There is a terrifying trend in the world of criminal prosecutions for sanctions related offenses these days. More and more prosecutors are bringing or threatening to bring criminal charges for making prohibited financial investments in Iran. I have seen this in practice myself, however, there is a recent case out of Tennessee which serves as a prime example of this phenomenon. In early February a superseding indictment was returned charging Masoud Bajestani with violations of the International Emergency Economic Powers Act (IEEPA) related to Iran sanctions, violations for the Foreign Bank Account Regulations, False Statements, and Filing False Tax Returns. According to the Indictment, Mr. Bajestani’s Iran sanctions violations stem from opening a Certificate of Deposit at an Iranian Bank. The particular bank was Parsian Bank, a private Iranian financial institution, who at the time the investment was made in 2009 was not a sanctioned bank. The amount of the investment for the Certificate of Deposit was $600,000 and the money was transferred to Iran for the investment using a hawala system which sent the funds from Canada to Iran.
The investment made by Mr. Bajestani is prohibited pursuant to 31 C.F.R. 560.207 of the Iranian Transactions and Sanctions Regulations which prohibits any new investments in Iran by U.S. persons. New investments include commitments or contributions of funds or other assets, or loans or other extensions of credit. In addition, the government has also charged Mr. Bajestani with conspiracy under 18 U.S.C. 371 due to his dealings with an unnamed party in Iran.
The Indictment does not include any specific information concerning Mr. Bajestani’s willfulness in relation to violation of the Iran sanctions, despite the fact that willfulness is one of the elements of an IEEPA charge. Willfulness is the violation of a known legal duty, or in other words, an understanding that the sanctions prohibited conduct and yet the defendant engaged in the conduct regardless of that understanding. While willfulness is usually the most contested part of an IEEPA criminal case, its becoming more and more common for prosecutors to argue that a defendant’s use of a hawala or other informal value transfer system network shows that they understood that the embargo existed and prohibited the conduct. This is to mean that because a person has an understanding that no direct banking relationship exists between Iran and the U.S. that the person understands that a U.S. persons can’t invest in Iranian companies, open Certificates of Deposit, or maintain bank accounts at Iranian financial institutions. I find this argument to be a stretch, but it is what some prosecutors are basing their IEEPA cases on.
With interest rates of return over 20 percent, it should come as no surprise that Mr. Bajestani was not the only person maintaining accounts or investments in Iran. While it is unclear what evidence regarding willfulness exists in his case, or whether or not the charges in the case will eventually will be sustained, one thing is for sure: a lot of people could potentially be in trouble if the Department of Justice (DOJ) is serious about pursuing these cases. That would mean expanding criminal prosecutions of sanctions violations to more types of activities than just money transmitting and export of goods and technologies, which have formed the bases of traditional IEEPA prosecutions. This expansion into prosecutions for prohibited investment could spell big trouble for a lot of folks and a very busy time for prosecutors and agents.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or email@example.com.