June 18, 2020 | The Dispatch

Unfinished Business

How a Department of Justice forfeiture complaint may be an opening gambit against Iranian sanctions’ evasion.
June 18, 2020 | The Dispatch

Unfinished Business

How a Department of Justice forfeiture complaint may be an opening gambit against Iranian sanctions’ evasion.

In 2010, at the height of the Iran sanctions regime, Houshang Farsoodeh, Houshang Hosseinpour, and Pourya Nayebi—three hitherto unknown Iranian businessmen—appeared in Tbilisi, capital of the Republic of Georgia, in the South Caucasus, and began to splurge. They bought a local bank, launched a (now defunct) private airline, and created numerous local companies involved in real estate, investment, holiday packages for Iranian tourists, aviation services, microfinance, currency trade, and prepaid credit cards.

The splurge included the unsuccessful purchase of Tbilisi’s Sheraton Metechi Palace hotel, in a botched deal worth $62.5 million, including a $20 million down payment to the Ras Al-Khaimah Investment Authority (RAKIA), the investment arm of the emirate, one of seven principalities forming the United Arab Emirates. The deal unraveled when the three Iranians sought to pay their $20 million deposit with checks issued by obscure, Gulf-based companies that were not signatories to the deal and raised red flags with the deal’s auditors. (The Iranian trio has been trying to recoup the money ever since, through Georgian courts.)

From there on, their activities created suspicion, leading to asset freezes in Georgia and, eventually, U.S. sanctions in February 2014 for sanctions evasion on behalf of Iran. “These three individuals,” the U.S. Treasury Department said at the time, “have established companies and financial institutions in multiple countries, and have used these companies to facilitate deceptive transactions for or on behalf of persons subject to U.S. sanctions concerning Iran.” But the Iran nuclear deal, struck in July 2015, let them off the hook. The three Iranians were delisted and, even after the Trump administration walked away from the agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), in May 2018, the U.S. Department of Treasury did not reimpose sanctions.

President Trump’s campaign of maximum pressure against Iran seemed to have forgotten them, until last April, when the Industrial Bank of Korea agreed to forfeit $51 million to the New York attorney general in order to close an investigation into money laundering connected to the three Iranians. Then, on June 3, the U.S. Department of Justice filed a forfeiture complaint to seize the $20 million advance payment for the botched purchase deal of RAKIA’s hotel in Tbilisi, which is still being held in escrow, almost a decade later, in a Dubai bank. The Justice Department alleged that the $20 million came from funds laundered on behalf of the regime in Iran. And so, the DoJ has inserted itself in ongoing litigation over the hotel, by intimating that the money for its purchase is a fruit of the poisonous tree of sanctions’ evasion.

Is the DoJ going after the Iranian trio possibly on account of new sanctionable activities, or is this just a shot across the bow, to deal with unfinished business? The answer is unclear.

One reason to assume this is just the tip of the iceberg: The forfeiture complaint labeled the three Iranians as “uncharged conspirators,” an indication that their status vis-à-vis U.S. justice might change. Possible evidence that the hotel is not the DoJ’s ultimate target: Since 2014, at least one of the three Iranians, away from the spotlight, has patiently re-established his Georgian business empire. Another reason: The $20 million escrow account the DoJ is going after is tantamount to an accounting glitch in Iran’s decades-long attempts to defy U.S. sanctions and not worth the effort. The $1 billion scheme that yielded the money for the hotel is another story.

The man at its center was Kenneth Zong, a U.S.-Korean dual national, who partnered up with the three Iranians, established two companies in Korea, and used them as cover for fraudulent sales to companies that Farsoodeh, Husseinpour, and Nayebi controlled in Iran, Dubai, and Georgia.

The money was rerouted to front companies in the Gulf under cover of false invoices for marble tiles, windows, and other construction material. Part of that money was used for the hotel down payment. Zong was arrested in Korea in 2013, lost his U.S. assets to another forfeiture complaint, and was later indicted in the U.S. Much of the public information that emerged from their protracted litigation and spinoffs has helped unveil the nature of the Georgia-based network, as well as its resilience. That, in turn, may have highlighted the need for revisiting Treasury’s 2014 now moot sanctions against the Iranian trio, by taking legal action against their ill-gotten funds.

If Zong and the three Iranians were able to launder $1 billion for Tehran between 2011, when Zong opened his companies in Seoul, and 2013, when he was apprehended, then the Trump administration should be worried about a possible renewal of their activities. The Georgia-based businesses were reconstituted as early as 2014, barely weeks after Treasury took its action against the trio. If new companies were created to mirror the old scheme, this would be more than a minor oversight about $20 million that the DoJ has known about for years anyway.

The combined pressure from U.S. sanctions and local authorities, together with U.S. and Korean proceedings against Zong, should have shuttered this Iranian network once and for all. In fact, in Tbilisi, it is all business as usual. Treasury’s actions against the Iranian trio happened at the height of the sanctions’ regime, when compliance among financial institutions, global businesses, and foreign governments was at its zenith. Once the JCPOA kicked in, the post-sanctions environment made it politically harder for Treasury to target a reconstituted network.

As my colleagues Mark Dubowitz and Reuel Marc Gerecht contended at the time, the Iran deal’s “much-hyped ‘snap-back’ economic sanctions,” the only coercive instrument the nuclear deal envisioned against Iranian noncompliance, would surely fall victim to human greed and limited enforcement. What Treasury called Iran’s evasive action could then be ongoing, at even higher stakes.

That is what appears to have happened in Georgia, and may explain the DoJ’s sudden interest in a long-forgotten dispute over a hotel. A clue that the new activities in Tbilisi may be just a facelift to the old sanctions’ evasion playbook: The new companies mirror the old businesses, only this time, the Iranians placed family members, Georgians, and other foreign nationals as the official owners and managers of the companies, many of whom were the trio’s employees before U.S. sanctions kicked in.

Based on Georgia’s company registry records, companies likely linked to the old network include a new bank, a money exchange, a boutique hotel, a nightclub, a trading company, and an investment management firm that acts as a holding company. Recouping the hotel, for Iran, would add another significant real estate asset on the way to consolidating valuable financial and commercial assets in its near abroad for the purpose of, once again, evading sanctions.

The voluminous body of evidence emerging from sanctions, civil litigation, and criminal proceedings over the years make it abundantly clear that the Georgia-based operation played a significant role in undermining U.S. sanctions. As a lifeline for hard currency to Tehran, it bought the regime time and could do so again. The Trump administration should not avert its gaze from Tbilisi, as it did in 2018 when re-imposed sanctions failed to target the Georgia-based Iranian trio. Their mischief there appears to be alive and well. Going after the hotel down payment should be just the first step.

Emanuele Ottolenghi is a senior fellow at the Foundation for Defense of Democracies in Washington D.C. Follow him on Twitter @eottolenghi.

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Issues:

Gulf States Iran Iran Global Threat Network Iran Nuclear Iran Politics and Economy Iran Sanctions Sanctions and Illicit Finance