Happy New Year and welcome to 2010!

Farshid Jahedi, the former president of the Alavi Foundation, has pleaded guilty to two felony counts of obstruction of justice. The charges arose from his December 2008, destruction of documents concerning the Alavi Foundation’s relationship with Bank Melli Iran and the ownership of an office tower at 650 Fifth Avenue in Manhattan. The documents were responsive to a grand jury subpoena.

The Alavi Foundation is the successor of the Pahlavi Foundation, a non-profit organization originally operated by the Shah of Iran to pursue Iran’s charitable interests in the U.S. During the 1970s, the Pahlavi Foundation constructed an office tower in New York, New York. The Building’s construction was financed by a substantial loan from Bank Melli Iran (“Bank Melli”), a state-owned bank in Iran.

The Pahlavi Foundation was later renamed the Alavi Foundation. In 1989, the Alavi Foundation formed 650 Fifth Avenue Company in partnership with Bank Melli. However, they disguised Bank Melli’s ownership interest by transfering 35% of 650 Fifth Avenue Company to Assa Corporation, a subsidiary of Assa Company Limited; a Jersey, Channel Islands, United Kingdom, entity, wholly owned by Iranian citizens who represent the interests of Bank Melli. Today, the Alavi Foundation owns 60% of 650 Fifth Avenue Company, and Bank Melli owns 40% through Assa Corporation and Assa Company Limited.

As readers of this blog know, the Iranian Transactions Regulations (“ITR”) prohibits any person from exporting from the U.S. to Iran, any goods, technology, or services without having first obtained a valid export license from the United States Department of Treasury, Office of Foreign Assets Control (“OFAC”).

Without proper licensure from OFAC, Assa Corporation and Assa Company Limited have provided services to Bank Melli by maintaining Bank Melli’s interest in 650 Fifth Avenue Company and transferring income from that company to Bank Melli. OFAC has officially identified Bank Melli as being controlled by the Government of Iran.

On December 17, 2008, the same day that the initial forfeiture Complaint against Assa Corporation was filed, JAHEDI was served, as president of the Alavi Foundation, with a grand jury subpoena. The subpoena was directed to the Alavi Foundation and requested the production to the federal grand jury of financial documents concerning the Alavi Foundation, Assa Corporation, Assa Company Limited, and 650 Fifth Avenue Company. JAHEDI was explicitly cautioned by law enforcement agents not to destroy any documents called for by the subpoena.

As a result of these and other violations Mr. Jahedi was required to turn over certain documents from the Alavi Foundation, Assa Corporation, Assa Company Limited, and 650 Fifth Avenue Company pursuant to a grand jury subpoena. However, last year FBI agents witnessed Mr. Jahedi discarding torn documents into a public trash can, near his residence. The FBI later determined that the documents referred to Assa Limited, Assa Company, and 650 Fifth Avenue Company, and thus were responsive to the grand jury subpoena. JAHEDI was arrested and later charged with the two count Indictment to which he pleaded guilty. As a result, Mr. Jahedi faces a maximum penalty of 20 years in prison and a fine of $250,000 or twice the gross gain or loss from the offense on the charge of destroying a document with the intent to impair that document’s availability for use in an official proceeding (Count One). He also faces 10 years in prison and a fine of $250,000 or twice the gross gain or loss from the offense on the obstruction of justice charge (Count Two). Mr. Jahedi’s sentencing is scheduled for April 2, 2010.

This case is another one of those interesting examples of how violating OFAC administered sanctions programs can have criminal consequences. This time it did not come merely from the violations but the activity surrounding the violations and the investigation into such activities. Although I doubt that OFAC would have issued a license knowing that a large amount of money would be transferred to Bank Melli-an institution which the U.S. Government believes is involved in terrorist financing as well as the proliferation of weapons of mass destruction–the Alavi Foundation should have sought a license to purchase the ownership interest of Bank Melli and seperated themselves from the Bank. By concealing the nature of the relationship they took real risks and now the consequences are coming to bear.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC litigation. If you have any questions please contact him at 202-280-6370 at 202-351-6161 or ferrari@ferrari-legal.com.