moved to dismiss; the court stayed other creditors’ claims and proceeded to evaluate the motions on the statutory forfeiture standards.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Justiciability of the forfeiture action | Assa argues non-justiciable political question due to potential compensation scheme for Iran victims. | Assa contends executive/legislative decisions render the case non-justiciable. | The case is justiciable; Baker factors not satisfied, and ordinary statutory interpretation applies. |
| Whether the Foundation and Assa provided 'services' to Iran under IEEPA/ITRs | Proceeds from rent management and related services constitute 'services' to Iran under ITRs. | Those activities are ordinary property management or incidental to ownership and not 'services'. | Court adopts 'services' interpretation; Foundation/Assa conduct plausibly violated IEEPA as 'services' to Iran. |
| Definition and application of 'proceeds' under § 981(a)(1)(C) | Rent proceeds from Building are tainted proceeds; gross proceeds or traceable proceeds may apply. | Disputes whether to apply gross vs. net proceeds; whether rent is proceeds of illicit services. | Court applies a mixed approach: for services that are illegal, proceeds are gross; for lawful services provided illegally, proceeds are net; for concealment services, proceeds are the broad definition. |
| Whether the Building and Other Real Properties are forfeitable as 'involved in' or 'traceable to' money laundering | Rent proceeds were laundered via distributions and transfers, making the Building and other properties forfeitable. | The properties themselves were not created by illicit proceeds and may be only tangled with laundering. | Building and Other Real Properties are forfeitable to at least the extent proceeds were used for improvements and to conceal ownership; the Partnership is 'involved in' money laundering. |
| Tracing and fungibility issues in forfeiture of accounts | Fungible proceeds can be traced to Foundation and Assa accounts via the 'drugs-in, last-out' analogy and 984 provisions. | Section 984(b) limitations and limitations on tracing fungible funds may bar forfeiture of certain accounts. | Court allows tracing to funds connected to rent proceeds; rejects blanket bar on forfeiture of Assa and Foundation accounts; viability depends on a more precise tracing at later stages. |
Key Cases Cited
- Baker v. Baker, 227 F.3d 955 (7th Cir. 2000) (forfeiture of funds linked to prostitution conspiracy; 'involved in' concept applied to property linked to laundering)
- Kadic v. Karadzic, 70 F.3d 232 (2d Cir. 1995) (judicially manageable standards; non-justiciability considerations in political questions)
- Homa Int'l Trading Corp., 387 F.3d 144 (2d Cir. 2004) (definition of 'services' under IEEPA context)
- United States v. McCarthy, 271 F.3d 387 (2d Cir. 2001) (distinction between proceeds and traceable property; money laundering context)
- Schlesinger v. United States, 261 Fed.Appx. 355 (2d Cir. 2008) (facilitation concept in money laundering/forfeiture context)