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

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

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.

:

:

:

:

:

:

:

:

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

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

i

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

ii

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

iii

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

iv

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

1

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

3

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.

4

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.

5

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.

7

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

8

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.

10

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).

11

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

12

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