Last week, Iranian national Ali Sadr Hasheminejad was arrested at Dulles Airport outside Washington DC in connection with a Venezuelan housing construction project undertaken by his family’s business in Iran. According to the indictment, the governments of Venezuela and Iran in 2005 agreed that Iran would cooperate in the building of new housing in Venezuela. Under the agreement, the parties would sign “commercial contracts” to complete the project. Thereafter, the Stratus Group, a private Iranian conglomerate, assumed the construction project.

Stratus incorporated Iranian International Housing Corporation (“IIHC”), an Iranian company which was responsible for carrying out and completing the housing project in Venezuela. IIHC then entered into an agreement with a Venezuelan company to construct the housing for $475,000,000 dollars. Mr. Hasheminejad, the defendant, was a member of the family that controlled the Stratus Group and its subsidiary IIHC.  He was responsible for overseeing the projects finances. Pursuant to Mr. Hasheminejad’s direction, the Venezuelan company transferred funds to IIHC to pay for the project. These funds, because they were to be in US Dollars, transited various unnamed banks in New York. As a result, the indictment alleges that Mr. Hasheminejad caused these banks to export financial services from the United States to Iran in violation of the Iran Transactions and Sanctions Regulations.

For reasons that are not entirely clear, the indictment does not provide any information as to where those wire funds ended up. As IIHC was engaged in a construction project in Venezuela it seems likely, indeed almost certain, that it had accounts in Venezuela and the funds in question were wired to that Venezuelan account so that materials and labor costs for the housing project could be met. There is no reason to believe that the Venezuelan company wired funds to Iran for the Venezuelan project and the indictment never even alleges that this happened.

The destination of the funds is a crucial piece of information. The Iranian Transactions and Sanctions Regulations (“ITSR”) prohibit exporting financial services (e.g. transferring funds) from the United States “to Iran or the Government of Iran.” The wire transactions at issue allegedly caused the U.S. banks to provide financial services, according to the indictment, “to Iran.” But, as those familiar with the ITSR know, the transfer to funds to an Iranian company or individual outside Iran is not a transfer of those funds “to Iran” and is not a violation of those rules. If the funds at issue went ultimately, as it seems they must have, to an IIHC account in Venezuela there would be no violation. Yet the indictment, in tracing the funds transfers, stops at bank accounts in the British Virgin Islands with the exception of some funds that went to the United States to buy property in California.

Perhaps the prosecution does have evidence that some of this money wound up in Iran but, if it does, it oddly chose to leave it out and instead wound up presenting an indictment that does not adequately allege a violation of law.

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