U.S. v. Banki Case Facts

Background

Mahmoud Reza Banki, hereon referred to as Reza, was born and raised in Tehran, Iran. He left Iran and his entire family in 1994 when he was 18 to come to the U.S. for college.

He graduated from University of California at Berkeley with two bachelor’s degrees (chemical engineering and mathematics) and later from Princeton

University with a PhD (chemical engineering). During his PhD he published articles on protein purification, filed for two patents and later published a biotechnology book. He went on to work for one of the most prestigious management consulting firms in the world, McKinsey & Company. By January 2010 and the date of his arrest he had been with McKinsey for three years.

Arrest and Indictment

On Thursday, January 7th, 2010, at around 6:30 a.m. a group of ICE (Immigration and Customs Enforcement) agents authorized by a search and arrest warrant stormed Reza’s residence in New York City. They pinned him against the wall, handcuffed him and took him away while the remaining agents went through his apartment to search for evidence.

Reza was detained and that afternoon he was arraigned before F Judge John F. Keenan on an indictment charging him on three counts:

Conspiring to violate the U.S.-imposed Iran sanctions and conspiring to run an unlicensed money transmittal system,
Violation of the Iran sanctions, and
Running of an unlicensed money transmittal business.

The indictment accused him of receiving $4.7 million in violation of the Iran sanctions.

Premise of Prosecution

Prosecutors alleged that over a three-year period, between 2006 and 2009, Reza had run a hawala, an informal underground bank, and helped “manage, supervise, operate, and conduct” an unlicensed money transmittal service through which he facilitated and violated the Iran sanctions.

They alleged that Reza had gathered customers who wanted to send money to Iran, and arranged for their funds to get to Iran, running a secret bank in the process and reaping business benefits.

Banki’s Family Circumstances Before 2009

Reza’s parents had begun to drift apart in the early 2000′s and by 2004 their marriage was falling apart and in deep turmoil. The absence of women’s rights still remains a major civil rights hurdle in many countries in the Middle East including Iran. In Iran, unless otherwise specified in a marriage certificate, a married woman does not have the right to get a divorce. In addition, a married woman’s assets belong to her husband, she needs her husband’s permission to travel,

men get custody of children in a divorce, men are allowed to be married to multiple women at the same time, etc.

Due to the lack of women’s rights and the personal family situation with Reza’s parents, Reza’s family was deeply concerned about protecting a portion of the family assets for Reza’s mother and her sons. Beginning in 2006, the family sent assets out of Iran to Reza for safe keeping in the U.S.

Reza’s Family’s Transfer of Funds from Iran

Between 2006 and 2009, Reza’s family in Iran sends approximately $3.4 million to Reza in the US. The money comes into a single bank account at the Bank of America. The transfers come in different sizes (several thousand to several hundred thousand) based on what is possible for the family and from Iran. Reza puts a large portion of the money into

the purchase of an apartment in downtown Manhattan, and invests the rest in long term investments.

On his tax returns for each year 2006 through 2008 Reza, although not required, voluntarily declares in itemized format every single bank transfer that he receives (he was arrested before he could file his 2009 tax returns).

Bail

Reza was denied bail three times on the grounds that he was a flight risk. The prosecutors insisted that Reza could escape and had reason to do so no matter what constraint was placed on him or how much was guaranteed as collateral.

At this point the government had seized all of Reza’s assets (bank accounts, house, all personal belongings as well as passports, credit cards, etc.). The defense argued that, Reza, a U.S. citizen, had left Iran to come to the U.S. to follow the American dream, that he was innocent, that he had spent his entire adult life in the U.S., that his network of professional contacts and friends all were in the U.S., that he had attended

prestigious universities in the U.S., had a promising career in the U.S., and had every reason to fight for his freedom and innocence. Furthermore, over the first weekend after his arrest, at least nine close friends volunteered to put up their homes as bail collateral, five attorneys, who clearly understood the implications of a default on the bail condition, were among the friends. The defense even offered to have Reza monitored by a GPS ankle bracelet, as well as security guards in his home to ensure he would not leave the house or even a room. Despite all these efforts, Reza was denied bail. Judge Keenan in an opinion wrote: “… there are no combination of conditions that can ensure Mr. Banki’s presence in court. Bail denied.”

Initial Incarceration

It is nearly impossible to prepare adequately for trial while incarcerated, under high security detention conditions where high risk and violent defendants are incarcerated. Reza wished he were in a prison and not a detention center.

At a high security detention facility inmates of all security levels are mixed, violence is omnipresent, and threat of being attacked and at the very least severely injured is an integral part of each day of confinement.

Superseding indictment

Trial was set to start March 22, 2010. However, about a week prior to the start of trial, prosecutors produced a superseding indictment, adding two charges to the three initial charges on violation of Iran sanctions.

These two new charges were allegations of false statements.

The government accused Reza of attributing the money sent to him to his family, his uncle and his cousin, where the government contested that the monies came from Reza’s father. Ordinarily, false statement charges are brought as a back stop in the event that prosecutors are unsuccessful in proving the more substantive counts.

Trial

The initial trial date of March 22, 2010, was pushed back to April 7, 2010 at the defense’s request (defense expressed objections to the government’s untimely production of evidence. Initially the government was ordered by the court to produce the evidence by January 22, 2010. But no evidence was turned over before February 21, 2010).

Because of the defense’s request to depose a key witness from Iran, the money exchange broker, Mr. Bakhtiyari, trial was pushed back again to May 10, 2010. Trial went on till Friday, June 4 when the jury returned a guilty verdict on five counts, albeit, guilty on a lesser charge of aiding and abetting rather than running a sanctions violation money transmittal system.

On Monday June 7, 2010, the same jury returned to decide if Reza’s assets should be forfeited. The jury reached a decision to forfeit only one of Reza’s bank accounts holding about

$70,000, and decided not to forfeit several other accounts, and was hung on three assets including the apartment located downtown.

Judge Keenan ruled in favor of the government numerous times. Such was the case when he precluded the defense form including a jury instruction as to the family remittance exemption of the sanctions law. Judge Keenan would not allow the defense counsel or the court to inform the jury that there was an exception in the sanctions against Iran that allowed for family money to travel in both directions. Judge Keenan also precluded the defense from calling Richard Newcomb, former head of OFAC, to testify on the first three counts, astonishing considering that Newcomb headed OFAC for 17 years (from 1987 to 2004), was the author of the sanctions law, as well as being in charge of enforcing the sanctions law.

Sentencing

On August 16th, 2010, Judge Keenan sentenced Reza to 30 months in prison. The sentencing guidelines provide a framework for sentencing defendants and were instituted as means to provide more consistency among sentences. Each conviction corresponds to a law or statute and each statute carries offense level points. READ LESS «

Offense level points are a measure of the severity of an offense. For example a person convicted of murder could have an offense level of 35 or more, where as a defendant convicted of making a false statement could have an offense level of 6. These offense level points are added and compiled to produce a defendant’s final offense level. This final offense level is then translated into a sentencing guidelines range; a recommendation as to how much prison time a defendant should serve. The statute corresponding to the violation

of sanctions has two prongs: one for more severe offenses such as selling of nuclear, biological or chemical weapons to a hostile nation; and a lighter form for other less egregious offenses. Reza was categorized in the first, the more severe form of sanctions violations. Accordingly his offense level was set at 26 with a recommended prison sentence of 63 to 78 months. The sentencing guidelines are a basis but are added to by other factors in a defendant’s profile. These attributes can increase or decrease the sentence. For Reza, both the prosecutors and the judge agreed that there was overwhelming proof of Reza’s good standing in the community and he was given a downward departure from the range (63 – 78 months) down to 30 months. It was never explained why the starting point was so high. Why was Reza being sentenced as if he had sold a nuclear weapon to Iran?

Prison

Reza was held in the Metropolitan Correctional Center (MCC) in Manhattan from the day of his arrest on January 7th, 2010, till end of June of 2010. He was they transferred to Metropolitan Detention Center (MDC) in Brooklyn from June 2010 until the beginning of December of 2010.

He was then transferred through Conair, via Oklahoma City prison, to the Taft Correctional Institute close to Bakersfield in California until he was released on November 2nd, 2011.

MCC and MDC are medium to high security facilities where most inmates are pretrial, in transition from one prison to another, or awaiting to be sent to prison after court proceedings. At MCC, inmates were allowed to go to the roof of the building two hours a week, weather permitting. At MDC, there was no outdoor option at any point, warehouse confinement was the norm. Reza did spend two weeks in maximum security isolation, a week each at MCC and MDC where the confinement conditions are atrocious.

Appeal

Soon after sentencing, Reza filed to appeal his wrongful verdict. His application for appeal was accepted on an expedited basis and briefing was done in the Fall of 2010.

Meanwhile Reza remained in prison. Appeal oral arguments were held before the three-judge appellate panel on February 15, 2011. Despite the expedited appeal, it took the Appellate Court over eight months to release an opinion on October 24, 2011. In a rare moment of hope, the Appellate Court vacated the substantive charges against Reza. This appellate opinion over-ruled the initial trial decision and verdicts stating that there were several non-harmless errors in the trial, one

notable one being the faulty jury instructions (the jury was never told that family money from and to Iran was perfectly legal and not a violation of the sanctions).Judge Keenan was reluctant to hold a hearing to release Reza after the appellate decision, setting a court hearing date of November 16, 2010. After several calls and pleas by the defense attorneys the court hearing was held on November 2, 2010 — nine days after the appellate decision release, and Reza was released from prison that day after 665 days of incarceration, about 11 months in high security detention centers, followed by 11 months in a minimum security prison.

Re-Trial

After the appellate decision was released the prosecutors raised objections and aggressively tried to reverse the appeal decision, asking for a rehearing and appealing to Washington DC to help. A re-hearing was granted and in February 2012 the Appellate Court in an unusual move modified its initial opinion allowing the prosecutors to retry Reza on the same charges but still subjecting the government to correct for the initial trial’s mistakes.

Months passed as the prosecutors sought to strengthen their case against Reza all the while maintaining a restraining order on all his assets which effectively kept Reza from paying to defend himself. Then the prosecutors did something just as

unusual as the rest of the case. They approached Reza’s attorney with an offer. In this agreement Reza would forgo a portion of his assets, about $710k, which was less than the cost of attorney fees for continuing the case through a second trial. In return, the prosecutors would drop all criminal charges against him, forgo a re-trial, and commit to permanently closing this case, criminally and civilly. After rounds of negotiating finally in late June 2012, months after the government moved for a re-trial, the government prosecutors dropped the charges against Reza and the case was permanently closed. Had Reza gone to trial, he would not have possibly gotten a better result, this outcome was the best case scenario under the circumstance.

Final Court Hearing & Banki’s Prison Sentence Is Vacated

On July 24, 2012, a final court hearing was held before Judge Engelmayer in which Reza’s prison sentence was vacated. Up until this day the record, despite Reza’s win on appeal and the dropping of the sanctions charges against him, still reflected the 30 months prison sentence he had been given in August 2010.

In this final court hearing, on July 24, 2010, Judge Engelmayer corrected Reza’s prison record to a sentence of zero with zero supervised release. Reza gave a moving statement at this final hearing underscoring how he had been wrongfully convicted, had paid a heavy heavy emotional, physical and monetary price and lived through the darkest hours, days and months of his life.

Former Head of OFAC (US Sanctions Program) Richard Newcomb’s letter defending Reza.

Mahmoud Reza Banki’s family in Iran sent family monies (his mother’s marital assets after her divorce) to him in the United States between 2006-2009. Reza accepted these family remittances through third party banks and intermediaries. In accordance to the laws of OFAC, these transactions should have been legal. Yet Reza was charged, arrested, imprisoned and convicted of multiple charges for accepting family remittances from Iran. Specifically, Reza was charged with violating IEEPA, ITR and for running an unlicensed money transmittal business.It is important to understand that there are no U.S. banks in Iran or Iranian banks in the U. S. In the absence of these options, Reza’s family used a currency exchange broker to send him funds through third party intermediaries and banks in a system the government and prosecutors call a hawala. The term hawala, means “transfer” or “wire” in Arabic banking jargon. The hawala system refers to transferring funds from one location to another through service providers—known as hawaladars or brokers. In a hawala system, money does not physically cross borders. Rather, the broker arranges for transfers by finding corresponding customers in respective countries.

In the Reza case, Reza’s family in Iran wanted to send him money in the U.S. to purchase an apartment in Manhattan. His family in Iran contacted a currency exchange broker or “saraf” in Iran. A currency brokerage or “sarafi” in Iran is an officially certified, legal business similar to a foreign exchange or Western Union in the U.S. The broker in this case would, either through his own customers or through other brokers, find customers in the U.S. who had a need to send money to their family in Iran. After finding a “match”, the broker would ask his customer in the U.S. to deposit money into Reza’s bank account. The broker would deposit the corresponding amount into his customer’s family’s account in Iran. Therefore, no money actually crosses boarders. The net effect is no money enters or leaves Iran or the U. S.By way of example, suppose the Reza’s family in Iran wants to send

Reza money in the U.S. while Mary in the U.S. wants to send money to her family in Iran. Given that there is no formal banking system between the U.S. and Iran, both the Reza family and Mary contact a broker or “saraf” to facilitate this transaction. The broker, either by working within his own network of customers or with another broker, finds this “match” and instructs Mary to deposit money into Banki’s account while taking the equivalent amount from Reza’s family in Iran and depositing it in Mary’s family’s account.

In U.S. v. Banki, the prosecutors took issue with this method of transfer charging that it violates OFAC laws, convicting Reza of violating IEEPA and ITR and as such participating in the running of an unlicensed money transmittal business.

RICHARD NEWCOMB LETTER
An expert in Reza’s defense, Richard Newcomb is the former head of OFAC for 17 years (1987 – 2004), and the person who oversaw the process leading to the presidential executive orders and their implementations. He submitted a lengthy letter in Reza’s defense. He states that the law (which he helped craft, write and put into effect as head of OFAC) clearly delineates that this type of persecution falls out of the intended purpose of the law.

“…Mr. Banki’s conduct caused little if any harm to the U.S. sanctions program objectives against Iran.”

“…these types of transactions were not intended in the prohibition nor was a specific method prescribed then or since then as to how to effectuate this category of transactions”

“…there is no dispute that family remittances are exempt from the ITR prohibitions”

Mr. Newcomb also outlined why unconventional means of transfer are used by Iranian-Americans. Richard Newcomb’s letter is available on this page in its entirety.

Was the transfer of funds from Iran to the US illegal?

The Iranian Transaction Regulation (Iran sanctions) is overseen by the Office of Foreign Assets Control (OFAC) within the Department of Treasury. US sanctions against Iran ban trading of any services, goods or financial transactions between the two countries with a few exemptions; one being family remittances. Therefore it is legal under U.S. law to send and receive family money to and from Iran.

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The sanctions were meant to put political and economic pressure on the Iranian government and to advance U.S. interests. However, the U.S. — as a nation of immigrants — recognizes that immigrants, especially first-generation immigrants, such as Reza, cannot completely cut off ties to their home country after arriving in the U.S. Therefore there are exemptions such as the family money exemption to allow for this. This is also the case for Cuba and other U.S.-sanctioned countries. Hence, Reza’s family’s sending money from Iran to the U.S. was at no point out of line with the law. A detailed letter by Richard Newcomb, former head of OFAC details this view point and explains the extent to which the prosecutors in this case were over reaching.Hence, receipt of family money is legal and has been legal since the institution of the US-imposed Iran sanctions. Although permitted, the law does not provide for a means to effectuate these transactions; there is no financial institution or simple way to carry this out.

There are no U.S. banks in Iran, in fact there are no western banks in Iran, and there exists no Iranian banks in the U.S. Iranian banks and the Iranian financial system are isolated from the world. Instead of banks, there are money brokers in Iran whose primary role is sales of foreign currencies and transfers abroad. These Iranian money brokers (sarrafis) are the equivalent of Western Union in Iran and despite being independent entities from the government, they are highly regulated by the Iranian government. The Iranian government’s regulation of sarrafis is so intrusive that sarrafis have quotas on how much currency they can sell and at what price. Hence, sarrafis present a legal and regulated means of conducting any financial transaction from within Iran and abroad; to facilitate money transfers abroad, the Iranian government recognizes the impediments and has created this avenue for money transfers to occur.

Family Remittance & Director of OFAC’S Input

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Richard Newcomb Letter

An expert in Reza’s defense, Richard Newcomb is the former head of OFAC for 17 years (1987 – 2004), and the person who oversaw the process leading to the presidential executive orders and their implementations. He submitted a lengthy letter in Reza’s defense. He states that the law (which he helped craft, write and put into effect as head of OFAC) clearly delineates that this type of persecution falls out of the intended purpose of the law. “…Mr. Banki’s conduct caused little if any harm to the U.S. sanctions program objectives against Iran.” “…these types of transactions were not intended in the prohibition nor was a specific method prescribed then or since then as to how to effectuate this category of transactions” “…there is no dispute that family remittances are exempt from the ITR prohibitions” Mr. Newcomb also outlined why unconventional means of transfer are used by Iranian-Americans. Richard Newcomb’s letter is available on this page in its entirety.

Read his letter

suppose the Reza’s family in Iran wants to send Reza money in the U.S. while Mary in the U.S. wants to send money to her family in Iran. Given that there is no formal banking system between the U.S. and Iran, both the Reza family and Mary contact a broker or “saraf” to facilitate this transaction. The broker, either by working within his own network of customers or with another broker, finds this “match” and instructs Mary to deposit money into Banki’s account while taking the equivalent amount from Reza’s family in Iran and depositing it in Mary’s family’s account. In U.S. v. Banki, the prosecutors took issue with this method of transfer charging that it violates OFAC laws, convicting Reza of violating IEEPA and ITR and as such participating in the running of an unlicensed money transmittal business.

13 members of congress and a senator each wrote individual letters, as well as a group letter, directly to the President to express their support for me and to highlight this case and urge the President to act on my pardon application.

U.S. v. Banki Case Facts

Was the transfer of funds from Iran to the US illegal?

Family Remittance & Director of OFAC’S Input

Richard Newcomb Letter

13 members of congress and a senator each wrote individual letters, as well as a group letter, directly to the President to express their support for me and to highlight this case and urge the President to act on my pardon application.

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